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Understanding Business Value

What components form a business’ overall value? Let us explain…

Business value is primarily made up of the goodwill in the business, alongside the plant and equipment value and the stock in trade.

Other components of business value include intellectual property, such as patents, trademarks, brands, formulae and recipes!

Business value is a cocktail of all the above ingredients and it is these ingredients which make the profit on which the business value is based.

The profit of the business is usually ‘multiplied’ by an accepted multiple for the industry and based on comparable sales evidence of similar businesses (type, size and industry within the same marketplace).

However, business value is not that simple. It can also be affected by individual strengths and weaknesses associated with the business in question and also macroeconomic forces such as Government policy changes or the Global financial crisis.

Examples of how business value can be affected, take a look at what has happened to the value of insulation businesses in 2009 and 2010. In 2008, the value of insulation businesses was skyrocketing but in 2010 it was plummeting… all due to external influences on a previously stable business sector!

To understand business value, contact the office on (08) 9481 4422. One of our friendly and knowledgeable team will be more than happy to discuss your industry and the potential value of your business.

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