The principals in valuing licensed premises going concerns are similar to that of other going concern assets including caravan parks, child care centres and service stations. The International Standards (IVS) 2007 provides the framework within which valuations are generally completed.
Valuations of any type, whether undertaken to estimate market value or a defined non-market value, require that the Valuer apply one or more valuation approaches. The term “valuation approach” refers to generally accepted analytical methodologies that are in common use. In various States these approaches may be referred to as “valuation methods”.
Market based valuations normally employ one or more of the valuation approaches by applying the principle of substitution, using market-derived data. This principle holds that a prudent person would not pay more for a good or service than the cost of acquiring an equally satisfactory substitute good or service, in the absence of the complicating factors of time, greater risk, or inconvenience. The lowest cost of the best alternative, whether a substitute or the original, tends to establish Market Value.
In most instances, a going concern value for a hotel, motel, liquor store or restaurant will generally apply the income approach to valuation via the capitalisation of an annual net operating profit. This involves the assessment of a net operating profit, having regard to both property specific and industry benchmarks, and market derived data regarding capitalisation rates. A shortfall in assessment of the net operating profit and/or misinterpretation of the risk involved in operating licensed premises can have a significant effect upon value. Our established history in valuation of licensed premises and abundant benchmarking statistics collated over 30 years provides unparalleled benchmarking opportunities for licensed premises.
Secondary or check valuation approaches are difficult to apply in the valuation of going concerns and intensifies the focus and risk associated with applying the capitalisation approach. In the current environment, there is potential to ascribe hypothetical values to freehold and leasehold interests that form part of the going concern assessment which can provide some guidance as to the overall value of the going concern.
In the liquor store and restaurant industries, few assets are held as real estate and business and the predominant tenure type is that of leasehold interests. These going concern assessments exclude the value of real estate and are heavily reliant upon the assessment of maintainable trading and interpretation of the market for similar businesses. Our consistent treatment of trading figures over a long timeframe provides the required foundations from which to assess value for complex liquor and food businesses.
For more information regarding a going concern valuation on licensed premises, please direct your enquiry to one of the specialist valuers below.
