Why are some businesses worth more than others?

• By Daren Leng, Senior Business Broker, ABC Business Sales

Unlike selling a home, where land and house size, as well as location, can be easily compared, valuing businesses is far more complex.

Here are a few key factors that will influence how much a business may be worth.

Profitability is key. Businesses with steady and growing profits attract higher valuations.

Buyers prefer enterprises with proven financial performance, reducing risk and ensuring reliable returns.

Risk plays a significant role. Secure revenue streams, supported by factors like dependable staff, contracts, supply chains, and market position, make a business less risky and, therefore, more valuable.

The sector also affects valuation. Demand from buyers can vary greatly between industries.

For instance, a business making $300,000 profit might be worth $500,000 in the retail sector but $1 million if it’s an importer or distributor.

Growth potential matters too. Companies operating in expanding industries or with clear paths for future growth, such as innovative products or scalable operations, are inherently more appealing.

There are significantly more factors involved, and I strongly recommend you engage with your business broker, and your accountant, before making any decisions to buy or sell a business.

• For expert advice, contact Daren Leng at ABC Business Sales – Your Business Broker of Choice. Daren Leng, Senior Business Broker, phone 021 0278 6045 or email darenl@abcbusiness.co.nz.