How does business valuation work in New Zealand?

Most business owners have a number in mind for what their business is worth. The figure a buyer or valuer arrives at is often different, sometimes by a lot.

The reason is usually the same. A business valuation is based on the profit the business can be expected to keep making, and how confident a buyer can be that it will continue. Your years of hard work matter, but a buyer is paying for what the business will earn for them.

Understanding how valuers think about that is the first step to closing the gap.

How valuers approach a business valuation

There's no single formula. The method a valuer uses depends on the nature of the business and why the valuation is needed. Most valuations draw on one or more of three approaches.

• Earnings approach: the profit the business can reliably maintain, multiplied by a figure that reflects risk. This is the main approach for most established, profitable businesses. For small owner-run businesses, profit is sometimes measured before the owner is paid. That's fine, as long as the multiple matches: a multiple applied to profit before the owner's salary will be lower than one applied after it.

• Market approach: what similar businesses have actually sold for. As sales data for privately held businesses is limited and no two businesses are alike, it's mostly used as a cross-check.

• Asset approach: the business's net assets, adjusted to current values. It's used for asset-heavy or loss-making businesses, and as a floor for others: what the assets would fetch if the business stopped trading.

Why your accounts are only the starting point

A valuer rarely takes the profit in your accounts at face value. The figures are adjusted to show what the business would earn under a new owner.

One-off costs and personal expenses are added back. A market salary is allowed for the work the owner does, because a buyer would need to pay someone to do it. Rent paid to a related party and wages paid to family members are adjusted to market rates. The adjusted profit can be quite different from what owners expect, in either direction.

What's actually being sold

Most business sales in New Zealand are sales of the business's assets rather than the company's shares. The buyer usually pays for the goodwill and the plant and equipment, with stock added at valuation on settlement. The seller generally keeps the cash and repays the business debt, so the money in the business bank account isn't usually part of the price.

What drives a business valuation up or down

A buyer is paying for future profit, so anything that makes that profit more likely to continue increases value. Two businesses with the same profit can be valued very differently.

Factor	Supports a higher value	Pulls value down
Owner involvement	The business runs day to day without the owner	It relies on the owner's skills or relationships
Customers	Revenue is spread across many customers	One or two customers make up most of the revenue
Revenue	Recurring or contracted income	One-off jobs that must be won each time
Systems	Documented processes for how the business runs	Knowledge held in people's heads, with nothing written down
Financial records	Clean, up-to-date accounts, with tax and other obligations met on time	Messy records, unclear profit and overdue bills
Premises	A secure lease with rights of renewal	A short or uncertain lease, or premises that can't transfer with the business
Trends	Steady revenue and improving margins	Falling or erratic profit from year to year

Most of these factors are within your control, and improving them takes time. To see how your business measures up, try our Would You Buy Your Own Business? Scorecard. If a sale is on the horizon, our article on Preparing a Business for Sale covers where to start.

Value versus price

A valuation is a professional opinion of what a business is worth. The price is what a buyer actually agrees to pay, shaped by negotiation, timing, how many buyers are interested, and how motivated each side is. As valuation involves judgement, it's usually expressed as a range, and the final price may land in or around it.

The purpose of the valuation matters too, because it determines the level of detail and the assumptions used. A valuation to support sale negotiations needs a different depth of analysis from one for a contested relationship property settlement.

Common misconceptions

There's plenty of information online about valuing a business. Some of it gives a rough indication, but none accounts for factors specific to your business, which can lead to common misconceptions.

• "It's worth what I've put into it." Years of effort and money invested don't set value. Future profit does.

• "Turnover is what counts." A business with high sales but thin margins can be worth less than a smaller, more profitable one.

• "Businesses like mine sell for three times profit." A multiple only means something once you know which profit it applies to and how risky the business is. Two businesses in the same industry can justify very different multiples.

• "My balance sheet shows what it's worth." Financial statements are prepared for tax and reporting purposes. They record most assets at historical cost less depreciation, and they don't include the goodwill the business has built.

Getting a business valuation

The right level of valuation depends on what you need it for. We offer three options.

• Value conversation: an informal session to understand what drives your business's value and which approach would likely apply. It suits owners who want a clearer picture but aren't ready for a formal valuation yet, or are comfortable setting their own asking price with guidance.

• Indicative valuation: a valuation based on the information you provide, with a short-form report. It suits sale or purchase discussions, amicable settlements and benchmarking. As it relies on your information without independent testing, it isn't an independent valuation under AES-2 valuation standard, and the report sets out its basis and limitations.

• Independent valuation report: prepared in line with AES-2, the professional standard for independent business valuations by New Zealand Chartered Accountants. It's for situations where the value needs to stand up to scrutiny, such as disputes, contested relationship property, shareholder exits or Inland Revenue.

Want to know what your business is worth?

Call us on 03 544 4772, or visit our business valuations page to book a value conversation.

Last reviewed: 7 November 2026

Disclaimer: The information in this article is general in nature and is not personalised business, valuation or tax advice.