Knowing Your Market: Why External Factors Matter When Valuing Your Business

You’ve sorted your financials. Your operations are humming. But there's another key dimension that shapes your business valuation — and it's largely outside your control: the market.

Understanding how your business fits into its broader industry and economic environment is essential for a realistic, defensible valuation. Market conditions influence buyer appetite, valuation multiples, and risk assessments — and being able to speak to those conditions shows sophistication and preparedness.

In this article (part 4 of our 5-part series: Getting Ready for a Business Valuation), we explore the market-side factors that impact value, and how you can prepare to put your business in the best possible light.

1. Industry Trends: Is the Wind at Your Back?

Valuers will look at what’s happening in your industry — and so should you. Is your sector growing or shrinking? Are margins under pressure? Are there significant innovations or regulations on the horizon?

Factors to consider:

• Revenue and profit growth rates across the industry
• Emerging technologies or disruption risks
• Regulatory changes (existing or anticipated)
• Market saturation and barriers to entry
• What does evolution and revolution look like?  Is anyone doing it?

Tip: If you’re operating in a rising industry (e.g. renewable energy, aged care, cloud services), that tailwind can justify a higher valuation multiple. Conversely, declining or volatile sectors may require risk discounts.
Action point: Gather independent reports, trade publications, and analyst commentary to help frame your business in context.

2. Benchmarking: How Do You Compare?

Knowing how your business stacks up against others in your industry helps both you and the valuer get a realistic view of performance and potential. This includes financial metrics, operational efficiency, customer mix, and market share.

Key benchmarks may include:

• Gross and net margins
• Revenue growth rates
• EBIT or EBITDA as a % of revenue
• Staff productivity ratios (e.g. revenue per employee)
• Customer churn or retention
• Organic growth rates and are they sustainable

Tip: If you’re outperforming your peers, make it known. Demonstrating that your business is above average supports a higher valuation multiple — and is often overlooked by owners. Sources: Industry associations, Stats NZ, IBISWorld, trade journals, or commissioned market research.

3. Market Position: Where Do You Fit?

Beyond benchmarks, a valuer will want to understand your strategic position in the market.

Questions to consider:

• Are you a market leader, fast follower, or niche player?
• What is your competitive edge (IP, brand, relationships, scale, geographical spread)?
• How easy is it for new entrants to compete with you?
• Do you have pricing power, or are you a price taker?

Competitive advantages that drive value:

• Strong brand or reputation
• Unique technology or intellectual property
• Exclusive supply or distribution rights
• Deep customer relationships or recurring revenue streams

Tip: Create a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to articulate your position clearly and confidently.  Focusing on the Strengths and Opportunities is what got you there.

4. Recent Transactions: What Are Similar Businesses Selling For?

Nothing sets market expectations like real-world transactions. If comparable businesses have sold recently, those deal terms can anchor your own valuation discussions.

Look for:

• Sale prices relative to earnings (EBIT or EBITDA multiples)
• Trends in deal structures (earn-outs, vendor financing, etc.)
• Buyer profiles (strategic buyers vs. private equity)
• Geographic relevance (NZ-based deals carry more weight than overseas comparatives)

Caution: Valuation multiples vary widely based on size, industry, and growth prospects. Use comparatives as a guide, not gospel.

Tip: Ask your advisor if they have access to private transaction databases, or work with a corporate finance team to build a list of relevant comparables.

5. Economic Conditions: The Broader Backdrop

General economic conditions can either enhance or limit business value, depending on timing and perception. Factors like inflation, interest rates, and currency movement can all influence buyer sentiment and valuation outcomes.

Examples of macro factors that affect valuation:

• Rising interest rates → increased cost of capital → downward pressure on multiples
• Labour shortages → higher wages → margin squeeze
• Exchange rate volatility → impacts on exporters or importers
• Consumer confidence → appetite for discretionary spending

Tip: A good valuer will adjust for cyclical factors where possible. But timing still matters. If market conditions are temporarily depressed, it might be worth holding off on a valuation (or sale) until sentiment improves.

6. Framing the Narrative: Tell the Right Market Story

All of this market information feeds into one thing: your business narrative.
The story you tell about your market — and your place within it — helps a valuer or buyer understand your potential. Are you navigating challenges better than others? Are you well positioned to ride the next wave of growth?

A compelling market narrative helps:

• Justify a higher valuation multiple
• Frame risks in context (e.g. “Yes, our sector is cyclical, but we have long-term contracts”)
• Highlight where your business has room to grow

Bonus: Having a well-informed market view also helps in strategic planning, not just valuation.  A shared vision can add weight.

Final Thoughts

Valuation isn’t just about internal performance — it’s also about how the outside world sees your business. Understanding your industry trends, competitive position, and market sentiment helps you benchmark realistically and frame your value persuasively.

By actively tracking your market and preparing your business narrative, you move from being reactive to strategic — and you put yourself in a stronger position whether you’re selling, raising capital, or just planning ahead.  You want to be the one in control.

If you're preparing for a business valuation or want to better understand your market position, speak to the team at Andersen New Zealand. We provide tailored insights to help you plan strategically and maximise value.

Author - Aaron Wallace