Going Concern Valuation Explained: Finance and GST
Going Concern Valuation Explained | Switchboard Finance
Accommodation Finance
Going Concern · Valuation · GST
Going Concern Valuation Explained: Finance and GST
The contract price is the number on the listing. It is almost never the number a lender hands you. On an operating accommodation business, the loan is built on the going concern valuation, and the way that figure is calculated, plus how the sale is treated for GST, decides what you actually need to bring to settlement.
Quick Answer
A going concern valuation is the number a lender sizes your loan against when you buy an operating accommodation business, the land, the business and its goodwill valued as one whole, not the property alone. It also shapes whether the sale can be structured GST-free.
The price is not the number your loan is built on
On a going concern deal, the asking price and the figure your loan is built on are two different numbers, and the gap between them is where buyers come unstuck. The seller sets the price; an independent valuer sets the figure a lender will actually lend against, the land, business and goodwill valued as one operating whole. When you buy a motel, caravan park or pub as a trading business, the asset is valued on the business, not the bricks, so the asking price sits outside what the lender will actually advance.
In my experience, the asking price and the lending figure are two different numbers, and treating them as one is what quietly derails a deal late. A vendor can list at whatever they like; the lender funds what an independent valuer says the operating business is worth. That is the core difference between going concern lending and a standard commercial property loan, and it is why the accommodation finance hub leads with earnings rather than postcodes.
How the going concern valuation is built
A going concern valuation is built from what the business earns, then layered with the property where you own it. The valuer normalises the trading accounts into an adjusted net profit, stripping out one-off items and adding back a market wage for an owner-operator, then applies adjusted net profit times a yield multiple for the asset class, illustrative and set by the valuer, to value the business and its goodwill. On a freehold going concern, the freehold land value is added to that figure to reach the full going concern valuation.
This is why two motels listed at the same price can borrow very differently. The one with clean, verifiable books and a transferable trade supports a higher valuation, and therefore a larger loan, than the one whose numbers lean on the current owner being behind the desk seven days a week.
What the valuation counts, and what it ignores
The valuation counts sustainable, transferable earnings and the assets that produce them, and it ignores the rest. Because the LVR is applied to the going concern valuation, not the property alone, the quality of the books does more to move your borrowing power than the building does. The table below is roughly how a valuer and a credit team sort it.
In practice, the valuation can land under the contract price, and when it does the lender sizes the loan on the lower number. The gap then falls to you. Buyers close it with a larger cash deposit, by adding supporting security such as equity in a property you already own, or by asking the seller to leave part of the price in through vendor finance. Whether you are buying a freehold going concern or a leasehold also changes how high the deal gears and how the loan term is set, which our guide on freehold versus leasehold unpacks.
Going concern and GST: when the sale is GST-free
A sale as a going concern can be GST-free where the conditions are met, which keeps the price the loan is built on clean rather than inflated by a GST round-trip. The Australian Taxation Office sets the test: broadly, the sale must be for payment, the buyer must be registered or required to be registered for GST, the buyer and seller must agree in writing that it is the supply of a going concern, and the seller must supply everything necessary for the business to keep operating and carry it on until the day of sale. You can read the detail on the ATO's sale of a going concern guidance.
Why it matters for finance is simple: when a motel or park changes hands GST-free as a going concern, the buyer is not funding a GST component on settlement day and then waiting on a refund, so the cash you need lines up with the valuation rather than ballooning around it. The mechanics are tax, not lending, so the structure belongs with your accountant; the point for a buyer is that the asset is still valued on the business, not the bricks, and the GST treatment decides how cleanly that value carries through to settlement.
Strip it back and an accommodation purchase turns on one number that is not the asking price. The going concern valuation bundles land, business and goodwill into one operating whole, the lender applies its LVR to that figure rather than the property alone, and the valuation can land under the contract price, so the gap is yours to plan for. Layered on top, a sale structured GST-free as a going concern keeps that figure clean through to settlement.
Key takeaway: get the books and the going concern valuation right first, because that number, not the price tag, decides what you can borrow.Frequently Asked Questions
The sale of a going concern can be GST-free where the conditions set by the ATO are met, not automatically. In broad terms the sale must be for payment, the buyer must be registered or required to be registered for GST, and both parties must agree in writing that it is the supply of a going concern, with the seller carrying on the business right up to settlement. Because this is a tax question with real consequences, confirm your position with your accountant, and read how it sits alongside the going concern valuation in this guide.
A going concern valuation is calculated on what the business earns, not on the asking price. A valuer normalises the trading accounts into an adjusted net profit, applies a yield multiple for the asset class to value the business and goodwill, then adds the freehold land value on a freehold going concern. The combined figure is what your lender applies its LVR to, which is why two motels at the same price can borrow very differently. Our guide on how lenders value a motel, pub or caravan park walks through it.
The lender lends against the going concern, the business and the property valued together as one operating whole, not the bricks alone. Whether you buy a freehold going concern or a leasehold changes how high it gears and how the loan term is set, which is why full financials matter more than the postcode. The accommodation finance hub shows how this lands across motels, parks and pubs.
If the valuation comes in under the contract price, the lender sizes the loan on the lower valuation, so the gap falls to you to cover. Buyers commonly close that gap with a larger cash deposit, by adding supporting security such as equity in another property, or by asking the seller to leave part of the price in through vendor finance. Our explainer on how vendor finance works covers the trade-offs.
Finance to buy a freehold going concern motel or park is widely available, typically up to around 60 to 70 percent of the going concern valuation and higher with supporting security, indicative and varies by lender. Because the assessment rests on verified earnings, full financials and a clear handover matter more than a low doc shortcut. You can compare the lanes on motel finance and caravan park finance.
FBAA Accredited
