Know the price is right — and how the contract should split it — before you sign.

A business valuation before buying a business tests two things: whether the asking price is supportable, and how the contract should apportion it. Prismi rebuilds maintainable earnings from source documents rather than accepting vendor add-backs, benchmarks the price against industry multiples and comparable evidence, and provides a tax-aware apportionment across plant, stock, restraint covenants and goodwill — in one fixed-fee, senior-reviewed report.

Why get a valuation before you buy

An asking price is the vendor's opening position — often set by a broker appraisal designed to win the listing, not to survive scrutiny. Before contracts are signed, a buyer needs two answers: is the price supportable, and how should the contract apportion it across the assets being bought. Most buy-side due diligence stops at the first question. The second is just as important, because the apportionment written into the contract sets the buyer's transfer duty exposure, Division 40 depreciation deductions and the future CGT cost base of goodwill from settlement day. The market value standard is Spencer v Commonwealth's willing-but-not-anxious buyer — and a buyer who has already fallen for a business is, by definition, anxious. An independent valuation is the counterweight: it tests the vendor's numbers against evidence, benchmarks the price against the market, and gives the buyer and their accountant a documented basis for both the negotiation and the contract schedule.

Vendor add-backs and the earnings that survive scrutiny

Information memoranda almost always present an 'adjusted EBITDA' built on vendor add-backs — the owner's salary, family wages, one-off legal costs, personal vehicles, above-market rent to a related landlord. Some add-backs are legitimate. Many are not, and the difference moves the price materially at any multiple. We rebuild maintainable earnings from source documents — financial statements, tax returns, the general ledger behind the add-back schedule, payroll records — rather than accepting the vendor's adjusted figure. Owner remuneration is replaced with the market cost of the management the business actually needs. Claimed one-offs are tested against prior years to see whether they recur. Related-party rent is checked against market. Revenue is examined for customer concentration, expiring contracts and owner dependence. The result is a maintainable earnings figure the evidence supports — frequently lower than the memorandum's figure, occasionally higher, and either way documented line by line so a sceptical accountant can trace every adjustment.

Is the asking price right?

With maintainable earnings rebuilt, the asking price becomes testable. We benchmark the implied multiple against industry multiples and comparable transaction evidence, adjusted for the size, growth, customer concentration and transferability of the specific business. As with all Prismi work, the output is a supportable range rather than a single number — the report shows where the asking price sits within or outside that range, and concludes at the most supportable position with the reasoning documented. If the price sits above the supportable range, the buyer has quantified, evidence-led grounds to negotiate. If it sits within the range, the buyer proceeds knowing that — which matters when the money is borrowed and the bank asks the same question.

The contract split sets your tax position from day one

In an asset purchase, the contract apportions the total price across plant and equipment, trading stock, intangibles, any restraint-of-trade covenant, and goodwill. That schedule is not paperwork — it is the buyer's tax position. It sets the duty base in the states and territories that still levy transfer duty on business asset transfers, the first element of cost for each depreciating asset under Division 40 (and therefore the buyer's deductions for years to come), and the CGT cost base of goodwill that determines the gain when the buyer eventually sells. Vendor and buyer interests routinely diverge: a vendor claiming the Division 152 small business CGT concessions may prefer value in goodwill, while a buyer generally wants defensible value on depreciating assets. An arbitrary split serves neither party — it invites attention from the ATO and the state revenue office alike. Prismi provides the market value evidence behind each line; your accountant and lawyer apply it to the contract and the tax positions.

• ·Identifiable assets — plant, equipment, vehicles, trading stock — valued first at market value
• ·Goodwill concluded as the residual, consistent with the value of the business as a whole
• ·Restraint-of-trade covenants priced at a commercially realistic amount — restraint payments are generally capital to the buyer, neither depreciable nor deductible, so loading value onto the covenant rarely helps
• ·Consistency checked between the contract schedule, the asset register and the valuation evidence

Earn-outs change what the headline price really is

A price with an earn-out attached is not really the headline number — it is a fixed payment plus a contingent right whose value depends on how the business performs after settlement. We model the earn-out under plausible scenarios so the buyer knows the effective price, and the implied multiple, in each: a deal that looks fair at the headline figure can be expensive if the targets are soft, and genuinely cheap if they are demanding. For advisers, where the arrangement qualifies as a look-through earnout right under Subdivision 118-I ITAA 1997, financial benefits are recognised as they are provided rather than the right being valued at settlement, which changes the CGT position for both parties. Prismi values the arrangement and documents the scenarios — we are not a registered tax agent, and your tax adviser confirms how the earnout rules apply.

Documents to request from the vendor

• ·Financial statements and tax returns for the last 3–5 years
• ·Current year-to-date management accounts
• ·The information memorandum and the vendor's add-back schedule
• ·General ledger detail behind each claimed add-back
• ·Payroll records, including owner and family remuneration
• ·Asset register and depreciation schedule
• ·Premises lease and key customer and supplier contracts
• ·Customer concentration data
• ·The draft sale contract, including any proposed apportionment and earn-out terms

Which tier fits a business purchase

Most buy-side engagements sit at the Comprehensive tier (from $3,995 + GST, 15–25 business days), which covers the maintainable earnings rebuild, the supportable range against the asking price and the apportionment analysis. Smaller, simpler purchases where the question is confined to price can be served by the Essential tier (from $1,495 + GST, 10–14 business days). Larger acquisitions, contested negotiations and deals with earn-outs or significant identifiable intangibles warrant the Defensible Valuation File (from $8,995 + GST, 25–35 business days). Where the deal structure itself is still moving — alternative apportionments, earn-out formulas or price mechanisms under negotiation — the Valuation Range & Scenario Review premium engagement models the alternatives side by side. Deals run to deadlines: rush turnaround is available at +30% of the base fee, subject to capacity, and fees are fixed at engagement — never contingent on the deal proceeding.