Valuing a Gold Coast Business
As a Gold Coast based business valuation specialist firm, BSP Strategic is exposed to a host of businesses servicing a wide variety of industries. Manufacturing, Construction, Retail Trade, Food and Tourism are traditionally at the top of the list with these four industries comprising approximately 70% of all local business valuations. Professional service firms including, health and financial services are also prevalent.
Valuation of each of these business types couldn’t be more different. On one hand you have one off project based businesses such as some construction businesses contrasted against manufacturing businesses with long term supply contracts and predictable earnings versus the seasonality issues faced by the accommodation and tourism industry participants.
Despite these differences valuation of Gold Coast based businesses is not dissimilar to the general valuation characteristics and issues confronted when valuing businesses in other populated non CBD areas.
Generally speaking traditional valuation principles apply. Business values will still be determined with reference to the strength of the business model, its exposure to risk and its potential for growth combined with earnings.
The Gold Coast has a population of approximately 527,000 which is substantially less than the population of Brisbane which currently stands at about 2.2 million. The significant difference in population is important when considering the overall marketability of a business.
For example, a business that has no management in place and which is location dependent is more likely to be acquired by a buyer who is located within close proximity to the business location for the simple fact that it is not realistic for the buyer to be located hundreds of kilometres away.
Considering this logic, a location dependent, owner-managed business in Brisbane is therefore more marketable than a comparable business based on the Gold Coast purely because there is exposure to a greater population of potential buyers and on this basis it is more likely that a buyer will acquire the business.
When valuing businesses it is normal practice to consider the liquidity /marketability and level of control of the business. These considerations may attract a discount to the value of the business in order to rationalise the impact of circumstances. When valuing businesses with very limited marketability such as in a small country town, the discount for lack of marketability would be greater than in a more populous region such as the Gold Coast or Brisbane CBD’s.
Discounts for lack of marketability (“DLOM”) are nonetheless more complex than just the geographic location of the business and reference must be made to the overall position of just how easy it is to convert the equity of the business to cash. The conversion process is somewhat more difficult for closely held “private” companies than public companies which have a ready “liquid market” into which equities are more freely traded.