In trades where businesses regularly change hands, the prices agreed between real buyers and sellers are the evidence that a purchaser, a judge or the ATO is least able to dismiss.
With the market approach, an Adelaide business is valued against the prices paid for comparable businesses, or against the multiples at which similar listed companies trade. For most small and mid-sized private businesses, recent private sales screened for industry, timing, performance and size carry more weight than listed company data. Valuers call this the guideline transaction method.
Multiples taken from completed sales of private businesses of a similar kind and scale. For an East End cafe or a Mawson Lakes childcare centre it is usually the strongest evidence available, provided each sale is screened for industry, date, trading performance and the operating details that matter, rather than pulled in bulk from a database and averaged.
Trading multiples of ASX-listed companies in the same or a related industry, heavily adjusted for scale, liquidity and growth. A listed wine group or early learning operator runs many sites, has deep funding and can be traded any business day, so its multiple marks an upper bound and a reasonableness test for a private business rather than a direct comparison.
The comparable set is narrowed in a fixed order. The valuer starts with industry, then looks at the date of each sale and the market conditions of the time, then at trading results such as margins and growth, and last at the operating details: scale, customer base, location and reliance on the owner. Four sales that truly resemble the subject outweigh forty that merely share a classification code, and the report explains why the chosen point in the range fits this particular business.
For an East End cafe, the relevant evidence is recent sales of owner-operated cafes in the CBD and inner suburbs with similar takings, not a national figure, and every comparable's lease is read. Many cafe tenancies fall under the Retail and Commercial Leases Act 1995 (SA), and the years left on the lease and any options decide how much goodwill a buyer can actually hold onto, so two venues with matching takings but very different tenure are not like for like. For a Mawson Lakes childcare centre, the set is cut to long day care services with similar approved places and occupancy, and the approvals of the subject and each comparable are checked against the national registers kept by ACECQA.
Rules of thumb can sense-check a conclusion, but they cannot form one. A multiple of weekly takings or a fixed price per licensed place ignores profit and risk, the two things that separate businesses in the same trade, and would value a thriving cafe and a struggling one at the same figure. The valuer may note the rule of thumb and explain why the evidence sits above or below it, while the conclusion itself rests on the comparables.
Sectors in which businesses sell often enough for the prices to be studied: cafes, restaurants and wine bars in the East End, Norwood and Glenelg, childcare centres in Mawson Lakes, the northern growth corridor and Mount Barker, hotels with gaming rooms, community pharmacies, rent rolls, gyms, allied health clinics and online retailers.
Even here the income approach is applied, usually as the cross-check, and the adjusted net asset figure is calculated as the floor. The report explains why, for this business and this purpose, the sale evidence was given the most weight.