Hot Off The Press! SME's With The Highest Business Valuations

INTRODUCTION

The latest BizExchange Index quarterly report has just come out and as I am a business valuer and small business accountant I am always keen to find out which types of businesses are getting the highest business valuations. These valuation multiples serve as a guide for those who wish to exit their business at their desired minimum value within a certain time frame. This helps us guide them along the way with any business planning and monthly or quarterly monitoring to help them to keep their goals on track.

Of course it's very dangerous to just apply a multiple to a business. Other factors do need to be taken into account such as profit margins, cash flow, owner reliance, industry trends, and loss or gain of customers/clients and whether applying the EBIT multiple is relevant as sometimes it is not the best method depending on the circumstances. Business valuers Sydney will also allow for one off transactions or related party transactions (market rent, reasonable salaries for owners etc.) before applying such a multiple. However as a guide it's handy to know what the value based on a multiple might look like.

So what are some of the highlights of the report?

Figure 1: When you sell your business, would you prefer your retirement or holidays to look like this? Or this...

Figure 2: The holiday from hell (but at least there was a laugh or two).

1. Micro Businesses (Turnover < $500,000)

The top businesses showing EBIT multiples just under 3.0 included those who are in the Administrative and Support Services area. Rental, Hiring & Real Estate Services were showing the mid 2.0s range whilst Construction came in at just over 2.0.

2. Small Businesses (Turnover $500,000 - $1,000,000)

Rental, Hiring & Real Estate Services came in at just under 3 reflecting their recurring type levels of income for rents and the nature of subscription based type income. Next came Manufacturing in the mid 2.0s.

Figure 3: "What do you mean my business is not worth anything?!" (However, the good news Barry is we can fix it!)

3. Medium Businesses (Turnover $1,000,000 - $5,000,000)

Health Care and Social Assistance type enterprises showed an average of mid 4.0s whilst Professional, Scientific and Technical Services were just under 4.0. This would include professions such as engineers, law firms or a small business accountant Sydney.

4. Middle Market (TURNOVER $5,000,000 - $15,000,000)

Manufacturing businesses came in at an average of mid 3.0s whilst wholesalers were just under 3.0.

CONCLUSION:

Most businesses in the report regardless of turnover, average around the mid 2.0s but there are also high and low ranges for these businesses so you should never assume that your business is the average. Of course the best way to find out is to get a proper business valuation so you have a more accurate picture of where you stand. Once you have established this, you can then work with your small business accountants Sydney or business advisors to determine whether it is enough for you to sell, help fund your retirement etc. The idea then is to work out a business improvement plan using cash flow forecasts, one page strategic plans and then monitor these through your accounting system (preferably cloud accounting system).

Better to plan now and check rather than wait until you are ready to exit to find out that not only is the business not worth very much but maybe not even saleable delaying your plans (retirement or otherwise) by 5 to 10 years!