If you’re wondering “how much is my business worth” chances are that you have spoken to one or two business brokers. You have had a few meetings and maybe you received an estimation of the value of your business. There are methods to valuing a business for its actual worth. Besides that, many aspects need to be taken into consideration when looking at valuation.
How do Business Brokers determine the asking price of a business?
The short answer to how do business brokers determine the asking price of a business is; they use specific methods. It’s not a quick look at the premise and then an educated guess. Nope, there are specific methods that allow Business Brokers to determine the sale price of each individual business.
In W.A, only Business Brokers licensed under the Real Estate and Business Agents Act 1978 are permitted to act as an agent for a business owner during the sale of their business.
At Goodwin Mitchell O’Hehir, we commonly use the ROI (Return on Investment) method to determine the sale price of a business.
What does the ROI method entail?
Being the most common method for business appraisal, the ROI method determines the sale price by utilizing the ROI percentage. The formula for doing so is shown below:
Sale Price = Net Profit x 100
A business makes $180,000 net profit to a working owner (before tax). The Return on investment for that particular industry is at 50% (for industry-specific ‘ROI percentages’, speak to your Business Broker and/or Accountant). Therefore, the formula plays out as follows:
Sale Price = $180,000 x 100
Therefore, the sale price in this instance is $360,000.
Read more about valuing a business.
How much is your business worth?: GMO Business Brokers for valuing your business
When choosing GMO Business Brokers we will also assess the market during the process of conducting the appraisal of your business. We will assess businesses recently sold that are similar to yours, assess current trends, make comparisons and set a sale price that is competitive yet realistic.
To get the ball rolling when it comes to valuing and selling a business, contact the GMO office to discuss your potential appraisal. You are always welcome to have an obligation-free discussion with one of our knowledgeable Brokers, who live, breathe and think W.A business on a day-to-day basis.
Contact us today on (08) 9481 4422, or alternatively, email your enquiry to email@example.com