What is my business worth? How buyers price New Zealand businesses

On this page

1. The approach and its limits
2. A worked calculation
3. Rebuilding the earnings figure
4. What moves the multiple
5. The same business, four prices
6. Why a range, not a number
7. Three things owners get wrong

A common valuation approach, and its limits

For an established, profitable operating business, maintainable earnings multiplied by an assumed multiple can be a useful starting point. EBITDA means earnings before interest, tax, depreciation and amortisation, but the treatment of owner pay varies. An owner-operated business may be discussed before owner pay; a managed business after the full market cost of replacing the owner's work. The earnings definition and the multiple must use the same basis.

The Review explains both earnings views, the adjustments and the transaction assumptions. Asset-heavy, loss-making or unusual businesses may need another valuation approach. The free value explorer uses earnings after a market replacement cost and illustrates the arithmetic only.

Published sales data can help with comparisons, but check the earnings definition, size, sector, period and assets included. A sample median is not a valuation of your business. REA's appraisal guidance explains the role of current market conditions and comparable sales in a licensed agent's appraisal. The business value calculator and explorer makes its assumptions visible; its starting bands are Rodara assumptions, not published market medians.

A worked calculation: earnings, value and proceeds

Illustrative arithmetic, not a market appraisal: NZD 450,000 of maintainable annual earnings at an assumed 3.5 times gives NZD 1,575,000 for the operating-business calculation. Changing the assumed earnings to NZD 400,000 at the same multiple gives NZD 1,400,000. This shows the arithmetic, not an outcome a buyer has agreed.

Neither number is net sale proceeds. Agree how cash, debt, stock, working capital, property, costs and tax are treated before comparing offers. Your accountant and lawyer should explain the relevant transaction basis.

Rebuilding the earnings figure

Financial statements and a buyer’s view of maintainable earnings serve different purposes. Rebuilding them for a sale means:

• Putting the owner's salary at what it would cost to replace you with a manager, whether you currently pay yourself more or less than that.
• Taking out personal costs run through the business, and being able to prove each one.
• Removing true one-offs: an insurance claim, a lease break cost, a lawsuit. Not the "one-offs" that happen every year.
• Adjusting related-party arrangements to market: rent to a family trust, a sibling on the payroll, a supply deal with a mate.
• Checking working capital. Agree the stock, debtors, creditors and normal working-capital assumptions; the amount a buyer needs to fund depends on the transaction basis.

Every item on that list is a line the buyer's accountant will test. Which add-backs survive and which don't.

What moves the multiple

Sector, size, market conditions, buyer fit and transaction terms all matter. The eight preparation areas help identify business-specific questions within that wider context:

1. Owner dependence. Explain the owner's work, its replacement cost and the evidence that responsibilities can transfer.
2. Earnings quality and reporting. Reconcile monthly reports to the annual accounts and support each proposed adjustment.
3. Customer concentration. Examine individual customers, channels, regions and customer types, alongside contracts and relationship continuity.
4. Lease. Tenure, renewals and assignment requirements can affect operating continuity and finance; the lawyer and lender need to assess the actual terms.
5. Staff, systems and compliance. Records, role cover and permissions help establish what can transfer. An unresolved condition can prevent a sale, regardless of the score.
6. Growth story. Test future opportunities against three full years and current trading, with costs, constraints and evidence explained.

The eight tests sets out what each one is and why it moves the price.

The same business, four prices

The multiple also depends on who is buying. A trade buyer may see operational synergies; an owner-operator needs to understand the work and funding; an acquisition group may focus on management depth. An existing management team needs to assess affordability and structure. None of those profiles determines the eventual price or terms.

For sale preparation, it helps to understand which buyer assumptions sit behind a range. The Review identifies relevant buyer types, the evidence they may examine and the risks that could affect their interest.

Why I give a range, not a number

Two inputs, both of which move with preparation and with the buyer, give a range. The range is the honest answer and the useful one, because it tells you what to work on. A single figure needs clear assumptions and a defined purpose. For sale preparation, a range makes it easier to discuss different buyers, risks and transaction terms without suggesting that a price is guaranteed.

A Sale-Readiness Review gives you the range for your business, from your actual accounts, in two weeks. If you'd rather start with a rough sense of where you sit, the free readiness check takes a few minutes.

Three things owners get wrong about value

"It's worth what I need to retire on." Buyers don't price your retirement. The number is the earnings times the multiple, and earnings and the multiple are two important influences, alongside transaction terms.

"A broker told me a figure." A broker's appraisal is a market view, and a useful one; good brokers will tell you themselves what it assumes. Ask what buyer and what multiple the figure rests on, and whether the earnings behind it have been tested.

"Revenue is up, so it's worth more." Revenue alone does not establish value. In an earnings-based calculation, the maintainable profit from those sales matters. Growth from lower-margin work can leave earnings and the value calculation lower, even when revenue rises.