There are basically two methodologies used in valuing businesses:
1. Traditional Businesses
Business Value= Profit x Selling Multiple of the Profit
These are more traditional businesses where: “Maximizing profit
maximizes business value” – all assets (including stock and
equipment) used to generate profit are included in the business
value / sale price.
Our ‘Ready For Sale’ strategies often increase the profit /
business value – read more at www.sellabusiness.com.au under
the ‘Selling your Business’ heading
2. Recurring Revenue Businesses
These businesses include real estate rent rolls, accounting and
legal firms, financial planning firms (less of these lately) where
the selling multiple is applied to INCOME (or fees) not PROFIT.
These businesses are seen as fairly defensive investments (due to
recurring revenue streams). If they were valued on PROFIT not
INCOME the selling multiple would be alot higher.
Multiples of profit or income vary from industry to industry.
If you’d like more information about selling multiples make a comment below or PM me.