What is my business worth if it makes $500,000 a year?

It is the first question almost every owner asks, and it deserves a straight answer rather than a brochure.

If your business earns $500,000 a year, the honest range is wide. Two businesses with identical profit can be worth a million dollars apart. That is not evasion. It is the actual answer, and understanding why is worth more to you than a single number would be.

First, which $500,000?

Before anything else, work out which figure you are talking about. Accounting profit is not what a buyer prices. They price normalised earnings, which is the profit once your own wage is adjusted to what it would cost to employ someone to do your job, personal expenses run through the business are added back, and genuine one off costs are removed.

That adjustment can move the number in either direction. An owner drawing $60,000 while doing the work of a $180,000 general manager has earnings that are overstated once the market rate goes in. An owner running the family car, some travel and a phone through the business has earnings that are understated until those come back.

Every add back has to be documented. Undocumented ones get struck out during due diligence, and they take price with them when they go.

The multiple, and why it moves

Price is normally the normalised earnings figure multiplied by something. For owner operated Australian businesses that multiple commonly sits somewhere in the low single digits, often between two and four times, with larger, better systemised businesses in stronger sectors attracting more.

On $500,000 of normalised earnings, the difference between 2.0 and 3.5 is $750,000. That gap is the whole game, and it is decided by things you can influence.

Owner dependence. The heaviest factor by a distance. If you price every job, hold every key relationship and make every decision, a buyer is not acquiring a business, they are applying for your job with a large entry fee. If the business runs while you are away for a month, the multiple moves up.

Customer concentration. One client at sixty per cent of turnover is the first risk a buyer prices and the first question their financier asks. Spread revenue and you widen the buyer pool.

Recurring or contracted revenue. Revenue already on the calendar is worth materially more than revenue that has to be won again each month. This single split moves price more than almost anything else on the list.

Transferable systems. Whether the process lives in a system or in someone's head. Documented beats remembered every time.

Clean records. Three tidy years, business and personal spending separated, numbers that reconcile to the bank. Messy books do not just lower the price. They lengthen due diligence, and long due diligence is where deals die.

What about the plant and the stock?

If you carry equipment, vehicles or stock, those are generally treated separately from goodwill. Plant is assessed at honest market value less whatever finance is owing against it, and book values are routinely wrong in both directions.

This is why an asset heavy business can carry a higher total price and a lower multiple at the same time. A buyer funding a fleet has to fund the goodwill and the replacement cycle behind it. That does not make the business worth less. It changes how the price is built.

Why sector matters less than you think

Owners often assume their industry sets the number. Industry does shape buyer appetite, and right now there is real competition for well run Queensland businesses in trades, transport, civil, online retail and services, helped along by the infrastructure pipeline running into 2032.

But two transport businesses with the same earnings can be a long way apart on price, and the reason is almost never the industry. It is the six factors above.

What to do with this

If you want a figure that means something, it has to come from your actual numbers. A market appraisal reviews three years of financials, the customer mix, the plant and finance position, and how the business runs when you are not there. It is free, it is confidential, and it commits you to nothing.

The more useful reason to do it early is that most of what sets the multiple is moveable given time. Concentration comes down over eighteen months. Contracted revenue can be built. Owner dependence can be engineered out with enough lead time. Owners who find out where they stand two years before they intend to sell have options. Owners who find out the week they decide they have had enough do not.