|1. Extra Earning Potential||=|
|2. Return On Investment||=|
|3. Payback Period||=|
4. Estimated Market Value
- The Assets are valued at second hand value, not depreciated or replacement value;
- The Stock is the estimated cost value;
- The Interest is bank fixed deposit rate – 6%;
- The Salary is what the business would pay a manager to run the business;
- The Annual Profit includes all the perks the Owner derives from the business;
- The ROI is between .30 and .40 average .35.
The Time Period:
- Service businesses: 9 months to 15 months (low asset base) – Average 1 year
- All other businesses: 18 months (1.5 years) to 30 months (2.5 years)
- Well known franchises may go as high as 36 months (3 years) to 42 months (3.5 years)
Although each of the 3 methods may differ significantly, the average tends to give a Realistic Market Value for the business.
NB: Although Sellers and Buyers can do their own assessments, it is important to get the input of a business broker with years of experience in valuing businesses.