- By Daren Leng, Senior Business Broker, ABC Business Sales
The business sales market is an intriguing one, in that there are many ways in which people arrive at a value when assessing the sale and purchase of a business.
Here are some key methods to note.
- Earnings multiples (EBITDA): The business’s earnings (typically net profits) before interest, taxes, depreciation, and amortization (EBITDA) are multiplied by an industry-specific multiple to estimate value. This is the most common methodology.
- Asset-based valuation: Calculates the net value of assets minus liabilities. Useful for asset-heavy businesses but less relevant for service-based companies.
- Comparable sales: Examines recent sales of similar businesses in the same industry to estimate a fair market price. Particular attention paid to EBITDA, assets and stock value.
- Industry benchmarks: Uses industry-specific metrics, such as revenue multiples, to gauge value. Depending on the sector will dictate what multiples that are used. These multiples are typically in sectors that have larger opportunities, require lower specialist knowledge to operate, and are less risky.
Each business is unique, and it’s important to have your business broker guide you through the appraisal process and involve your advisors, to ensure you’re getting true value when it comes time to sell.
For expert advice, contact Daren Leng at ABC Business Sales – Your Business Broker of Choice.
Compliments of the season to everyone and see you all in this New Year.
- Daren Leng, Senior Business Broker, ph 021 0278 6045 or email darenl@abcbusiness.co.nz.
