Small business valuation formulas are used by business valuers to benchmark businesses against their peer groups.
Some of the most commonly used small business valuation formula terms to describe the business’s profits and the price the business sells for are:
- EBITDA– earnings before interest tax depreciation and amortisation
- EBIT– earnings before interest and tax
- NPAT– nett profit after tax
- PEBITDA– proprietors earnings before interest tax depreciation and amortisation
- ROI– return on funds invested
- ROFI -also return on funds invested.
Small business valuation formulas are all about the relationship between the profit a business can maintain and the resulting value that profit gives the business in the marketplace.
Knowing the appropriate small business valuation formula to apply to each particular business is critical, as the use of the wrong small business valuation formula can result in an inaccurate valuation of the business.
As always, it is highly recommended that you seek the assistance of a registered professional when determining the value of a business.
If you are looking to sell, or alternatively have found a business worth buying, contact us to obtain peace of mind prior to purchasing. There is no harm in thorough due diligence.