Valuation of a Smash Repair Business

We were engaged to assist in a settlement of a Family Law Divorce Matter.  We were requested by one party to complete a valuation on their business to assist in negotiations of the settlement.

The business was a small smash repair business in the northern suburbs of Melbourne.

One of the key overruling aspects and methods of valuing a business is to assess whether the PEBITDA is both sustainable and maintainable. Hence, assessing whether past incomes and profits are maintainable into the future is crucial in order to arrive at a figure in which to apply an appropriate capitalisation rate or multiple.

With the above paragraph in mind this particular business was ‘hit’ on a number of fronts.

  1. Large Variance in key figures in the Profit and Loss reports, especially the large reportable loss for the 2014 financial year (excluding adjustments).
  2. No Business Plan or Procedures Manual and reliance on the owner and operator to manage and operate the business.
  3. Expenditure on New Plant & Equipment in the next 12 months.
  4. Limited buyers in the market to purchase such a business due to point.

Whilst details of the financial analysis were completed, it was our opinion that these points drew a conclusion that to arrive at any future maintainable PEBITDA for the business would be very difficult. As a result, the figure that was used as a maintainable PEBITDA would be based on many assumptions and consequently hold a great deal of risk and uncertainty. It was our opinion that in an unlikely event that the market was prepared to pay goodwill, the capitalisation rate applied to any future maintainable PEBTIDA would be very high, as the limited market for such a business diminishes value significantly.

Whilst no 2015 financial figures were provided, it was our opinion that given the points above, the financial performance would have to be exceedingly good to compensate the points listed above, and thus unlikely these figures would affect the final conclusion.

In conclusion, the above does not suggest that this particular business is a poor business, quite the contrary. Its long history and ability to adapt to the market must be commended. The business value is mainly affected by timing of the change within the business direction, the Australian Automotive Industry (which is still its major income source) uncertain future and the current state of the business sales market.

If you have a business that requires a Valuation for Family Law.  Please do not hesitate to contact us on 8823 5400 or complete the form below and we’ll get in touch with you.

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