Guide · buying and selling

What is my business worth?

Most small Australian businesses are valued on a multiple of adjusted earnings: normalise the profit for the owner's wage and one-off items, then apply a multiple reflecting how transferable and reliable those earnings are. What moves the multiple is owner-dependence, customer concentration and recurring revenue — not the industry.

The basic method

Strip the owner out of the numbers, then decide how reliable what is left will be for somebody else.

1
Start with the profit in the accounts.Usually earnings before interest and tax, for the most recent full year, with a look at the two before it for the trend.
2
Add back what a new owner would not pay.The owner's wage above market rate, private vehicle and travel, one-off legal or setup costs, related-party rent above market, genuinely non-recurring items. Document every add-back — buyers challenge them and undocumented ones get disallowed.
3
Subtract what a new owner would have to pay.A market salary for whoever does the owner's job, related-party rent below market brought to market, and maintenance or equipment replacement that has been deferred.
4
Apply a multiple.This is the judgement, and it is where the value actually gets decided. See below.
5
Add surplus assets, subtract debt.Property, excess cash and assets not needed to run the business are usually dealt with separately from the trading value.

What actually moves the multiple

Owners tend to assume the industry sets the number. It does not, nearly as much as these do.

Factor	Pushes the multiple up	Pushes it down
Owner dependence	Runs without you. Management in place, documented systems.	The customers come because of you.
Customer concentration	Many customers, none dominant.	One customer is a third of revenue.
Revenue type	Contracted or recurring.	One-off, tender-by-tender, or project-based.
Size	Larger earnings attract more buyers and better multiples.	Very small businesses compete with the buyer's alternative of a job.
Records	Clean, current, reconciled, few add-backs needed.	Reconstructed accounts and a long list of adjustments.
Lease and assets	Secure lease with options, equipment in good order.	Short lease, or capital expenditure deferred for years.
Growth	A clear, demonstrable trend.	Flat or declining, or one good year after two poor ones.

General information about how businesses are commonly valued. Not a valuation, and not advice on your business — for that, engage a qualified business valuer or your accountant.

The one improvement worth more than all the others

Make the business run without you. Every other factor in that table is secondary to it, because a buyer is not purchasing last year's profit — they are purchasing next year's, and next year you will not be there. A business where the owner holds the customer relationships, does the quoting, and is the reason the work is any good is, from a buyer's point of view, a job with extra risk attached.

That is also why preparation takes years rather than months. Value is assessed on a period of earnings, so changes made the month before listing do not appear in the numbers anybody looks at.

When to pay for a formal valuation

Selling to the open market: usually not necessary to start. A broker's appraisal and a realistic view of the factors above will get you to a price range, and the market will do the rest.
A partner buy-in or buy-out: yes. The number has to withstand scrutiny from someone with a direct interest in disputing it, and an independent valuation is what makes that conversation short.
A family transfer, a dispute, or anything with tax consequences: yes, and involve your accountant early on structure as well as value.
Buying: the vendor's number is a starting point, not a valuation. Get your own accountant across the add-backs and do proper due diligence on the lease, the contracts, the staff entitlements and any PPSR registrations over the assets.

If the answer leads to a transaction

Both sides of this usually need money on a fixed date. A buyer needs funds at completion for something that is mostly goodwill, which no lender will take security over — how an acquisition gets funded against property covers that. A seller sometimes needs to fund a make-good, a tax bill on the sale, or the period between exchange and settlement. Both are ordinary business purposes.

If the number was not the whole problem

People ask this question at two moments: when they are thinking of selling, and when they are looking at buying something. The second one usually needs money on a contract date.

If you are reading this because money is tight, it may be that what you actually need is fast business finance — and HomeSec can lend with very few qualification criteria. All you need is sufficient equity in real estate and a business purpose: no financials, no valuation, no credit score threshold, funded in as little as 24 hours from a clean, complete scenario. Best of all, the first six months can come with no requirement to make any payment.

That's the HomeSec Advantage.

Questions people ask alongside this one

How do you value a small business?

Most small Australian businesses are valued on a multiple of adjusted earnings. You normalise the profit — add back the owner's above-market wage, one-off costs and personal expenses, and subtract a market wage for whoever does the owner's job — then apply a multiple that reflects how transferable and how reliable those earnings are. Asset-heavy businesses are sometimes valued on net assets instead, and businesses with no earnings on what the assets would fetch.

What is a typical multiple?

It varies far more by the characteristics of the business than by the industry it is in, which is why a single number is misleading. The things that move it are size, how dependent the business is on the owner, customer concentration, whether earnings are recurring or transactional, the state of the equipment and the length of the lease. Two businesses in the same trade with the same profit can be worth materially different amounts because of those factors.

What is add-back or normalised profit?

The profit a new owner would actually receive, rather than the profit the tax return shows. Typical add-backs are the owner's wage above market, private motor vehicle and travel, one-off legal or setup costs, and related-party rent above or below market. Typical subtractions are a market salary for the owner's role and any maintenance spending that has been deferred. Buyers scrutinise add-backs hard, so document each one.

Does goodwill have a value if the business depends on me?

Less than owners hope. If the customers come because of you personally, a buyer is purchasing your absence rather than a business, and the multiple falls accordingly. The single most effective thing most owners can do to increase the value of their business is to make it run without them — documented systems, a management layer, customer relationships held by the business rather than by the founder.

Do I need a formal valuation?

For a sale to a third party, usually not — the market sets the price and a broker's appraisal is generally enough to start. For a partner buy-in or buy-out, a family transfer, a dispute, or anything with tax consequences, a formal valuation by a qualified business valuer is worth the fee, because the number has to withstand scrutiny from someone with an interest in disputing it.

What does a buyer look at that I might not?

Customer concentration, the transferability of key contracts and the lease, whether staff will stay, deferred maintenance and capital expenditure that has been postponed, the quality of the financial records, and any legal or compliance exposure. Any one of them can move the price more than a point of multiple, and all of them are things you can improve before you sell.

How long before selling should I start preparing?

Most advisers say two to three years, and the reason is arithmetic rather than tidiness. Value is usually set on a period of earnings, so improvements made the month before you list barely register. Reducing owner-dependence, cleaning up the records and diversifying the customer base all need time to appear in the numbers a buyer will look at.

I am buying rather than selling. What should I check?

Everything above, in reverse, plus proper due diligence on the things a valuation does not cover — the lease and its remaining term, whether key contracts transfer, employee entitlements coming across, any PPSR registrations over the assets, and what the business looks like without the vendor. Pay an accountant who has done acquisitions before. It is the cheapest money in the transaction.

Sixty seconds, no documents

See if you qualify in sixty seconds

Three short questions, no credit check to apply and no financial statements. A Lending Manager reads it and calls you back with a real answer — not a call centre, not an algorithm.

That's the HomeSec Advantage.

See if you qualify Call 1300 93 83 87Mon–Fri, 8:30am – 5:30pm Melbourne time

Other things business owners look up

Find your director ID Find your ABN or ACN Find your company's TFN Find your ATO payment reference If your ABN is cancelled Set up an ATO payment plan What a caveat on a title means What LVR means, with examples Get a copy of your rates notice Get a mortgage payout figure Do you qualify?Do you need financials?How long it takes Secured vs unsecured No credit check, honestly Check if a company is in liquidation Small business restructuring Every guide

Reviewed by Paul Stone, Joint Chief Executive