People often monitor the value of their shares, investment portfolios, and property holdings, yet many business owners have little understanding of the current value of their business. A business is often valued using two key factors:
- Weighted Average EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)
- Profit Multiple
By implementing strategies that improve both EBITDA and the Profit Multiple, you can significantly increase the overall value of your business.
Improving EBITDA
EBITDA is a key indicator of a business's underlying profitability. To improve EBITDA, attention should be given to the key financial drivers that influence performance:
- Sales revenue
- Gross profit margin
- Overheads and operating expenses
- Operating profit
- Net profit
Improving the Profit Multiple
The profit multiple reflects the attractiveness, sustainability, and risk profile of a business. Factors that can positively influence the profit multiple include:
- Stability and consistency of earnings
- Reduced reliance on the business owner
- Well-documented systems, processes, and procedures
- Level of competition within the industry
- Quality and accuracy of financial and business records
- Security and suitability of business premises, including lease arrangements
- Age and trading history of the business
- Strength of customer retention and repeat business
- Customer loyalty
- Diversity and availability of suppliers
- Diversity of the customer base, reducing dependence on a small number of clients
- Limited reliance on key employees
- Ease of recruiting and replacing employees
- Growth opportunities and scalability
- The cost and complexity of achieving future growth
- Desirability of the business location
- Demand for, and adaptability of, the products or services offered
- Compliance with all regulatory obligations, including:
- Australian Taxation Office (ATO)
- State Revenue Office (SRO)
- Australian Securities and Investments Commission (ASIC)
- Workers' Compensation requirements
Regularly assessing and improving these drivers can increase both profitability and business value, helping owners build a more attractive, sustainable, and saleable business.
If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandco.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.au
Please refer to disclaimer at the bottom of the page.