What a business valuation is, how it works and what it costs

A healthcare business valuation is an independent opinion of what a practice, pharmacy or provider is worth at a stated valuation date and for a stated purpose. It is usually prepared on a market value basis: the price a willing but not anxious buyer and seller would agree, both informed and neither forced to act. That meaning comes from Spencer v Commonwealth [1907] HCA 82 and is the one the Australian Taxation Office applies for tax purposes. Value in that sense is not a forecast of the price one particular buyer would pay. An independent business valuation records the earnings, method, evidence and assumptions, so the conclusion can be tested.

It is worth the maintainable earnings the practice can sustain without you, capitalised at a rate reflecting the risk of those earnings continuing under a new owner. That means starting from reported profit, removing one-off items, resetting related-party rent and wages to market, and charging your own clinical work at what a replacement would cost. The risk assessment then turns on how transferable those earnings are, which is a different question in a pharmacy, a medical practice and an NDIS provider.

Settle three things first, because each changes the answer. What is being valued: the operating business, the shares or units in the entity that owns it, or a particular interest in it. Why: a sale, a buy-in, a family law matter or a restructure, since the purpose sets the standard of value. And at what date, because a valuation fixes the facts at a point in time. Then normalise several years of earnings and assess how much of them survive a change of owner.

Usually, subject to the lender's own requirements, and those requirements are worth establishing before the engagement starts rather than after the report is written. A refinance is a different reliance question from an acquisition. The lender is assessing security and serviceability for a business already trading, often with an incumbent lender's position to be repaid, and lenders differ on what they need: some require the report to be addressed to them, some want a reliance letter, some specify how recently the work must have been done, and most take a different view of goodwill than they do of tangible security. Some will not accept a valuation commissioned by the borrower at all and will instruct their own. Ask your lender or broker for their requirements in writing and pass them on before work begins, because the addressee, the purpose and the scope are far easier to set at the outset than to amend afterwards.

An appraisal is an estimate of what a business might list or sell for, usually prepared to win or support a sale mandate by someone who earns a commission if it sells. A valuation is a reasoned opinion of value at a date and for a purpose, prepared without any stake in the result, with the method, evidence and assumptions set out so that a third party can test them. An appraisal can be useful when deciding whether to go to market. It is not a substitute where a lawyer, accountant, financier, co-owner or the ATO needs to rely on the figure. See business valuation versus business appraisal.

Yes, for the job it is designed to do. An appraisal from an agent who is active in healthcare business sales tells you what buyers are currently asking about, how long comparable practices are taking to sell, what finance is available and what a marketing campaign might realistically achieve. That is genuine market intelligence and a valuer will consider the same kind of evidence. The limitation is scope, not competence. An appraisal is generally not prepared at a stated valuation date, does not normalise earnings, does not separate personal from transferable goodwill and does not document its method, so it cannot carry the weight that a tax, court or shareholder matter puts on a number.

The ATO states that a valuation must be objective and supported with appropriate evidence, and that valuations undertaken by professional valuers are more credible than those provided by someone who is not a professional valuer. Its guide adds that for tax purposes the acceptability of a valuation usually depends on the valuation process undertaken rather than on who conducted it, with limited exceptions such as the GST margin scheme. A document that gives a figure without setting out the purpose, the scope, the valuation date, the method and the records explaining the basis of the value is unlikely to meet those expectations. Whether a particular document is accepted is a matter for the Commissioner, and your accountant or tax adviser should confirm the position for your circumstances.

A broker appraisal is generally an estimate of what a business might sell for, prepared in the context of a possible sale and often without a defined valuation date, scope or set of assumptions. An independent valuation states its purpose, its valuation date, the basis of value, the information relied on, the method applied and the reasoning behind the conclusion, so it can be examined and tested by an accountant, a lawyer or another valuer. The two documents answer different questions. See business valuation versus business appraisal.

An appraisal is generally a broker's or agent's view of a likely selling price, often free, often prepared by someone with an interest in the transaction proceeding. A valuation is an independent opinion of value prepared for a stated purpose at a stated date, supported by analysis a third party can test, by someone whose fee does not depend on the conclusion. See business valuation versus business appraisal.

It means the valuer has no financial interest in the conclusion and no role that could pull it in one direction. In practice that requires a fee that does not depend on the value concluded or on a transaction proceeding, no brokerage or success fee, no engagement to negotiate for one side, and disclosure of any relationship with a party. The ATO guide takes the same view where a valuation is relied on for tax: a market value is better supported where the valuer's instructions ensured their independence and established that any fee did not depend on the outcome of the report, and the guide lists a declaration of independence and any conflicts of interest, including any relationship the valuer has with the client, among the contents of a valuation report.

No. A valuation relies on the financial statements, management accounts, billing reports and agreements provided by the owner and their advisers. We analyse that material, make enquiries, test it for consistency and compare it with sector and market evidence, but we do not audit or independently verify it. The report lists the information relied on and the assumptions made. If material information is withheld or cannot be obtained, the report says so and the conclusion is limited accordingly, and we may decline to express an opinion.

Yes. Material provided for the valuation is used only for the engagement and is disclosed only to the instructing parties and, where the report is filed, to the court. Family law proceedings also carry statutory protection: at the time of writing, sections 114Q and 114R of the Family Law Act 1975 make it an indictable offence to communicate to the public an account of proceedings that identifies a party, a witness or another person concerned in the matter, and section 114S sets out what is not a communication to the public. The court may also make orders about the release of a report. What you must disclose to the other party is governed by your disclosure duty, on which your lawyer will advise.

Yes. Material supplied for a valuation is used for the stated purpose and is not disclosed to other parties except as the engagement or the law requires. The request is scoped to what the conclusion actually needs, aggregated and de-identified material is accepted wherever it will do the job, and clinical records are not requested. Where a valuation is prepared for a court or a regulator, the report and the material behind it may have to be produced to other parties, and that is confirmed at the outset rather than discovered later.

Through the terms of the engagement and the content of the report. The scope, the purpose and the valuation date are agreed and recorded before work starts, the fee is agreed in advance and does not depend on the conclusion, and no commission is received from any party to a transaction. The fee schedule is published rather than quoted case by case: a fixed amount set by the annual revenue of the business being valued, so the basis of it can be checked before we are engaged. The ATO expects a taxpayer engaging a valuer to have acknowledged the valuer's independence and to have stated that the fee is not dependent on the outcome of the report. The assumptions, information relied on and limitations are then stated in the report so the reasoning can be tested by anyone reading it.

No. HPNA prepares valuations and explains the reasoning behind them. We do not advise on the tax consequences of a transaction or restructure, we do not act on a legal question, and we do not recommend whether a deal, a buy-out or a succession plan should proceed. Those decisions sit with you and with your accountant, lawyer or licensed adviser, and everything on this website is general information rather than advice. Where a valuation depends on a tax or legal position, for example how a contractor arrangement is characterised, we state the position we have been instructed to adopt and the assumption we have made, so your advisers can test it.

Not automatically. The purpose sets the definition of value, the valuation date, the scope and the standard the report must meet, and these differ between a sale, a tax event, a family law matter and a buy-out under a shareholders agreement. The ATO guide notes that where a valuer relies on a previous valuation, difficulties are likely to arise if that valuation was compiled for a different purpose. If you expect the value to be needed for several purposes, tell us at the outset. In some cases one engagement can address them; in others a separate report or an update is needed.

It can, because the purpose sets the basis of value and the assumptions that go with it. A valuation for a sale or a tax matter is usually directed at market value, the amount a knowledgeable, willing but not anxious buyer and seller would agree at arm's length. A valuation under a shareholders agreement is directed at whatever that document defines, and some deeds expressly exclude a minority discount. A family law valuation is prepared on the material available for the proceedings it supports. The purpose and basis should be settled with your lawyer or accountant before the work starts.

That depends on the purpose agreed at the outset, which is why we settle it first. A report prepared for internal planning is not automatically suitable for the ATO, a court or a lender, because each expects different content and a different level of support. The ATO expects a valuation report to state its purpose and scope, the asset valued, the date it was conducted, whether it is retrospective, the records explaining the basis of the market value and the value itself. It also states that a taxpayer who engages and properly instructs a professional valuer will generally not face penalties if the valuation is found to be deficient. Where the purpose is legal, the format follows the relevant rules and your lawyer's instructions. Tell us the purpose, and confirm the requirements with your accountant or lawyer.

The report is prepared for the party named in it, for the stated purpose, as at the stated valuation date, and the engagement terms set out who may rely on it. Ownership of the report and of the working papers behind it is dealt with in those terms, agreed before work starts. You receive the report to use for the purpose agreed. If a third party such as a financier, an incoming partner or a regulator will read it, say so during scoping, so the report can be written with that reader in mind rather than adapted later.

The ATO says that at a minimum a valuation report should contain the purpose of the valuation, the scope of the valuation, details of the asset being valued, the date it was conducted, whether it is a retrospective valuation assessment, the date of inspection where applicable, records to explain the basis of the market value, and the value. Its detailed guide adds the valuer's identity, status and qualifications, a declaration of independence and any conflicts of interest, the standards governing the engagement, the methodologies chosen and why, any cross-check, the terms of engagement, and an explanation of how a single figure was selected where the method produced a range.

It should say, because the two are different numbers. Enterprise value is the value of the business operations, usually on a debt-free and cash-free basis with a normal level of working capital, which is the stock, debtors and creditors needed to trade. Equity value is what an owner would receive for the shares or units, being enterprise value adjusted for cash, borrowings, surplus assets and any shortfall or excess in working capital. An appraisal often quotes a headline figure for the practice without stating which it is, and the gap between them can be substantial.

Usually because they are measuring different things. An appraisal commonly starts from reported profit and an expectation of what a purchaser will offer for the business assets. A valuation starts from maintainable earnings, which is the level of profit the business can sustain once owner and practitioner remuneration is put on arm's length terms, related-party rent is brought to a market rate and one-off items are removed. It then separates goodwill that would transfer with the practice from goodwill that sits with a particular practitioner, and states whether the figure is for the business or for the shares or units in the entity that owns it.

Yes, and you should. The draft is issued so that factual errors can be corrected before the conclusion is fixed, and so you can ask how a particular figure was derived. Corrections supported by a document or a system report are considered, and the analysis is redone where they change the answer. A request for a different conclusion without new evidence does not change it, because a valuation that shifts to suit its reader is worth nothing to anyone relying on it. The final report records what changed between draft and final.

The purpose and the reliance. A formal valuation is prepared so that a third party, such as a purchaser, the Australian Taxation Office, a court or a departing partner, can rely on a concluded value at a valuation date, and the report is written to the standard that purpose demands. A strategic review is prepared for the owner or the board, gives an indicative value or range, and spends most of its effort on the drivers, scenarios and actions that change value. The analysis behind both is the same; the review is not written for reliance by anyone else and says so.

Annually is the most common rhythm, timed after the financial statements are finalised, with an additional update before any decision that changes the earnings profile. Owners planning an exit typically start two to three years out so that changes to practitioner dependence, workforce, lease and systems have time to appear in the accounts a buyer will read. Boards of larger groups may review more often where partner entries and exits, acquisitions or a capital raise are in prospect.

It can inform the discussion, but where the price will bind the parties an internal transaction valuation is typically the appropriate engagement. A review gives partners a shared, current view of value between formal valuations and shows how the business is tracking. When a partner actually enters or exits, the parties, and often their shareholders or partnership agreement, need a concluded value at a specific date, with the basis of the equity value, any minority considerations and the assumptions all set out for reliance.

Yes, but the formal valuation is a new engagement with its own valuation date, scope and information request. The baseline analysis, normalisation and value driver work done in the review shortens the formal engagement, and the actions taken since the review are reflected in the new figures. The Australian Taxation Office notes that difficulties are likely to arise where a valuer seeks to rely on a previous valuation that was compiled for a different purpose, so the formal report is prepared fresh for its stated purpose rather than by re-labelling the review.

It gives you an independent position before the investor proposes one. The review sets out value on a control basis and on a minority basis, since a minority interest cannot direct the business and may be worth less per share than a controlling stake, along with the assumptions an investor is likely to challenge, such as owner remuneration, practitioner retention and government funding exposure, and the effect of deal terms such as earn-outs or preferred returns. That lets you and your advisers test an offer against evidence rather than against a hope, and it identifies the information an investor will ask for in due diligence so that it can be assembled first.

Any decision that changes earnings, risk or structure. The most common are the principal reducing clinical days or moving into management, adding or losing a practitioner, changing employment or contractor terms, renegotiating or relocating the lease, opening a second site, changing the billing mix between private fees and bulk billing or between funders, adding a service line or a product range, and acquiring or merging with another practice. Each is modelled from the same baseline so results can be compared, and combined scenarios can be run where decisions interact.

Three to five completed financial years, plus the current year to date. The range exists because the number of periods that are actually useful varies. A settled practice with consistent activity and a stable practitioner group supports a longer view. A practice that added a site, changed its billing model or lost a principal is often assessed mainly on recent periods, and the earlier years are used to show the trend rather than to set the figure. The Australian Taxation Office requires most business records to be kept for five years, so a request in that range is usually asking for material the business already holds.

It is workable, but it changes the process and it can change the conclusion. Where the current year is not reconciled, the valuation may rely on a shorter period of reliable data, on the practice management system's activity reports, or on the lodged activity statements as a cross-check. The important point is that the position is disclosed. The Australian Taxation Office lists insufficient documentation and a lack of scrutiny of base information among the issues it commonly sees in valuations it reviews, so a report that quietly rests on unverified figures is weaker than one that states plainly what could not be tested.

No. A valuation needs counts, patterns and aggregates: active patient or participant numbers, retention and new patient rates, referrer concentration, the mix of services and the fee profile. It does not need names, contact details or clinical notes, and they are not requested. The Office of the Australian Information Commissioner's guidance on selling a business says a vendor should avoid giving a prospective purchaser the names and other identifiers of its customers, and should consider whether the information can be de-identified first. The same discipline applies to information given to a valuer.

Financial statements and tax returns for the most recent trading periods, management accounts for the current period, and the detail behind owner remuneration, related-party rent and one-off items, so that earnings can be normalised. Then the operational material: practitioner and contractor agreements, the lease, staff and award arrangements, billing or funding data by payer, patient or participant numbers, the asset register, and any registration, approval or licence documents. For a shareholding, add the constitution and any shareholders, partnership or unitholders agreement. The full list is in what information is needed for a business valuation.

Yes. A healthcare valuation can usually be completed without a site visit, because the evidence is financial and operational: the accounting file, activity exports from the practice management or dispensing system, agreements, the lease and registration records. HPNA works with practice owners throughout Australia on that basis. An inspection is worth arranging where physical assets carry real weight in the conclusion, or where the premises themselves are central to it, such as a pharmacy in a shopping centre or a practice with substantial imaging or surgical equipment. If we think an inspection would change the analysis, we say so during scoping rather than afterwards.

We tell you what is missing and what it affects. Incomplete information does not stop a valuation, but it changes it: the report either records the gap as a limitation or relies on a stated assumption, and both are disclosed. The usual gaps are management accounts that stop well before the valuation date, contractor agreements that were never signed, and activity data the system holds but nobody has exported. Several of those are quick to fix once you know they matter. Where a gap is material, the report says what difference the missing information could make to the conclusion.

A valuation is expressed as at its valuation date and is only reliable for that date. There is no fixed shelf life. The ATO guide observes that markets and market conditions change and that the estimated value may be incorrect or inappropriate for another time. In a healthcare business the conclusion can change quickly if a practitioner leaves, a funding rule is amended, a competitor opens nearby or a lease is not renewed. Whether an existing report can be updated, or must be redone, depends on what has changed and on the purpose for which it is now needed.

At each transfer event, and otherwise at an interval the parties agree, commonly annually where a plan runs over several years. An update is more than a restated figure: it carries a new valuation date, records what has changed in the business and the plan, and re-assesses how much goodwill has moved from the principal to the business and the successor. If nothing material has changed, the update can be brief. If a key event has occurred, such as a partner departure or a change in funding settings, a fuller review is warranted.

That depends on the engagement, and we confirm the timeframe when the scope is agreed rather than quoting a standard turnaround. The main variables are the purpose, because a valuation prepared for a legal or tax matter carries a higher evidentiary standard than an internal review; the number of entities, sites and practitioner arrangements involved; whether the financial records are complete and reconciled; and how quickly questions on normalisation items are answered. Incomplete information is the most common cause of delay. The fee does not vary with any of that: it is a fixed amount set by annual revenue, agreed before work starts. How it works sets out each step.

A valuation can be prepared at a new date, but it is a new valuation rather than an amendment of the old one. Value is assessed on what was known or reasonably foreseeable at the valuation date, so a later date requires the results, activity and circumstances that applied then. An update is usually shorter than the first engagement, because the business, its structure and its risks are already understood and the information request is narrower. Owners commonly ask for a fresh date when a partner is admitted, a funding change lands, or a sale process begins.

In many situations no rule prevents it, and the ATO guide states that for tax purposes the acceptability of a valuation usually depends on the valuation process undertaken rather than on who conducted it, subject to some exceptions for particular asset types. The practical difficulties are independence and reliance. An accountant who acts for the business, or for one owner, has a relationship with a party that must be disclosed and that a counterparty, co-owner or reviewer may challenge. An independent valuer addresses that objection and applies a documented process others can test. Which route suits your situation is a decision for you and your adviser.

Yes. HPNA values healthcare businesses in every state and territory. Most engagements are conducted remotely: financial and operational information is provided securely, and discussions with the owner, practice manager or adviser are held by video or telephone. A site visit can be arranged where the premises, fitout, equipment or layout matter to the conclusion. State rules change the analysis, including the payroll tax treatment of practitioner contracts, so the valuation reflects the rules that apply where the business operates. About HPNA sets out how we work with owners and their advisers.

Owners of Australian healthcare businesses and the professionals advising them. That includes sole practitioners and practice partnerships, companies and trusts operating clinics, pharmacies and NDIS or community care services, and the accountants, lawyers and financiers acting for them. We are also engaged by an incoming purchaser or partner who wants an independent view before committing, by co-owners settling an entry or exit price, and by executors dealing with an estate that holds a practice interest.

Yes, and in most engagements we do. The accountant generally holds the financial statements, tax returns, depreciation schedules and entity records the valuation relies on, and can explain how items have been treated over the period under review. Working directly with them shortens the information stage and reduces the number of assumptions we have to make. It does not compromise independence: the accountant supplies information and context, and the valuation conclusion remains ours alone.

Yes, with your authority. Most valuations involve at least one of them, and dealing with them directly is usually the most direct way to obtain the accounting file, the tax returns, the trust or partnership deed and the agreements that govern an owner's interest. We tell you what has been requested and what has been received. Your accountant and lawyer advise you on the tax, legal and financial consequences of a decision. HPNA provides the independent valuation and the reasoning behind it, and does not advise on your tax or legal position.

The fee is a fixed amount set by the annual revenue of the business being valued, and the whole schedule is published at pricing. It is recorded in the engagement and agreed before any work begins, so the cost is settled before you commit to anything. It does not move with the conclusion reached, with whether a transaction proceeds or with the outcome of a dispute, and HPNA takes no commission from any party. Where a practice runs through more than one entity, the band is set on the revenue of the business as a whole. Work outside the agreed scope is agreed separately in writing.

A fixed fee. A full valuation report costs $1,500 for up to $1 million, $2,200 for $1 million to $3 million, $4,950 for $3 million to $10 million, $9,450 for above $10 million, all plus GST, set by the annual revenue of the business being valued. An indicative assessment is $950 plus GST and is credited against a full report if you proceed within 3 months. An expert report for a family law matter or a shareholder dispute is a higher fixed fee, set by the same revenue bands and shown in full on this page. Every fee is agreed in writing before work begins and does not change with the conclusion reached.

What the valuation is for. An indicative assessment is a limited scope view of value for your own planning, and is not written for a court, the Australian Taxation Office or a lender. A valuation report is the full independent engagement, suitable for a sale, a buy-in, succession, a tax matter or a restructure. An expert report is prepared where another party will test the conclusion, such as a family law property settlement or a shareholder dispute, and carries the duties owed to a court where HPNA is instructed as a single expert. The extra work in that tier is the joint instructions, the written questions and the conference of experts.

The first entity is included in the fee. Each additional entity that has to be analysed is charged at $450 plus GST. This is common in healthcare: a practice company that bills, a service entity that holds the lease and employs the staff, and a trust that receives distributions are three separate sets of accounts. We confirm how many entities are in scope before the engagement is signed, so the total is known in advance.

No. The fee is fixed for the revenue band and is set before the work starts, so it cannot move with the answer. HPNA also earns no commission from any party to a transaction. That matters because a valuation whose author is paid more for a higher number is not independent, and the Australian Taxation Office expects a taxpayer engaging a valuer to be able to state that the fee is not dependent on the outcome.

The annual revenue of the business or entity being valued, taken from its most recent financial statements. Where a practice runs through more than one entity, such as a practice company and a service entity, the band is set on the revenue of the business as a whole rather than on one entity within it. We confirm the band with you before the engagement is signed, so there is no surprise later.

The valuation engagement as scoped: the analysis, the valuation itself and a written report suitable for its stated purpose, together with the draft stage where factual questions are clarified before the report is finalised. The scope, purpose, valuation date, basis of value and who may rely on the report are all recorded in the engagement before work begins. Anything outside that scope is agreed separately in writing.

No. Every fee on this page is quoted plus GST. Beach Group Australia Pty Ltd, trading as HPNA, is registered for GST, so the invoice will show the fee plus GST at the applicable rate. If the business you are having valued is registered for GST, that component is generally claimable, though that is a question for your accountant rather than for us.

An indicative assessment is a flat $950 plus GST, credited against a valuation report if you proceed within 3 months. A full valuation report is a fixed fee set by the annual revenue of the business being valued, $1,500 plus GST at the smallest band and $9,450 plus GST at the largest, and an expert report for a family law matter or a dispute is priced separately on the same bands. Every fee is agreed in writing before work starts and never depends on the conclusion reached. The full schedule, including the additional entity fee for groups that trade through more than one entity, is published on the pricing page.