💰 Quick Guide: How to Value a Business?

Author

Sam Bass
July 31, 2023

Good morning business buyers, can you feel the tingling excitement in the atmosphere?

We're firm believers that every Aussie business deserves to find its soulmate buyer.

Each potential match is a bit of wind in your sails as you set sail on this journey. Step aboard and let the wild adventure commence!

This week we had 236 new businesses listed.

So today we break down:

  • The ‘quick’ way to value a business?

  • Plus the 7 most interesting new businesses this week 👇

7 Most Interesting Business For Sale this Week:

Booming Glass & Glazing Business in Perth $685k

Located South Of Perth Well Established Business Owner Retiring After Lengthy Profitable Innings Fully Equipped Staffed With Extensive Owner Handover...

Fish and Chips Shop in Mandurah $65k

Takings Approx. $10,000 Plus Per Week Great Location In Busy Shopping Complex Easy Parking In Front Of The Shop Long Term Lease Five Years With Five Years...

Agri-Transport Business in WA $15m

Strong revenue exceeding $17M with profits near $5M. Provides Bulk freight and haulage of a range of farming agricultural products including fertilisers, lime/gypsum.

The Original Rashays Restaurant in Liverpool $291k

We will set you up for success from the beginning, with in-person and online support, our RASHAYS Academy has all the training you need to be successful covered.

Nuts / Bolts / Screws + Fasteners Business on Sunshine Coast $595k

Supplies hundreds of Business & trade clients - Including local manufacturers and building industries. Qualified staff with years of experience - Owner will ensure a smooth transition with all the training you need.

Couriers Please Franchise in Western Sydney $15k

Exclusive franchise territories across Western and Northern Sydney suburbs. Each territory has a mix of B2B, industrial & residential customers.

Garden Centre Cafe in Mid North Coast of NSW $499k

Set amongst the grounds of the Bonny Hills Garden Centre, which is one of the largest garden centre's located between Sydney and Brisbane.

How I do quick business valuations?

Figuring out the value of a business is a bit like trying to solve a puzzle—it's a blend of creativity and logic. It's not quite as straightforward as, say, appraising a house. There are so many more variables and considerations.

But hey, don't worry! I want to share my method with you, a quick way to estimate a business's worth, especially when it's generating revenue in the sweet spot between $500K and $5M.

First things first, you'll need to do a bit of homework. Here are the initial pieces of information you need to collect:

  • Last full 3 years of Profit and Loss Statements

  • Current Balance Sheet

  • Details on Lease or the Real Estate if owned

  • What does owner pay themselves and what do they do?

  • Any other family members employed?

  • List of Discretionary Expenses (expenses that are optional, or beneficial to current owner)

  • Major Equipment List with Market Values

  • Unusual Events Last 3 years? Any lawsuits? Gov handouts? Insurance Claims? Major Equipment bought/sold?

Before you dig in, ask yourself 4 common sense questions:

  1. Do I understand how this business works?

  2. Does this business work without the owner?

  3. Is there ONE customer or supplier that this business is completely at the mercy of?

  4. What exactly is a buyer buying here?

It's time to do an SDE-based, Income Approach to Value, which is really just 3 big parts.

  • Determining SDE the last 3 Years

  • Deciding how to Weight the last 3 Years' SDE

  • Choosing an Appropriate Multiple to Multiply SDE to Reach our Value

What is SDE exactly? It stands for Sellers Discretionary Expenses and it's the theoretical "Earnings Power" of the business or the total "Owner Benefit".

It's the "Earnings Firehose" you theoretically should have available to service acquisition debt, pay yourself or a GM to run it, reinvest for growth, or take home in profit.

If you owned this company, debt free, and worked in it full time (paying yourself $0) paying only necessary expenses, the SDE is what you'd make in profit. It's the maximum earnings possible on a normal year in the company's current condition. Now let's find it.

Read about how to calculate SDE and then how to calculate the multiple to give you the final value here:

Business For Sale around Australia

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Till next Tuesday!

Sam from Business For Sale