Business Analysis
BUSINESS VALUATION METHOD
Aldes Business Brokers has developed a 3 pronged approach to valuing small to medium sized businesses. We have been using this method successfully in the marketplace for the last 25 years. It works so well that a number of industry-related bodies including the Institute of Estate Agents have adopted it. It is also promoted in a number of business books. The three methods are as follows:
1. Extra Earning Potential [ Super Profits ] 2. Return on Investment [ ROI ] 3. Payback Period [ Magic Multiplier ]
EXAMPLE: Data Used:
Retail Business (Shops, Restaurants Etc.) Assets: Fixtures, equipment etc valued at Stock (at cost) Net Profit/owner salary/perks Would pay a manager Bank interest on fixed deposit Business has been established R50,000 R200,000 R15,000 pm = R180,000 per annum R 5,000 pm = R 60,000 per annum 6% 5 years
Based on the above information, proceed as follows:
1. EXTRA EARNING POTENTIAL
This method states that in exchange for the risk of being in one’s own business, a buyer should receive an extra amount over and above what he could earn if his money was placed in a bank and he worked for a salary. Assets + Stock Asset Value (a) Interest @ 6% on asset value Salary per annum for manager Total ( b ) Net Profit pa of business ( c ) [ E.E.P.] ( c ) - ( b ) E.E.P. x (24) months = Value = ( a + d ) (50,000 + 200,000) R15,000 R60,000 R75,000 R180,000 R105,000 Goodwill ( d ) R210,000 R460,000 Page 1 R250,000
Asset Value: Fixtures and fittings, plant and machinery, motor vehicles etc. that are unencumbered and any assets on lease or HP that have a value greater than the outstanding debt. Add the difference between market value of that asset less the outstanding balance to asset value. Stock is at cost. NB. Debtors and creditors are left out of the calculation.
Interest Percentage: Calculated at the rate which an average person could attain from a financial institution, ie fixed deposit rate. Salary: The amount an owner
Aldes Business Brokers has developed a 3 pronged approach to valuing small to medium sized businesses. We have been using this method successfully in the marketplace for the last 25 years. It works so well that a number of industry-related bodies including the Institute of Estate Agents have adopted it. It is also promoted in a number of business books. The three methods are as follows:
1. Extra Earning Potential [ Super Profits ] 2. Return on Investment [ ROI ] 3. Payback Period [ Magic Multiplier ]
EXAMPLE: Data Used:
Retail Business (Shops, Restaurants Etc.) Assets: Fixtures, equipment etc valued at Stock (at cost) Net Profit/owner salary/perks Would pay a manager Bank interest on fixed deposit Business has been established R50,000 R200,000 R15,000 pm = R180,000 per annum R 5,000 pm = R 60,000 per annum 6% 5 years
Based on the above information, proceed as follows:
1. EXTRA EARNING POTENTIAL
This method states that in exchange for the risk of being in one’s own business, a buyer should receive an extra amount over and above what he could earn if his money was placed in a bank and he worked for a salary. Assets + Stock Asset Value (a) Interest @ 6% on asset value Salary per annum for manager Total ( b ) Net Profit pa of business ( c ) [ E.E.P.] ( c ) - ( b ) E.E.P. x (24) months = Value = ( a + d ) (50,000 + 200,000) R15,000 R60,000 R75,000 R180,000 R105,000 Goodwill ( d ) R210,000 R460,000 Page 1 R250,000
Asset Value: Fixtures and fittings, plant and machinery, motor vehicles etc. that are unencumbered and any assets on lease or HP that have a value greater than the outstanding debt. Add the difference between market value of that asset less the outstanding balance to asset value. Stock is at cost. NB. Debtors and creditors are left out of the calculation.
Interest Percentage: Calculated at the rate which an average person could attain from a financial institution, ie fixed deposit rate. Salary: The amount an owner