The first step is the client sharing their last three years of financial statements which will include the profit and loss statement, balance sheets and the depreciation schedules for each financial year. The client will also advise the agent of any relevant information not contained within the statements such as the stock on hand and the work in progress figures. All information is kept 100% confidential under law.
In step 2 we apply generally accepted accounting principles (GAAP) and run business analysis to establish the businesses true financial performance and earnings-based capability referred to as the Earnings before Proprietors salary Interest Tax Depreciation and Amortisation (EBPITDA) otherwise known as the Seller’s Discretionary Earnings (SDE) figure.
The normalised EBPITDA is then multiplied against the industry sale multiple from businesses within the same industry sector which have similar financial profiles and have sold previously. This measure against comparable sales is the Comparative Market Analysis (CMA) method of appraisal and is the most common form of appraisal for small to medium-sized businesses within NZ. The output of these workings provides the client with an expected selling price range to help them set a realistic and appropriate asking price for the business.
In step 3 the Broker presents the written appraisal to the client and explains the facts around the findings and assessment. This fulfills the legal obligation of the Agent under rules 10.2 & 10.3 of the REAA Rules 2012 and provides the client the opportunity to recieve honest and accurate feedback on the business value supported by evidence and data, which business owners use to set their realistic and defendable listed sale price for the business. Rationality vs. emotionality.