Bizworth: Business Appraisal

FAIR MARKET
BUSINESS APPRAISAL
FOR
BizWorth
Prepared for: John Doe
As at:09/23/2020
BizWorth does not represent or endorse the accuracy or reliability of any advice, opinion, statement or any other information displayed or
distributed through this report or its website. The estimates and data contained herein are made using the information you provide,
publicly available information and data, and rules of thumb for different industries. BizWorth has not audited or attempted to confirm this
information for accuracy or completeness. This report should not be used to obtain credit or for any other commercial purposes. This
report is the intellectual property of BizWorth and the information provided herein is provided for your internal use only and may not be
copied or redistributed for any reason. Your use of this report and the information provided herein is also subject to the online terms of
use and privacy policy of BizWorth
TABLE OF CONTENTS
So, How Much Is My Business Worth? 1

Standard and Premise of Business Worth 2
Plant and Equipment (Tangible Assets) 2
Stock (Inventory) 3
Financial Statement Reconstruction 3
Reconstructed Normalised Financials - BizWorth 5
Key Business Outputs - BizWorth 6
Industry Wide Comparison To BizWorth 7
Business Fair Market Valuation Approaches and Methods 7
Asset Approach 8
Market Approach 8
Income Approach 9
Asset Accumulation Method 9
Gross Weekly Revenue Method 10
Sellers Discretionary Earnings Method 12
Return on Investment Method 13
Intangible as % of SDE Method 14
Capitalisation of Earnings Method 15
Business Worth Synopsis 16
Time on Market 17
Maximize Your Business Worth 17
Glossary 20
BizWorth does not represent or endorse the accuracy or reliability of any advice, opinion, statement or any other information displayed or distributed through this report or its website.
The estimates and data contained herein are made using the information you provide, publicly available information and data, and rules of thumb for different industries. BizWorth has
not audited or attempted to confirm this information for accuracy or completeness. This report should not be used to obtain credit or for any other commercial purposes. This report is
the intellectual property of BizWorth and the information provided herein is provided for your internal use only and may not be copied or redistributed for any reason. Your use of this
report and the information provided herein is also subject to the online terms of use and privacy policy of BizWorth
PAGE 1
So, How Much Is My Business Worth?
We hear this question several times a day.
Establishing a business’s worth is a mix of art and science. Some elements, like pulling
information from your P&L, Lease or Asset Schedule are straight-forward. But other
elements involve interpretation and judgment. Two companies with identical profit and loss
and balance sheet numbers can have very different fair market values.
Lots of people: friends, business associates, and even financial professionals who should
know better, are all too happy to offer well meaning (but simplistic, nor market-based
analysis to the point of being uses less) advice. Others over-complicate it and professional
business appraisers charge upwards of $2,500 in New Zealand to estimate the value of
businesses, even smaller businesses.
We created BizWorth, a web-based appraisal tool that is neither simplistic nor complex, yet
it can deliver an accurate market value for small to medium size privately held companies
in New Zealand. It is based on years of our team being involved in valuing and selling
privately held companies, and on accepted principles of appraising a SME business
throughout New Zealand across all industry sectors.
Our straightforward, easy to comprehend system interviewed you, asked for financial and
non-financial information and in about 15 minutes, you have received a complete BizWorth
report for your business or the business that you are considering for acquisition. This fully
printable PDF report details the methodology we used to arrive at the fair market price.
Standard and Premise of Business Worth?

This BizWorth report relies upon the use of fair market value as the standard. For the
purpose of this appraisal, fair market value is defined as the expected price at which the
subject business would change hands between a willing buyer and a willing seller, neither
being under compulsion to conclude the transaction and both having full knowledge of all
relevant facts.The appraisal was performed under the premise of value in continued use as
a going concern business enterprise. In our opinion this premise of value represents the
highest and best use of the subject business.
PAGE 2
Plant and Equipment (Tangible Assets)?
BizWorth has not visited the premises of BizWorth and therefore have not viewed the
Tangible Assets the business uses to generate revenue. The assumption has been made
that all plant and equipment is in good working order and fit for the purpose intended by
BizWorth.
BizWorth has been supplied a total Book Value figure of all Tangible Assets, being 500.00
NZD by John Doe which is included within the appraisal of BizWorth worth. This does not
include Freehold values, as this appraisal does not cover such.
Stock (Inventory)?
BizWorth has been supplied a total Book Value figure of all Tangible Assets, being 500.00
NZD by John Doe which is included within the appraisal of BizWorth worth. This does not
include Freehold values, as this appraisal does not cover such.
Financial Statement Reconstruction

Financial statements for most privately held businesses in New Zealand are only prepared
for tax purposes, not for business sale purposes. The objective of business owners and
their financial advisors is to use all available accepted accounting methods to minimize
taxable net income. This is effective for minimizing taxes but may paint an incomplete
picture for business worth purposes. The goal when presenting financial information to a
potential buyer is to maximize net income by clearly outlining the owner benefits, net
income, and cash flow of the business.
Since bottom-line earnings is the primary factor that influences business value, maximizing
the presentation of the financials is essential. Prospective buyers must be able to
appreciate the full benefit of owning the business and be able to understand its actual
income-generating ability. By recasting or adjusting the financial statements, the "real"
financial performance of the business can be demonstrated.
A "recast financial statement or normalised accounts" is a reconstructed representation of

the earnings that a buyer would be able to enjoy from the business. It removes not only
one-time or extraordinary income and expenses, but also adjusts for accounting anomalies,
identifies owner compensation, owner "perks" or fringe benefits, non-cash expenses such
as depreciation and amortization, interest, investments in future growth such as new
facilities or expansion, and other items that are common in privately-held businesses.
The following are some of the most common recasting adjustments:
PAGE 3
Owner Salaries
The amount of salary or bonus that an owner takes is completely discretionary. Some
owners take little or no salary, while others may take more extravagant annual sums. In
recasting financial statements, the salary of one owner is added back. If there are other
owners receiving compensation and would need to be replaced under new ownership,
those salaries would be replaced with a “normalized” compensation. Normalized
compensation is best defined as what would have to paid to someone to replace the
owners operational role in the business. Compensation for family members not actively
working in the business but being paid through the business should also be added back. It
is important to differentiate between salary for working in the business and salary just for
owning the business.
Owner "Perks" or Fringe Benefits

In addition to cash compensation, most business owners receive numerous "perks" or
benefits that are not required for the daily operation of the business. For example, while a
vehicle may be required, a high performance sports car or luxury automobile is not
normally necessary. There may also be discretionary expenses reimbursed to the owner
that may not be applicable to a new owner and do not affect the profit performance of the
company. These include items such as the following: insurance expenses travel and
entertainment expenses, family employees, a large life insurance contract or pension plan,
personal-use assets such as a Holiday home or a sailboat, income or expenses that may
be transacted between more than one company that is owned by the same seller. In some
instances, nothing short of going through the income statement line by line to gain an
understanding of what lies behind the numbers will do.
Non-Cash Expenses
The most common non-cash expense is depreciation and is added back to net income.
Interest & Tax

A business is typically transferred free and clear of debt, tax and interest-bearing liabilities.
Accordingly, interest expense is added back since it will not be incurred by a new owner. A
business is typically transferred free and clear of debt, tax and interest-bearing liabilities.
Accordingly, interest expense is added back since it will not be incurred by a new owner.
PAGE 4
Non-Recurring Income or Expenses
Adding back one-time, extraordinary, or non-operating income or expenses is meant to
remove items that appear in the financial statements but are either unlikely to be repeated
in the future or are unrelated to the business operations and will not be incurred by a new
owner. Common examples include things such as the following: unusual legal expenses,
moving expenses incurred during a company relocation, expenses related to expiring
equipment leases, receipt of a one-time contract payment from a new client, payment of a
lump sum bonus to an employee, expenditures made for a new facility or expanded
operations, a gain/loss on the sale of an asset, receipt of insurance proceeds. If you are a
seller of a business trying to establish value, you will want as many dollars as possible
added-back to your financial statement to improve business profitability and thus its value.
Buyers will question all add-backs. Therefore, adjustments should be provable. If you
cannot prove it, the buyer will not want to give you credit for it. Sellers want to maximize
value and buyers want to minimize it. This tug-of-war is usually part of the negotiation
process in buying and selling a business.
The following page summarises the adjustments made to your business to establish the
SDE.
PAGE 5
Reconstructed Normalised Financials - BizWorth
CURRENT FINANCIALS RECENT PRIOR
Total revenue: 283,511.00 NZD 250,000.00 NZD
Cost of goods: 34,725.00 NZD 25,000.00 NZD
Gross profit: 248,786.00 NZD 225,000.00 NZD
Other expenses: 1,131,613.00 NZD 100,000.00 NZD
Net profit/account: 114,908.00 NZD 125,000.00 NZD
ADJUSTMENTS RECENT PRIOR
Additional owners: 100.00 NZD 1,000.00 NZD
Depriciation expense: 252.00 NZD 875.00 NZD
Interest expense: 858.00 NZD 875.00 NZD
Tax expense: 52.00 NZD 25,000.00 NZD
Other one-off cost: 1,115.00 NZD 522.00 NZD
NORMALISED SDE: 117,085.00 NZD 151,272.00 NZD
PAGE 6
Total Sales Revenue Per Year
PAGE 7
Key Business Outputs - BizWorth
Annual Sales Excl GST: 283,511.00 NZD 250,000.00 NZD
Annual Sales Incl GST: 326,037.65 NZD 287,500.00 NZD
Weekly Average Excl GST: 5,452.13 NZD 4,807.69 NZD
Weekly Average Incl GST: 6,269.95 NZD 5,528.85 NZD
WEIGHTING: 100% 30%
Weighted Weekly Sales: 6,269.95 NZD 1,658.65 NZD
Deriverd calculation 11,798.80 NZD 11,798.80 NZD
PAGE 8
Industry wide comparison - BizWorth
Annual revenue: 326,037.65 NZD 287,500.00 NZD
Mormalised SDE: 326,037.65 NZD 287,500.00 NZD
Gross profit: 5,452.13 NZD 4,807.69 NZD
PAGE 9
Business Fair Market Valuation Approaches and Methods
There are three fundamental ways to measure the value of a business:
° Asset Approach
° Market Approach
° Income Approach
Under each approach, several methods are available which can be used to determine the
fair market value of a business. Each business method uses a specific procedure to
calculate the business worth.
As a matter of principle all the methods make use of comparative data. The Asset based
methods use the comparative business transactions to be determining the earnings
multiplier used in the subject businesses industry. The Market based methods use various
multiplied from comparative businesses to establish the business fair market value. The
earnings-based methods use similar data to determine the average capitalisation rate used
for similar businesses.
No one approach or method is definitive. Hence, it is common practice to use a number of

business worth methods under each approach. The business value then is determined by
reconciling the results obtained from the selected methods. Typically, a weight is assigned
to the result of each method. Finally, the sum of the weighted results is used to determine
the worth of the business.
This process of concluding the business worth if referred to as the business worth
synthesis.
Asset Approach
The asset approach to business valuation considers the underlying business assets in
order to estimate the FMV of the overall business enterprise. This approach relies upon the
economic principle of substitution and seeks to estimate the cost of re-creating a business
of equal economic utility, i.e. a business that can produce the same returns for its owners
as the subject business. The methods BizWorth use under the Asset Approach includes:
° Asset Accumulation Method
PAGE 10
Market Approach
Under the Market Approach to business worth calculations, BizWorth consults the
marketplace for indications of business value. Most commonly, sales of similar businesses
are studied to collect comparative evidence that can be used to estimate the costs of
re-creating a business of equal economic utility, i.e a business that can produce the same
return for its owners as the subject business. The methods BizWorth uses under the
Market Approach includes:
° Gross Revenue Method
° Sellers Discretionary Method
° Return on Investment
° Intangible as % of SDE Method
Income Approach
The Income Approach uses the economic principle of expectation to determine the value of
a business. To do so, one estimated the future returns the business owners can expect to
receive from the subject business. These returns are then matched against the risk
associated with them fully and on time. BizWorth uses returns as a single value expected
to be received by the business owners in the future. The risk is then quantified by means of
the so-called capitalization rates. The method BizWorth uses in the Income Approach
include:
° Capitalisation of Earnings Method
PAGE 11
Asset Accumulation Method
The most traditional method of estimating a business’s worth is by using the collective
values of all the businesses assets; tangible, intangible and stock. While this has generally
been superseded by other methods it is worth noting that it still holds some place in pricing
a business. Primarily businesses priced with this method are ones where there is a heavy
tangible asset base and comparatively low earnings, when there is a poor earnings record
or when there is an uncertain future for the business. However, it sometimes used with
profitable businesses to represent the low end of the range of indications of value. Unless
this is a capital-intensive business then other methods are likely to be more accurate.
This would see BizWorth being appraised in the following manner:
ASSETS
Plant & Equipment (Tangible Assets): 50,000.00 NZD
Stock (Inventory): 500.00 NZD
+ Normalised SDE: -467,881.20 NZD
DERIVED FAIR MARKET VALUE: -417,381.20 NZD
PAGE 12
Gross Weekly Revenue Method
The Gross Revenue Method is an market-based comparable method used to determine
the fair market value of a business. It is more commonly used in hospitality businesses
over other industries but is still a relevant indicator to all sectors. The method is used to
determine a range of values for a business, where it is based on the actual revenues of
John Doe over a certain period of time (lasts years revenue divided by number of weeks),
and then a market comparable multiplier provides a range of values that can be used as a
starting point for negotiations. In effect, the times-revenue method attempts to value a
business by valuing its stream of sales cash flows.
This would see John Doe being appraised in the following manner, where sector wide
refers to the full industry the business is placed in and comparable is recently sold
businesses stats that have had revenue streams within 10% of John Doe.
SECTOR WIDE COMPARABLE
Weighted Weekly Gross Sales: 681.93 NZD 681.93 NZD
Lowest Sector Multiple: 0.12 1.62
Median Sector Multiple: 10.84 10.6
Average Sector Multiple: 14.73 13.58
Highest Sector Multiple: 93.75 51.61
DERIVED FAIR MARKET VALUE: 326,037.65 NZD 287,500.00 NZD
PAGE 13
Sellers Discretionary Earnings Method
The SDE multiplier is the most widely used method in New Zealand to get a more accurate
picture of the real fair market value of the business. A business’s adjusted profits are a
more reliable indicator of its financial success than sales revenue is, thus this method uses
the earnings of a business as the foundation upon which to establish its value. This value is
then adjusted and readjusted, based on comparable sales metrics already established in
the marketplace by similar businesses. It is basically a multiple of the Total Owner Benefit a
business produces that a willing buyer and willing seller agrees upon.
This would see John Doe being appraised in the following manner:
Normalised SDE: -467,881.20 NZD -467,881.20 NZD
Lowest Sector Multiple: 0.38 0.38
Median Sector Multiple: 2.06 2.06
Average Sector Multiple: 2.28 2.28
Highest Sector Multiple: 8.84 8.84
DERIVED FAIR MARKET VALUE: -1,080,103.75 NZD -1,080,103.75 NZD
PAGE 14
Return on Investment Method
The Return on Investment method identifies similar established business sales, in the
same sector as that of John Doe to help establish a market driven ROI. This is the benefit
to the purchaser resulting from the initial investment on the business including stock
against its Sellers Discretionary Earnings. A high ROI means the investment gains
compare favourable to its cost; the reverse is true for a lower ROI.
The average ROI for John Doe business sector, on a sold “going concern basis” was
55.4% and would see John Doe being appraised in the following manner:
Lowest Sector ROI: 11.3% 24.4%
Median Sector ROI: 48.5% 46.4%
Average Sector ROI: 55.4% 53.5%
Highest Sector ROI: 210.5% 148.1%
DERIVED FAIR MARKET VALUE: -855,941.16 NZD -940,181.94 NZD
PAGE 15
Intangible as % of SDE Method
What we at BizWorth call the “sanity” test, this is a hybrid of the Asset Accumulation
Method, but the accuracy is increased. It essentially places a comparable value on the
Intangible Assets as a percent of the SDE as the Tangible Assets and Stock values are
already known.
This would see John Doe being appraised in the following manner:
Plant & Equipment (Tangible Assets): 50,000.00 NZD 50,000.00 NZD
Stock (Inventory): 500.00 NZD 500.00 NZD
Lowest Intangible Return on SDE: 0.6% 7.7%
Median Intangible Return on SDE: 86.4% 91%
Average Intangible Return on SDE: 100.8% 104.6%
Highest Intangible Return on SDE: 650.2% 350.5%
DERIVED FAIR MARKET VALUE: -446,717.35 NZD -430,879.57 NZD
PAGE 16
Capitalisation of Earnings Method
Built Up Cap Rates. In the capitalization-of-income method of valuing a business, a cap
rate is used to convert the SDE amount into a value estimate for the business as a whole,
including stock. This method is appropriate when future income is expected to grow at a
constant rate. it is imperative to adjust the business’s sale price to reflect variables which
enhance and or detract from the value of the business.
The questions you answered along with many financial metrics were uses to estimate the
fair market value of John Doe, as per below:
RECENT YEAR
Normalised SDE: -467,881.20 NZD
Calculated Capitalisation Rate: 61.53846153846154%
DERIVED FAIR MARKET VALUE: -760,306.95 NZD
PAGE 17
Business Worth Synopsis
BizWorth relied upon 6 methods under the Asset, Market and Income Approaches. We use
the results obtained from these business valuation methods to provide an estimate of the
subject business value. In our opinion, each of the business valuation methods utilized in
this Report is equally relevant. Hence, we assign an equal weight to each result and
calculate our estimate of the business value as the sum of these weighted values:
METHOD AND APPROACH SECTOR WIDE COMPARABLE
Built Up Method (ASSET): -417,381.20 NZD -417,381.20 NZD
Gross Revenue Multiple Method (MARKET): 326,037.65 NZD 287,500.00 NZD
SDE Multiple Method (MARKET): -1,080,103.75 NZD -1,080,103.75 NZD
ROI Method (MARKET): -855,941.16 NZD -940,181.94 NZD
Intangible as % of SDE Method (MARKET): -446,717.35 NZD -430,879.57 NZD
Cap Rate Method (INCOME): -760,306.95 NZD -760,306.95 NZD
MIN VALUE: -1,080,103.75 NZD -1,080,103.75 NZD
MEDIAN VALUE: -603,512.15 NZD -603,512.15 NZD
MEAN VALUE: -539,068.79 NZD -539,068.79 NZD
MAX VALUE: 326,037.65 NZD 326,037.65 NZD
WEIGHTED FAIR MARKET VALUE: -532,438.99 NZD -532,438.99 NZD
PAGE 18
Time on Market
Average time on market for a business in the Retail non-food Sector is:
5.73 Months
PAGE 19
Maximize Your Business Worth
Looking at your business from a buyer’s view, here's a list of key value drivers a buyer
uses in evaluating a business:
1. Cash Flow
Cash flow is the single largest value driver for most businesses. Think of ways to improve
your income on a sustainable basis. Buyers are suspicious of short-term jumps in cash
flow. Try to make the cash flow as consistent and predictable as possible.
2. Management Depth
Keep in mind that buyers buy a business that they hope will be functional and growing after
the sale. It is tough for the buyer to place a high value on your business if you are the sole
decision maker in the company and the business depends largely on your skill set.
Developing your staff so that they can run the business when you are gone can pay big
dividends when it is time to sell. If you are concerned about your employees leaving once
you are gone, it may be good idea to consider employment contracts, stock grants and
other incentives that give them a reason to stay long term. If possible, start work on staff
related issues at least a year before you plan on starting the sales process.
3. Customer Diversity
Buyers are nervous about businesses where a high percentage of business comes from a
handful of customers. Ideally, no single customer should contribute to more than 10% of
your revenues or profits. The best solution for this problem is to diversify the customer
base. If that is not feasible, be prepared to accept part of the transaction price paid as
earn-outs or plan on supporting the buyer in an advisory role to ensure customer continuity.
4. Recurring Revenue Stream

Buyers love predictable and low risk revenue streams. Any long term contracts, regular
service/licensing fees, and other recurring revenue streams make business more desirable
and fetch a higher price in the marketplace. In service oriented business, converting
predictable customer support calls into recurring revenue stream can turn a business
liability into an asset.
5. Desirable Products & Services that are difficult to copy

Buyers place higher value on a business with unique products, services, or distribution
systems than a business whose offerings are considered generic. What is unique about
your business? Think of ways in which your product/service is unique and why it should be
valuable to an buyer. Having an edge and having the ability to communicate the edge can
do wonders to your business's valuation.
PAGE 20
6. Barriers to entry
With so much competition all around you, why is your business difficult to copy? Why will
the buyer have as much success with the business as you have had? Is it because of
intellectual property (patents, copyrights), regulation (permits, zoning), difficult to get
contracts (you are one of the two or three qualified vendors at each of your major
accounts), or something else? Having good answers to these questions indicates that there
are barriers to entering your business. These barriers make your businesses more valuable
than your competitor's with similar cash flow.
7. Pending Upsides
You believe you are about to come up with a compelling new product or make major
inroads into a premier customer. You expect these developments will double your business
next year and do not want your company to be undervalued based on current financials.
Delaying the sale has other consequences that make it unattractive for you to wait. So,
what do you do? A good forecast backed up by management presentations with examples
on why the company would achieve the forecasts is extremely powerful. Having a good
understanding of your product/sales pipeline and having the ability to communicate it with
your Business Broker can help structure a deal where part of the sales price can be paid in
earn-out to capture some of the upside.
8. Goodwill
This value driver involves stability and consistency. Name recognition, customer
awareness, history, ongoing operations, and reputation are all part of business goodwill and
influence value. Even if the company does not have many hard assets, relationships are
key. The fact that customers have been with the company for a period of time does matter.
Brand recognition, service or product reliability, and high customer satisfaction are
distinguishing factors that add value. This driver of goodwill should not be overlooked in a
valuation because it is helps mitigate perceived risk.
9. Strategic Plan
A written strategic growth plan that clearly documents the areas the company can grow can
be an asset to buyer. Length of the document is not as important as the content. A well
written 2- or 3-page growth plan is enough.
10. Record keeping

To many buyers, high quality bookkeeping reduces risk and says a lot about how the
business was run. Having a set of clean, easily auditable books inspires confidence and
helps during the due diligence and negotiation process.
PAGE 21
Glossary
Asset Sale – a type of small business sale transaction in which all underlying business
assets transfer from the seller to the buyer. The buyer assumes no business liabilities.
Average – the arithmetic mean value, calculated by adding all the values in a set and
dividing the sum by their number. For the business selling price, the average is the sum of
all the deal prices divided by the number of the recorded business sales.
Days on Market – the time in days from the date the business is listed for sale until the
transaction closes.
Earnout – a portion of the business purchase price that is made contingent upon the
business achieving some future measure of economic performance. For example, the
earnout can be structured as a percentage of sales in excess of some base number, paid
over some future period of time and limited to a maximum.
EBITDA – earnings before interest, tax, depreciation and amortization.
Max – the maximum value in a set of values. For the business selling price, this is typically
the highest recorded selling price value.
Median – the mid-range value with half of the values in the set falling below it and another
half being above it. For the business selling price, the median price means that 50% of the
business sales were done at prices below the median, and the remaining 50% of the sales
had prices above the median.
Min – the minimum value in a set of values. For the business selling price, this is typically
the lowest recorded selling price value.
N/A – not available.
Pricing Multiple – a statistically derived ratio of the business selling price to a measure of
the business economic performance such as the business revenue, profit or cash flow.
Purchase Price – the total monetary consideration paid for the business equity. Includes
intangibles such as non-compete agreements, excludes real estate, long-term liabilities
assumed, and earnouts.
Purchase Price ÷ Net Sales – a pricing multiple which equals the purchase price divided by
the business net sales.
Purchase Price ÷ EBT – a pricing multiple which equals the purchase price divided by the
business earnings before tax.
PAGE 22
Purchase Price ÷ Net Income – a pricing multiple which equals the purchase price divided
by the business net income.
SDCF – seller’s discretionary cash flow is the business net pre-tax income before a single
owner’s total compensation, plus amortization, depreciation, interest expense and adjusted
for any extraordinary, non-recurring or non-business related income or expenses.
Selling Price – the monetary consideration paid for 100% of business ownership interest in
an asset sale transaction. The Selling Price includes all business assets except cash,
accounts receivable and inventory. Accounts payable are also excluded. The Selling Price
does not include any long-term liabilities assumed by the buyer.
Selling Price ÷ Gross Revenue – a pricing multiple which equals the business selling price
divided by the gross annual sales.
Selling Price ÷ SDCF – a pricing multiple which equals the business selling price divided by
the SDCF.
SIC – Standard Industrial Classification, a US classification system grouping like

businesses under the same numerical code.
Total Invested Capital – the purchase price plus all long-term business liabilities that are
assumed by the buyer.
Total Invested Capital ÷ EBIT – a pricing multiple which equals the total invested capital
divided by the business earnings before interest and taxes.
Total Invested Capital ÷ Gross Profit – a pricing multiple which equals the total invested
capital divided by the firm’s gross profit.
Total Invested Capital ÷ Net Sales – a pricing multiple which equals the total invested
capital divided by the business net sales.
PAGE 23

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FAIR MARKET

So, How Much Is My Business Worth? 1

Standard and Premise of Business Worth?

Financial Statement Reconstruction

A "recast financial statement or normalised accounts" is a reconstructed representation of

The following are some of the most common recasting adjustments:

Owner "Perks" or Fringe Benefits

Interest & Tax

CURRENT FINANCIALS RECENT PRIOR

Total revenue: 283,511.00 NZD 250,000.00 NZD

Cost of goods: 34,725.00 NZD 25,000.00 NZD

Gross profit: 248,786.00 NZD 225,000.00 NZD

Other expenses: 1,131,613.00 NZD 100,000.00 NZD

Net profit/account: 114,908.00 NZD 125,000.00 NZD

ADJUSTMENTS RECENT PRIOR

Additional owners: 100.00 NZD 1,000.00 NZD

Depriciation expense: 252.00 NZD 875.00 NZD

Interest expense: 858.00 NZD 875.00 NZD

Tax expense: 52.00 NZD 25,000.00 NZD

Other one-off cost: 1,115.00 NZD 522.00 NZD

NORMALISED SDE: 117,085.00 NZD 151,272.00 NZD

CURRENT FINANCIALS RECENT PRIOR

Annual Sales Excl GST: 283,511.00 NZD 250,000.00 NZD

Annual Sales Incl GST: 326,037.65 NZD 287,500.00 NZD

Weekly Average Excl GST: 5,452.13 NZD 4,807.69 NZD

Weekly Average Incl GST: 6,269.95 NZD 5,528.85 NZD

WEIGHTING: 100% 30%

Weighted Weekly Sales: 6,269.95 NZD 1,658.65 NZD

Deriverd calculation 11,798.80 NZD 11,798.80 NZD

CURRENT FINANCIALS RECENT PRIOR

Annual revenue: 326,037.65 NZD 287,500.00 NZD

Mormalised SDE: 326,037.65 NZD 287,500.00 NZD

Gross profit: 5,452.13 NZD 4,807.69 NZD

No one approach or method is definitive. Hence, it is common practice to use a number of

Plant & Equipment (Tangible Assets): 50,000.00 NZD

Stock (Inventory): 500.00 NZD

+ Normalised SDE: -467,881.20 NZD

DERIVED FAIR MARKET VALUE: -417,381.20 NZD

SECTOR WIDE COMPARABLE

Weighted Weekly Gross Sales: 681.93 NZD 681.93 NZD

Lowest Sector Multiple: 0.12 1.62

Median Sector Multiple: 10.84 10.6

Average Sector Multiple: 14.73 13.58

Highest Sector Multiple: 93.75 51.61

DERIVED FAIR MARKET VALUE: 326,037.65 NZD 287,500.00 NZD

SECTOR WIDE COMPARABLE

Normalised SDE: -467,881.20 NZD -467,881.20 NZD

Lowest Sector Multiple: 0.38 0.38

Median Sector Multiple: 2.06 2.06

Average Sector Multiple: 2.28 2.28

Highest Sector Multiple: 8.84 8.84

DERIVED FAIR MARKET VALUE: -1,080,103.75 NZD -1,080,103.75 NZD

SECTOR WIDE COMPARABLE

Normalised SDE: -467,881.20 NZD -467,881.20 NZD

Lowest Sector ROI: 11.3% 24.4%

Median Sector ROI: 48.5% 46.4%

Average Sector ROI: 55.4% 53.5%

Highest Sector ROI: 210.5% 148.1%

DERIVED FAIR MARKET VALUE: -855,941.16 NZD -940,181.94 NZD

SECTOR WIDE COMPARABLE

Normalised SDE: -467,881.20 NZD -467,881.20 NZD

Plant & Equipment (Tangible Assets): 50,000.00 NZD 50,000.00 NZD

Stock (Inventory): 500.00 NZD 500.00 NZD