What’s my business worth?
With very few exceptions, most businesses are valued by an accepted method based on the adjusted profit of the business.
What’s adjusted profit?
When valuing a small business, you must examine the businesses expenses, and identify which of those expenses represent benefits for the owner. Salary is just one possible example along with superannuation. In Australia it is common to add one of the owner’s wages and associated benefits alongside any interest payments or depreciation allowances. Basically, what the adjustment represent is the true profit a new owner should receive from the business.
Business Valuation Methods
There are three broad approaches used by Business Valuers. These are :
The Asset Method
The asset-based approach utilises the Company’s adjusted balance sheet as the primary focus of fair market value.
The Income Method
The theory of the income approach is that the value of the business is the present value of the future economic benefits (income stream) it’s expected to provide.
The Market Method
The market approach draws comparisons to publicly traded companies or private companies that are similar to the subject company.
Any single valuation approach may be used. Professional practices, Real Estate Agents, and Medical and Veterinary Practices may utilise a different approach. Family Court Valuations sometimes also necessitate the use of another approach, that of value to owner. One thing is paramount in Business Valuation, and that is that the valuer has the qualifications and experience to provide a valuation that is accepted for both merger and acquisition and litigation purposes.