What is valuation due diligence?
Valuation due diligence combines a business valuation with financial investigation to verify the accuracy of reported earnings, identify hidden risks, assess sustainability of revenue, evaluate working capital requirements, and confirm the asking price reflects true business value. It protects buyers from overpaying and uncovers issues that could affect future performance.
Why Due Diligence Valuations Matter
The difference between reported earnings and true, sustainable earnings can be substantial. Sellers naturally present their business in the best light, and financial statements may not tell the full story. Due diligence valuations dig deeper to uncover the reality.
Our Brisbane due diligence team has uncovered undisclosed liabilities, inflated revenue, unsustainable customer relationships, hidden related-party transactions, and other issues that would have cost buyers dearly without investigation.
Key Due Diligence Areas
Our due diligence valuations cover critical areas that affect business value.
Quality of Earnings
We analyse the sustainability and repeatability of reported earnings, adjusting for one-off items, owner benefits, related-party transactions, and revenue timing issues. The normalised earnings form the basis for valuation, often differing significantly from reported figures.
Revenue Sustainability
Not all revenue is equal. We assess customer concentration, contract terms, recurring vs. one-off revenue, pipeline strength, and market conditions to determine how likely current revenue levels are to continue under new ownership.
Working Capital Analysis
Buyers often underestimate working capital requirements. We analyse receivables quality, inventory levels, payables terms, and seasonal cash flow patterns to determine the true working capital needed to operate the business.
Hidden Risks & Liabilities
We identify contingent liabilities, pending litigation, warranty obligations, environmental risks, compliance issues, and contractual obligations that may not appear on the balance sheet but significantly affect value.
Valuation Adjustments from Due Diligence
Due diligence findings typically result in valuation adjustments. Common adjustments include reducing earnings for non-recurring revenue, adding back understated owner compensation, adjusting for below-market rent or above-market wages, deducting deferred maintenance or capital expenditure requirements, and accounting for customer churn or contract expiry.
These adjustments can increase or decrease value relative to the asking price. Either way, they give you a clear picture of what you're actually buying.
Negotiation Support
Armed with due diligence findings, you're in a stronger negotiating position. We help you quantify the impact of identified risks, structure earn-outs or warranties to protect against specific concerns, determine fair price ranges based on verified earnings, and negotiate completion adjustments for working capital variations.
Our objective findings provide evidence-based negotiation leverage, moving discussions beyond opinions to facts.
Key Benefits
How It Works
1Scope & Access
Defining the scope of due diligence based on deal size, industry, and specific concerns. Arranging data room access and management interview schedules.
2Financial Investigation
Deep-dive analysis of financial statements, tax returns, management accounts, bank statements, and supporting documents to verify earnings quality and identify anomalies.
3Valuation & Risk Assessment
Valuing the business based on verified, normalised earnings with explicit identification and quantification of risks discovered during due diligence.
4Due Diligence Report
Comprehensive report detailing findings, valuation conclusion, risk factors, and recommendations for deal terms, warranties, and conditions.
Common Questions About Business Valuation
People Also Ask
Combined due diligence and valuation typically costs $5,000-$20,000 depending on business size and complexity. For businesses under $1M, expect $5,000-$8,000. For $1-5M businesses, $8,000-$15,000. The cost is minimal compared to the risk of overpaying or missing critical issues.
Industry data suggests 20-30% of business acquisitions fail to complete after due diligence, with price disagreements and undisclosed issues being the primary reasons. Due diligence protects buyers from completing bad deals.
No, your due diligence report is confidential to you. However, you may choose to share specific findings with the seller as part of price negotiations. The report gives you the information advantage in negotiations.
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Speak with our Brisbane valuation experts today. Free initial consultation with no obligation.