In Business Values Newsletter No 159, the logic and method of establishing the maintainable earnings (profit) was worked through. The second main part of the business valuation calculation is establishing the multiple or return on investment percentage (ROI) to apply to profit.
ROI percentage ranges for various business types and at various levels of profit, are published in the Business Values Newsletter, based on information from the marketplace. But, these ranges apply to typical/average risk profile businesses, within each industry category. For an accurate assessment of an ROI percentage to be used in a formal valuation, a detailed risk profile of the business also needs to be worked through.
RISK PROFILE
When purchasers are weighing up which business to buy, amongst a selection they may be considering, there are a number of risk factors that they work through. For small businesses, some of the considerations are not purely from an investment perspective, as purchasers will typically be working in the business. Some of the main factors that apply to most small business types are summarised below.
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