For businesses with higher profits, these can either be valued on the basis of the profit being calculated as run by an owner operator or under management. For smaller businesses the owner operator (ie no salary for one owner in the expenses) approach is the most appropriate. However, when profits exceed around $800,000, the preferred approach is under management (ie include an appropriate wage for the owner). Whichever method for calculating the profit is used, it does not affect the price of the business. What occurs is the ROI percentage changes accordingly, so that the price is the same. The table below includes both approaches so buyers can use whichever method they consider appropriate. For this exercise, it has been assumed that a fair salary for the owner is $150,000. Obviously this salary should be looked at in relation to the size of the business and other relevant salaries in the industry in which the business operates. In some cases a lower
salary down to $100,000 may be appropriate and it could go up to $250,000 or more for larger businesses.
(Click to view enlarged table)It should be noted that the profits used in the table are based on having all interest and depreciation expenses added back. The only exception is depreciation in hire businesses which is not added back.
Please be AWARE these figures are only a guideline and are based mainly on sales in the Perth market. Other state and country business prices are generally within + or – 10%. However it should be noted that due to the small number of these businesses being sold each year, there are greater fluctuations in actual sale prices occur. This especially applies to exceptional businesses which often attract a premium above market rates. Professional advice should always be sought before putting a price on a particular business.
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