How businesses are actually priced
Most businesses in Australia are priced as a multiple of adjusted earnings: you take the profit, add back the owner’s wage, one off costs and personal expenses to find the true earnings, then apply a multiple that reflects how safe and transferable those earnings are to a buyer. A licensed business broker can tell you your specific number with a free, confidential market appraisal.
Most owners assume their business is worth a percentage of turnover, or whatever the bloke down the road reckons he got. Neither is how it works. Almost every small and medium business in Australia is priced the same way: take the true earnings, then apply a multiple that reflects the risk a buyer is taking on. Get both parts right and you know your number. Here is the whole method in four steps.
Start with the profit
Not the number that keeps your tax bill down. The real trading profit of the business, taken from clean financials that reconcile to your accounting system and your bank.
Add back what is really yours
Your wage, personal expenses run through the business, one off costs and non cash items get added back to reveal the true earning power. This adjusted figure is often called adjusted net profit or seller's discretionary earnings, and it is almost always higher than the profit on your tax return.
Apply the multiple
The adjusted earnings are multiplied by a figure that reflects how safe, stable and transferable they are. A business that runs without the owner, with contracted income and clean books, earns a higher multiple than one that is really just the owner working hard.
Add the assets that come with it
Stock is usually counted and paid for at settlement on top of the price. Plant, equipment and vehicles are dealt with in the structure of the deal, either included or handled separately depending on what suits.
A worked example, step by step
Say you run a business showing a modest profit on paper. Here is how the true picture can look once it is done properly. The figures below are purely hypothetical round numbers chosen to show the method. They are not real, not typical, and not a guide to what any particular business is worth.
From tax profit to selling price
| Net profit on the financials | $200,000 |
| Add back: owner's wage | + $100,000 |
| Add back: personal vehicle and expenses | + $20,000 |
| Add back: one off legal cost last year | + $10,000 |
| Adjusted earnings | $330,000 |
| Multiple applied (hypothetical) | × 3 |
| Indicative business value | $990,000 |
| Plus stock at value, at settlement | + SAV |
Hypothetical example only, using round numbers to show the method. These are not real figures and are not a guide to any particular business. Your adjusted earnings, your multiple and your asset position are specific to your business, your industry and the market at the time. This is exactly what a market appraisal works out for you.
Notice what happened there. In this hypothetical, the business looked like it earned $200,000, but its true earnings were $330,000 once the legitimate add backs were counted. On the same multiple, missing those add backs would have understated the value by several hundred thousand dollars. This is the single most common way owners leave money on the table, and it is why the earnings figure matters as much as the multiple.
What moves your multiple
Two businesses with identical adjusted earnings can sell for very different prices, because the buyer is really pricing risk. The lower the risk that the earnings walk out the door after settlement, the higher the multiple. These are the levers that move it most.
How much the business depends on you
If the business runs without the owner, the buyer is purchasing an asset. If it stops when you take a holiday, they are buying a job, and they pay far less for a job. This is the biggest single lever for most owners.
How safe the future income looks
Contracted work, repeat customers, recurring revenue and a spread of clients all tell a buyer the earnings survive the handover. One client at 60 per cent of revenue does the opposite.
How clean and clear the books are
Financials a buyer's accountant can verify quickly, with documented add backs, build trust and shorten due diligence. Messy or unverifiable numbers get discounted or kill the deal outright.
The trend
Buyers buy the future. Steady or growing earnings attract a premium. A business sliding backwards attracts bargain hunters, which is why timing the sale matters.
The industry and the moment
Some sectors are simply in demand. Right now in Queensland, established businesses in trades, transport, construction and resources services are being actively sought by buyers growing through acquisition.
Appraisal, not valuation. The difference matters.
As a licensed business broker, Tony provides a market appraisal, which is an informed opinion of the likely selling price based on the market, comparable sales and your numbers. It is free. A formal valuation, the kind used for court, tax or family law matters, is a separate exercise carried out by a registered valuer or qualified accountant. For working out what your business would sell for, the market appraisal is the right tool.
What your appraisal looks at in your industry
A number pulled from a generic calculator is close to worthless, because the levers that matter are different in every industry. A transport buyer scrutinises contracted freight and driver retention. An earthmoving buyer weighs the fleet against the enterprise. An e-commerce buyer lives in your repeat purchase data. Your appraisal is grounded in what buyers in your specific sector actually pay for, which is exactly what each of these guides covers.
Why get an appraisal before you're ready to sell
Here is the part most owners miss. The best time to find out what your business is worth is not when you are ready to sell. It is one to two years before, because knowing your number and the levers that move it turns those years into deliberate value building instead of drift.
An owner who learns their multiple is being held down by owner dependence has time to fix it. An owner who discovers half their value is trapped in undocumented add backs has time to sort the books. An owner who is closer to sale ready than they thought can move now while their sector is hot. The appraisal is free and confidential, so there is no reason to wait until the decision is made to get the information that should inform it.
Questions owners ask about value
How is a business valued in Australia?
Most small and medium businesses are priced as a multiple of adjusted earnings. You start with the profit, add back the owner's wage, one off costs and personal expenses to find the true earnings, then apply a multiple reflecting how risky and transferable those earnings are. A licensed broker provides a market appraisal, an opinion of likely selling price. A formal valuation for legal or tax purposes is a separate exercise by a registered valuer or qualified accountant.
What is the difference between an appraisal and a valuation?
A market appraisal is a licensed broker's opinion of likely selling price, based on the market, comparable sales and your numbers, and it is free. A valuation is a formal figure from a registered valuer or qualified accountant, usually for legal, tax, family law or dispute purposes. To know what your business would sell for, the appraisal is the right tool.
What are add backs and why do they matter?
Add backs are legitimate adjustments that reveal true earning power: the owner's wage, personal expenses run through the business, one off costs and non cash items. Documented, defensible add backs lift the earnings your price is built on, so they directly raise value. Undocumented ones get struck out in due diligence, so they must be evidenced, not just claimed.
What multiple will my business sell for?
There is no single number. The multiple depends on the size and stability of earnings, your industry, how much the business depends on you, the quality of the books, customer concentration and how much future work is contracted. Two businesses with the same profit can sell for very different prices because one is far less risky for the buyer. A sector specific appraisal beats any rule of thumb.
Is the appraisal really free and confidential?
Yes. A confidential market appraisal is free and carries no obligation. It is completely private, nothing is disclosed to staff, customers or competitors, and there is no requirement to list or sell. Many owners get one a year or two ahead of selling, simply to know their number and what would lift it.