A business valuation for estate planning purposes determines what your business is worth — in Australian dollars, at a specific point in time — using a method the ATO and your beneficiaries’ lawyers will accept. In Australia, if a business owner dies without a current, documented valuation of their business, the estate can end up in dispute: the ATO challenging the executor’s assumptions, family members arguing over a number nobody can agree on, and a business slowly deteriorating while everyone fights. For most Australian business owners with revenue between $1 million and $20 million, the business is the largest asset in the estate. It’s also the one that causes the most problems.
This guide covers how business valuations for estate planning work in Australia, what the ATO expects, and why the exercise is worth doing now rather than leaving it to whoever has to deal with your affairs.
Why Your Will Needs a Number, Not Just “The Business”
Most Australian business owners write a will that leaves their business to a family member, a testamentary trust, or splits it among children — without ever defining what it’s worth or how that value was arrived at. It sounds like a small oversight. It rarely is.
I spoke with a broker last year about a case that stuck with him. A business owner had built a successful electrical contracting business in Perth, turning over around $8 million a year. Solid business — multiple crews, project pipeline, genuinely diversified client base. He left it to his two adult children equally in his will. When he died, one child wanted to sell and the other wanted to run it. Without a current valuation in place, there was no defensible starting point. They spent 18 months and more than $200,000 in legal fees arguing about what the business was worth before the executor could even begin to wind up the estate. The business suffered through all of it. A formal valuation prepared before the owner’s death — even an indicative one updated every few years — would have given everyone a number to start from, and saved the family most of that grief.
A business valuation for estate planning is based on fair market value: the price a willing, informed buyer would pay a willing, informed seller in an arm’s length transaction. That’s the same concept used in a business sale — but the timing, purpose, and audience for the valuation are different.
Business Valuation vs. Sale Valuation: Not the Same Number
If you’ve spoken to a business broker or corporate advisor about what your business might sell for, you’ve received something different from what an estate planning valuation provides.
A sale valuation is built to support a negotiation. It’s typically prepared to show your business in its best light — accounting for the current buyer market, potential synergies a strategic acquirer might pay for, and the art of anchoring a price high before negotiation begins. A broker might tell you your plumbing business in Brisbane is worth $2.6 million. That’s where the conversation starts.
An estate planning valuation — particularly one prepared to give your executor a defensible figure — is based on fair market value at a specific date. It uses conservative, documented methodology. It might produce $2.1 million for the same business, because its job is to withstand scrutiny from the ATO and from beneficiaries who might challenge it, not to win a negotiation.
Neither number is wrong. They’re answering different questions.
(The ATO, for what it’s worth, prefers the conservative version — as you’d expect from an organisation whose income depends on the size of the gap between your cost base and the proceeds your estate receives.)
You can read more about how capital gains tax works when a business changes hands in the tax on selling a business guide.
The Three Methods Australian Valuers Use
For SMEs in the $1M–$20M revenue range, estate planning valuations typically apply one of three approaches, or a combination.
Capitalisation of earnings is the most common for profitable businesses. Your normalised, maintainable earnings — usually EBITDA adjusted for owner’s salary at market rate and any non-recurring items — are multiplied by an appropriate earnings multiple. A small manufacturing business might use 3–4x; a medical practice with a large patient list might use 4–6x. The multiple reflects industry norms, business size, and risk factors specific to the business. The EBITDA multiples by industry guide covers the ranges across different sectors.
Net asset value — the value of what the business owns, minus what it owes — is useful for asset-heavy businesses (earthmoving equipment, property, plant and machinery) or businesses where the earnings don’t reflect the true underlying value. For most service businesses, net asset value understates fair market value significantly.
Discounted cash flow (DCF) projects future earnings and discounts them to present value using an appropriate discount rate. More common for larger businesses, or those with predictable, contracted revenue growth. A $4 million turnover software company or allied health group might warrant a DCF as the primary method.
For most Australian SME estates, capitalisation of earnings is the workhorse. One rule of thumb that gets cited frequently in practice: a business with no key person dependency, recurring client relationships, and a trained management team will attract a higher multiple than one where everything runs through the owner. That distinction matters as much in estate planning as it does in a sale.
What the ATO Expects from an Estate Planning Valuation
The Australian Taxation Office has a direct interest in business valuations produced for estate planning purposes, particularly where the small business CGT concessions are in play.
Under those concessions, a business owner who meets certain conditions can reduce or eliminate capital gains tax on the disposal of business assets — including in some cases where assets pass through a deceased estate. The 15-year exemption, the 50% active asset reduction, and the retirement exemption all hinge on asset values being correctly calculated at the relevant time.
The ATO’s position on business valuations is outlined in TD 2006/35 and PS LA 2003/12. The core requirement: valuations must be based on all known information at the valuation date, prepared by someone with relevant expertise and independence, and documented in sufficient detail to support the conclusions. That last point matters in practice. A one-page estimate from your accountant based on a revenue multiple won’t stand up if the estate is challenged — either by a beneficiary who believes the business was undervalued, or by the ATO questioning a CGT concession claim.
For most estates where the business is worth more than $500,000 and is likely to be transferred or sold, a formal valuation from a qualified business valuer is the right call. See how much a business valuation costs in Australia for what to expect.
When to Get a Business Valuation (and When to Update It)
There are three moments when a current business valuation matters most for estate planning:
When you write or update your will. If the business isn’t reflected with a defensible current value, your will might not achieve what you intend — particularly if you’re leaving interests in a company to multiple beneficiaries who might disagree about what they’re worth.
When you establish a testamentary trust or buy-sell agreement. These documents need a current value to set buy-out pricing, loan repayment terms, and capital distributions. A buy-sell agreement that references a 2019 valuation in 2026 is a liability, not an asset.
Every three to five years, or after a material change. A valuation done when the business was generating $600,000 EBITDA will be substantially wrong five years later if revenue has grown, a major contract has been won, or ownership structure has changed. Update it when the business materially changes, not only when something goes wrong.
The Connection Between Estate Planning and Exit Timing
Here’s something most accountants don’t raise: the best time to think about a business valuation for estate purposes is often also the best time to think about your exit. The two exercises are more connected than they appear.
If your business is worth $3.5 million on fair market value and you’re 57 years old with a plan to retire in eight years, your estate plan might assume you’ll still own the business when you die. But what if the better path is to sell it in the next three to five years — while you’re healthy enough to manage a transition — and hold the proceeds in superannuation or a family trust? The after-tax difference can be substantial, particularly if you qualify for the small business CGT concessions before your circumstances change.
A business valuation built for estate planning is often the document that opens this conversation with your accountant and your family. It gives everyone a concrete number to work with. From there, the question — “should I be planning to sell, not just to pass this on?” — becomes a real conversation, not a hypothetical.
Business exit planning and estate planning overlap far more than most owners realise, and the businesses that handle the transition well are the ones where both exercises happened together, not years apart.
If your business is your most significant asset and your will doesn’t have a current, documented valuation sitting behind it, that gap is worth closing. Start with our business valuation calculator for an indicative figure, or contact Miro Capital to discuss a formal valuation for estate planning or exit purposes.