Every business owner is naturally curious about just how much their business is worth. However, for every business that sells at an attractive price, there are others that struggle to sell, let alone fetch a premium. The question is, what makes a difference?
When you come to sell a business the first question is, what are you selling? In most cases, this is fixtures and fittings, plant and
equipment, stock on hand, and the goodwill of the business. Generally, a buyer won’t want to purchase your liabilities or your business
structure, nor will they want to collect your outstanding debtors. Most business sales become a sale of business assets.
These assets are relatively easy to value with the exception of the goodwill. The value of plant and equipment and trading stock can
generally be agreed. The tension tends to be around the value of the goodwill because goodwill is made up of many intangible assets that
can’t be readily quantified.
We can all agree that there is value in these assets but the question is, how much? Goodwill is basically the value of the future free
cashflow of the business. Based on how your business is structured, it is the value of the profits the business can generate in the
future. This is what a buyer is prepared to pay for.
If a buyer has a reasonable certainty of profits and free cashflow in the future, then this is worth something. By comparison, a start-up
business will have a higher level of risk and no certainty that profits can be generated. In general, a new business may need to trade for a
number of years at a loss before it can establish itself and generate profits. Goodwill is what you are prepared to pay to avoid the
risk and the ‘time to establish’ factor.
So, what influences business value and what will people pay for?
It is possible to get a price that is widely different from the norm. Unique businesses, unique circumstances, and unique opportunities can
always produce ‘an out of the box’ price. If you can build something unique, then you may achieve a price beyond normal expectations. At the
end of the day however, the market will set the price.
If you are planning on selling your business, identify who your buyers might be. There could be a purchaser who is prepared to pay a large
premium to own your business because of the accretive value or because it is pivotal to their growth strategy.
And, even if you are not thinking about selling your business, the reality is that one day you will. If you build your business with this in
mind, then you should look to do the things that will grow your business value from year to year.
Our expert accounting and business consultants can help ensure a smooth transition when you're ready to step out from your business.
WEBINAR 11 SEPT // 12PM
The final session focuses on the changing legal environment, highlighting recent amendments to the Fair Work Act, capturing independent
contractors under workers' compensation schemes, payroll tax considerations, superannuation compliance, and practical steps to mitigate
risks.
WEBINAR 4 SEPT // 12PM
In the third session, we'll delve into superannuation guarantee changes, including proposed changes to payday superannuation, new rates and
bases, and the impact on SG liability. Gain insights into employer deductions, termination of employment considerations and more.
WEBINAR 28 AUG // 12PM
Master allowances and reimbursements, understand their PAYG and super guarantee implications, and learn to navigate travel vs.
living-away-from-home allowances. Gain insights into FBT considerations, new ATO record-keeping requirements, and effective salary packaging
arrangements.
Building on the findings from Xero Small Business Insights (XSBI) report, Small business productivity: Trends, implications and strategies, this special report presents industry and regional labour productivity data for small businesses.
The main residence exemption exempts your family home from capital gains tax (CGT) when you dispose of it.