Where businesses in a trade change hands regularly, the prices that real buyers and sellers agreed are the evidence that a purchaser, a court or the ATO finds hardest to set aside.
Under the market approach a Wollongong business is measured against prices paid for comparable businesses, or against the multiples of similar listed companies. For small and mid-sized private firms, recent private sales screened for trade, timing, results and size generally outweigh listed company data. Valuers call this the guideline transaction method.
Multiples drawn from completed sales of private businesses of a similar kind and size. For a Kiama cafe or a Shellharbour childcare centre this is normally the best evidence on offer, as long as each sale is screened for trade, date, results and the operating details that matter, instead of being bulk-extracted from a database and averaged.
Trading multiples of ASX-listed companies in the same or a neighbouring industry, adjusted heavily for size, liquidity and growth. A listed early learning operator or hospitality group runs many sites, has deep funding and trades every business day, so its multiple is an upper bound and a reasonableness test for a private business, not a direct comparison.
Comparables are narrowed in a set order: industry first, then the date of each sale and the conditions of the time, then trading results such as growth and margins, and finally operating details like size, customer base, location and dependence on the owner. A handful of sales that genuinely resemble the subject outweigh dozens sharing only a classification code, and the report explains why the point chosen within the range suits this business.
For a Kiama cafe, the useful evidence is recent sales of owner-operated cafes in Illawarra town-centre and coastal locations with similar takings, not a national average, and each comparable's lease is read. Many cafe tenancies are retail leases under the Retail Leases Act 1994 (NSW), and the years remaining and any options decide how much goodwill a buyer can actually keep, so two venues with the same takings but different tenure are not like for like. For a Shellharbour childcare centre, the set is limited to long day care services with similar approved places and occupancy, and the approvals of the subject and of each comparable are checked against the national registers kept by ACECQA.
A rule of thumb can sense-check a conclusion but cannot form one. A multiple of weekly takings or a fixed price per licensed place ignores profit and risk, the two things that set businesses in the same trade apart, and would price a thriving cafe and a struggling one identically. The valuer may mention the rule and explain why the evidence sits above or below it, while the conclusion itself rests on the comparables.
Trades where businesses change hands often enough for the prices to be studied: cafes, restaurants and bars along Crown Street and in Kiama and Shellharbour, childcare centres across the Illawarra, hotels with gaming rooms, community pharmacies, rent rolls, gyms, allied health clinics and online retailers.
Even in these sectors the income approach is applied, usually as the cross-check, and adjusted net assets are worked out as the floor. The report says why, for this business and this purpose, the sale evidence carried the most weight.