07/02/2017
How much is a business worth?
When buying a business the value of a business becomes very important if buying an established business. Determining value is important when you're spending your hard earned money and committing many years of your life
One of the major determinants of the value of a business is something called its sustainable net profit. This profit is not the stated profit on a business' most recent financial statements. It is instead the average profit adjusted for non-business expenses, and after allowing for a market salary for the working owners. The market averages of expenses and returns needs to be compared.
Non-business expenses are those linked to the owners rather than the business. When evaluating a business the current owners should be asked whether the figures include wages paid to them for the work they do, and how much work they do in the business.
We are told by Selling brokers and Vendors that Value of the business is a multiple of the net profit. This may not be true as others lot of factors also play a role in determining value of a business.
For Example, A business that faces high risk, such as increasing competition and a declining market due to technological developments, the multiple is a lot lower.
So there is no thumb rule of multiples- Every Business needs to be evaluated based on Risks, Potential, Lease, Rent, Labour involved, Future of business ( eg Newsagencies business declining and not long will be further down)
Before committing to purchase a franchise you should check with other franchisees to see what they think of the franchisor. It can also help to contact business consultants to get latest information and health of any industry you are getting into. It is worth spending time and money with them.
We can help you to make these important decisions- Visit us at Suite 4, 115 Main Street Blacktown NSW 2148
http://bit.ly/1SFPuu2
http://www.nationalbusinessexchange.com.au/
