The topic of what profit to use was last covered by Business Values Newsletter No.107 as at April 2009. This was during the Global Financial Crisis, which immediately followed economic boom years of 2007 and 2008. At this time, the article was written in response to strong subscriber queries as to how to estimate maintainable profit given the undulations of business financial performance over the past 12 months, as well as a lower level of certainty in the future. It is Interesting that there is one again strong enquiry as to how to estimate profit from subscribers, business brokers and accountants, in the current Covid-19 affected economy.
Your author was recently invited to present at a CPD session for the Australian Institute of Business Brokers on this topic – the following article summarises the presentation.
Before getting to the Covid-19 influences in establishing maintainable profit, some basics in correctly calculating the profit for small businesses are reviewed. This article therefore covers:
- Correct standards of profit and why they are used in small business valuations
- Standard normalisation adjustments – Review of owners salary, interest and depreciation adjustments
- Covid Adjustments – Jobkeeper, Cashflow boost, Covid payroll tax, rent relief etc
- When to use the most recent year profit, average of several years, weighted average, or some other form of profit calculation