The nature of business valuation reports is such that the conclusions (otherwise referred to as opinions of value) presented in the reports are not valid forever. Business valuation reports generally contain an expiry date or sometimes contain wording that outlines certain circumstances that could make the opinion of value expressed within the report no longer valid. It is important for users of business valuation reports to have an understanding of what the expiry date(s) are for the opinions of value they are reviewing before relying on the opinions of value within those reports.
What is an expiry date?
An expiry date is a date that is often expressed within a business valuation report, after which the opinion of value expressed within the business valuation report is no longer valid. Quite often, an expiry date will be listed within a business valuation report alongside two other dates, namely; an effective date of the valuation – being the date at which the opinion of value in the report first becomes valid, and; the date of the report – being the date when the report is published.
What if my valuation report does not have an expiry date?
Quite often business valuation reports will not contain an explicit expiry date. Does this mean the opinion of value will continue to be accurate forever? Clearly, businesses are very dynamic. Further, the economy and industries in which businesses operate are constantly changing. On this basis, it is unreasonable to expect that the valuation of business will remain fixed perpetually into the future. More often than not, business valuation reports that do not contain a fixed expiry date will contain wording to the effect that changes to the business environment, industry factors, economic factors, or other factors may make the opinion of value invalid in the future. Even if this wording is not contained within a valuation report, it is quite unreasonable, generally, for a business valuation report to be relied upon for any more than about 6 to 12 months from the effective date of the valuation.
What is a reasonable period of expiry for an opinion of value?
In our experience, business valuations normally remain accurate for a period of between three and 12 months after the effective date of the valuation. However, we caution that sometimes this is not the case, owing to changes in a number of factors including but not limited to the risk profile of an industry, the state of the economy, government regulations, and the risk profile of the subject business. A recent example demonstrating how this can occur can be seen in the mortgage brokerage industry, where mortgage brokerages had an overnight decline in valuation as a whole due to the recommendations of the recent Royal Commission.
Further, it is worth noting that valuations of equity in a company that operates a private business are normally only valid for very short periods of time. The valuation of equity in a private company takes account of a number of assets that a normal business valuation does not, like cash which as many business owners would understand is a moving target which changes by the hour, day, week, and months, meaning that it is almost impossible for the valuation of equity in a company to be valid for more than one business day.
What happens if my business valuation report has expired?
If you previously sought an opinion of value, and the expiry date of that opinion of value has now passed, we suggest that you either (a) write to the valuer who completed the original business valuation and seeks out their opinion as to whether the opinion previously prepared by them is still valid, or; (b) engage a valuer to undertake a new business valuation.
Find out more
Quinn M&A’s team of expert business, company and shareholding valuers can assist with all valuation matters. Call us today on 1300 784 667 or submit an Express Enquiry to discuss your matter.
