Add the difference between market value of that asset less the outstanding balance to asset value. Stock is at cost. N.B.. Debtors and creditors are left out of the calculation.
Interest Percentage: Calculated at the rate which an average person could attain from a financial institution, ‘e fixed deposit rate.
Salary: The amount an owner would pay a manager to run the business. N.B.. If the business already has a manager, use his salary if realistic. The net profit should then be increased by the amount of the salary to bring it into line with the owner-operated business.
Net Profit per annum: The profit, after adding back all amounts that the seller takes out of the business. These include members remuneration and personal items, which do not relate to business activities, such as medical aid, motor expenses, private cellophane etc. Also added back are “non cash” items such as depreciation; and bank interest payable, wanly Is merely a Tunnel AT ten amount AT cans ten owner snoozes to put Into ten business, as opposed to operating on an overdraft.
PEP x [ ] months = Goodwill : It takes an experienced broker to determine the goodwill value of a business, but the following rule of thumb can apply: 0 0 0 a non-service orientated business that has en going a number of years and has a high asset value – from 18 to 24 months. A service business or a newer established business from 12 to 20 months. Franchise business (often recommended by the Franchiser) and usually from 24 to 36 months and possibly more for “top” franchise.
Also applies to stand-alone businesses with a strong brand.
Value: The asset value (a) and the goodwill (d) are added together. The interesting part of this method is that it gives a higher value to businesses that have a large asset base, IEEE plant and machinery in engineering businesses.