Determining the value of your business can be very difficult. You may want to obtain advice from your financial adviser, accountant or a registered business broker with experience in selling similar businesses.
TIP: Only a business broker licensed under the Real Estate and Business Agents Act 1978 is permitted to act as an agent for a business owner in the sale of their business in Western Australia. Generally businesses are valued using one of the following methods.
Return on investment (ROI)
This is the most common method for valuing a business. The following formula is used to calculate the selling price:
Sale price = (net annual profit before tax x 100) ÷ ROI percentage
TIP: To find the ROI percentage for your industry, talk to your accountant or business broker.
This method adds all the assets of the business together to determine its value. Assets may include stock, plant and equipment, property, vehicles, furniture, intellectual property, established client list and goodwill. The following formula is used to determine the asset value:
Sale price = assets of the business + goodwill
TIP: Valuing goodwill can be difficult, seek advice from your financial adviser or accountant.
This is most commonly used to value professional practices such as legal, veterinarian or insurance brokers. It is rarely used to value retail businesses.
The following formula is used to determine the market value:
Sale price = turnover x industry multiple
TIP: Make sure you have a good understanding of the current market and are aware of industry standards. Research the market for businesses similar to yours, compare prices and set a price that is competitive.