Why business valuations differ: the assumption that causes the confusion
Business valuations differ between competent valuers because a business is worth a supportable range, not a single figure like a property appraisal, and where a valuer concludes within that range depends on methodology choices, the information available to them, and judgment calls reasonable practitioners can make differently. Most people expect a business valuation to work like a property estimate — plug in the details, get a number, compare it to a benchmark. It does not work that way. Two reports landing well apart on the same business are not automatically evidence that one is wrong. They are often two defensible positions arrived at through different, equally legitimate paths.
Source one: a different basis of value
The most common reason two valuers reach different numbers is that they answered different questions: not "what is this business worth" but "worth to whom, on what basis". Market value — the price between a hypothetical willing but not anxious buyer and seller, neither under compulsion, per the Spencer v Commonwealth (1907) test that still underpins Australian valuation practice and the market value standard in IVS 104 — is the basis for most tax-purpose work, and APES 225 requires every compliant report to state which standard of value it adopted. But fair value, investment value (worth to a specific buyer with synergies), and liquidation value are different bases entirely, and they can produce materially different numbers for the identical business on the identical date. A valuation prepared on an investment-value basis for a trade buyer negotiation will not match a market-value report prepared for a CGT event, and it is not supposed to. If two reports used different bases of value, comparing the headline numbers is comparing different questions, not different answers to the same one.
Source two: a different purpose for the valuation
Purpose is a second legitimate reason two valuers reach different numbers, because it shapes methodology weighting even where the basis of value is nominally the same. A valuation for a small business CGT concession claim under the $6m maximum net asset value test (s 152-15 ITAA 1997) is built to answer a net-asset question. A valuation for a related-party share transfer under Division 7A is built to withstand scrutiny on an earnings basis where the entity trades on goodwill. A valuation to support a Family Court property settlement may be asked to consider add-backs and personal goodwill differently again. Each purpose can legitimately steer methodology weighting toward a different point in the range, even where the underlying financial evidence is identical.
Source three: different information access and completeness
Two valuers working from different evidence will reach different conclusions even when both are competent and acting in good faith — a valuer working from three years of financial statements, a shareholder register and a related-party schedule reaches a different, more reliable conclusion than one working from a single year's tax return. Where one valuer had access to management accounts, a customer concentration breakdown or a lease register and the other did not, divergence is expected and appropriate. This is one of the most common reasons two reports on the same business genuinely differ: they were not built on the same evidentiary base.
Source four: a different valuation date
A business valued today and the same business valued twelve months ago are, formally, different valuation exercises, and comparing their conclusions without adjusting for the date is comparing answers to different questions. Trading performance, industry conditions, interest rates and the specific facts reasonably known at each date can all move the number. Where two reports quote different dates — even a few months apart, or where one is retrospective and constrained to information available at the historical date — the figures are not comparable without adjusting for that difference first.
Judgment input one: selecting maintainable earnings
Selecting maintainable earnings is not mechanical, and it is one of the largest legitimate sources of divergence between two valuers. Two competent valuers reviewing the same three years of financials can reasonably differ on which add-backs are genuinely non-recurring, how much weight to give the most recent year versus a weighted average, and whether owner-operator remuneration should be normalised to a market-rate figure or left as reported. Even a modest difference in the maintainable earnings figure carries through the multiple applied to it, so a small, well-documented judgment call at this step can move the concluded value meaningfully. This is a defensible source of divergence provided each add-back is documented with supporting evidence — not a red flag on its own.
Judgment input two: multiple or capitalisation rate selection
Comparable transaction evidence for private SMEs is rarely a single clean number — it is a range within the same industry band, and selecting where a specific business sits within that range requires judgment about its size, customer concentration, key-person dependency, growth trajectory and quality of earnings. A valuer weighting the business as above-average on these factors will reasonably select a higher multiple than one taking a more conservative read of the same facts. The multiple selected, not just the earnings figure, routinely accounts for a meaningful share of the gap between two reports — see the industry-by-industry ranges at /insights/ebitda-multiples-by-industry-australia for how wide those bands typically run.
Judgment input three: discounts and premia
Minority discounts for non-controlling interests, marketability discounts for illiquid private shares, and control premia where a majority stake changes hands are all judgment-driven and are typically expressed as a range in the valuation literature, not a single accepted figure, depending on the specific rights attached to the class of shares. Two valuers can both apply a discount within the accepted range to the same pro-rata equity value and still reach a substantially different concluded figure, without either being outside professional norms — provided each has reasoned why their chosen point in the range fits the specific shareholding being valued.
Why an honest valuation states a range, not just a point
An honest valuation states a range, not just a single point figure, because a report that shows only one concluded number with no visible range and no sensitivity analysis is easier to read but harder to trust. A defensible report tests more than one methodology, shows the range each produces, and explains — with reasoning, not assertion — where within that range the most supportable position sits and why. This is what we mean by the most supportable valuation position: not the number a client wants, and not simply the midpoint, but the conclusion the evidence and methodology best defend. When you can see the range and the reasoning, a second valuer's different point estimate is easy to reconcile against your own report. When you cannot see it, you have no way to judge whether a competing number is a legitimate difference or a symptom of a thinner analysis.
How the ATO and courts actually resolve two competing valuations
Neither the ATO nor a court resolves two competing valuations by treating a lower number and a higher number as a dispute to be split down the middle — both examine reasoning. The ATO's market valuation for tax purposes guidance asks whether the methodology was appropriate to the entity and purpose, whether the evidence behind each input is documented, and whether the assumptions are reasonable and disclosed. APES 225 exists precisely so a report can be tested against that kind of scrutiny — engagement type, standard of value, methods considered and rejected, and assumptions all have to be disclosed, not just asserted. In litigation and expert-witness settings, an expert whose report shows their workings — comparable evidence, add-back rationale, discount justification — is far more persuasive under cross-examination than one who states a conclusion without a visible trail. A valuation is not preferred because its number is higher or lower, more favourable or more conservative. It is preferred because its reasoning holds up when tested.
Red flags a divergent valuation is defective, not just different
- ·No stated basis of value, purpose or valuation date — the report cannot be compared to anything because it does not say what question it answered
- ·A single methodology applied with no cross-check, where the entity and evidence would support testing more than one
- ·Add-backs listed with no supporting documentation — invoices, board minutes, or an explanation of why an item is genuinely non-recurring
- ·A multiple or discount selected with no comparable evidence or stated reasoning for where in the range it sits
- ·No sensitivity analysis and no visible range — only a single number with no indication of how it was bounded
- ·No independence statement, no named signatory, or a fee structure that appears linked to the outcome reached
- ·A conclusion that moved after the client indicated what number they needed, with no new evidence to explain the shift
What to do if you are holding two different valuation numbers
If you are holding two different valuation numbers, start by comparing basis of value, purpose and valuation date across both reports — if any of these differ, the reports are not answering the same question and the gap is expected. If those match, compare the maintainable earnings figure, the multiple or capitalisation rate applied, and any discounts — the specific line items, not just the bottom line. A gap that traces back to documented, reasoned judgment calls within accepted ranges is a legitimate difference between two supportable positions. A gap that traces back to missing documentation, an unexplained methodology choice, or a conclusion with no visible reasoning is a sign one of the reports will not hold up if it is reviewed — regardless of which number is more convenient. Where you need that comparison done formally rather than informally, Prismi's second opinion and valuation review service tests a report against APES 225 scope, methodology and evidence line by line, from $1,495 + GST at the Essential tier. Prismi prepares independent valuations only; we are not a registered tax agent and this is not tax or legal advice — where a competing valuation needs to be assessed for a specific matter, your accountant or lawyer should be involved in that assessment.