Hi
Could anyone give me a rough idea on how to value a business based on profit? eg a ‘cafe’ making $10,000 per month after profit. Not taking into account stock or fittings etc, as a guide what would something like this be worth.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
Well if we take the absurd valuations used in the *bleep*market, that business could be valued at say 18 times earnings….$4,320,000 [
][][][][}][]Seriously though from my very vague recollections, I think one to two years earnings + stock, fittings etc is about the going rate.
Don’t take that as gospel though i may be way off!
Cheers Wayne
Terry,
One further point;
It is important to determine whether those earnings are inclusive of the proprietors fair wages or not. The true earnings are exclusive of this.
Wayne
put up the last five yearts P & L’s the proprietors remuneration including MV, super and other benefits spouse etc incl) for the same period, details of the rent and lease, a review of council records for possible changes, detailed depn and lease of equipt schedules, and we will see what we can do.
otherwise it would be a uneducated guess.
Another way you can consider is after all expense (inc your own wages) is to see whether the return on capital is acceptable for the increased risk and compared to what you could get elsewhere.
Josh
Thanks guys. I have talked to an accountant and it is very hard to do an educated guess wihtout knowing all the details. But approx 1 to 2 years profit maybe a guide on the worth of a business.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry
The most sound basis for determining a businesses value is the return on investment calculation. You take the net profit as disclosed and add back any expenses that would not be relevant to a purchaser, eg, owners wages, interest paid, owners super, owners motor vehicle, etc.
Then you determine a reasonable remuneration for the owners labour and deduct it from the adjusted profit. The amount left over is your return on investment from the business. We believe the minimum this should be is 20% – 30% depending on the type of business eg, $50,000 return = $250,000 business valuation.
One of the biggest problems in valuing these businesses is knowing how much cash income is NOT declared and basically you ignore it.
Regards
JB
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