When purchasers, vendors, business brokers and valuers use a standardised approach to assessing profits, it allows all of these stakeholders to assess the value of businesses on a like for like basis. It is important that the adjusted profit (or profit after appropriate addbacks) is considered not necessarily as the actual profit that a business owner will derive, but rather as a “standard comparison profit” to be used in assessing market value.
By understanding the main principals of calculating the correct addbacks, this also allows readers to make better use of the Return on Investment (ROI) percentages, as published in this newsletter, in the calculation of ballpark business value estimates.
