How to value a small business in Queensland (without kidding yourself)

G’day. If you’ve ever looked at a business for sale and thought “how on earth did they come up with that number?”, you’re in good company. Half the vendors I meet are wondering the same thing about their own price.

Here’s how small businesses in Queensland actually get valued, minus the jargon. This is general information, not advice. Your situation is your own, so get proper professional help before you sign.

Step one: forget revenue for a minute

A café turning over $1.2 million sounds grand until you find out the owner takes home $60k and works 70 hours a week. Revenue is noise. What you’re buying is the money the business can pay its owner.

The number most brokers and buyers start with is something like owner’s earnings, sometimes called SDE (seller’s discretionary earnings) or adjusted net profit. Bigger businesses with a proper management team usually get valued on EBITDA instead, because the owner isn’t on the tools.

Either way, you start with the profit and loss and adjust it to show what a new owner would earn.

Step two: the add-backs (and where the fairy tales live)

Add-backs are expenses in the books that a new owner wouldn’t have. The usual suspects:

• The owner’s own wage or drawings
• Interest on the owner’s loans (you’ll have your own)
• Depreciation, which isn’t cash out the door
• One-off costs, like a big repair or a legal fight
• Genuinely personal stuff run through the business (the boat, the wife’s car, the family phone plan)

Fair enough so far. But this is also where vendors get creative. “The cash takings aren’t all in the books, mate.” Lovely. You can’t bank a wink, and no lender will touch it either. Every add-back needs evidence. If it can’t be shown on paper, it doesn’t go in the number.

And go the other way too. If the owner works 60 hours and pays themselves nothing, you need to deduct a fair wage for a manager, because one day that might be you, and you’ll want paying.

Step three: pick a multiple (this is where it gets arty)

Once you’ve got a believable earnings figure, the price is usually a multiple of it. A business earning $150k a year for its owner at a multiple of 2 is worth around $300k, plus stock.

What moves the multiple up or down? Risk. The less risky the earnings, the more a buyer will pay for each dollar of them.

Pushes it up:

• Long lease with options, at a sensible rent
• Lots of repeat customers, none of them too big
• Systems and staff that run without the owner
• A franchise system with a track record (have a look at our franchise listings)
• Growth trend over three years, not just one good one

Pulls it down:

• The owner is the business (all the relationships, all the know-how)
• One customer is 40% of sales
• Lease is nearly up, or the landlord is cranky
• Tired equipment that needs replacing
• Profits bouncing around year to year

That’s why two businesses with the same profit can be priced very differently. A takeaway in a busy Townsville centre with five years on the lease is a different animal to a one-man trade business where the customers only ring the owner’s mobile.

Step four: stock, plant and the bits on top

Read the listing carefully.

• Stock is usually “plus SAV”, counted at cost on settlement day and paid on top. On a retail or food business that can be a decent chunk, so budget for it.
• Plant and equipment is usually included in the price. Get a list and check its condition. If the walk-in coolroom is held together with gaffer tape, that’s coming off the price.
• Freehold is a separate thing entirely. If the business owns its premises, the property gets valued on its own (rent and yield), not on the business multiple. More on that in business plus freehold explained.

Step five: sanity-check it three ways

Before I’d get excited about a price, I’d run three quick checks:

1. Payback. How many years of earnings to get your money back? If it’s eight years for a small owner-operated shop, something’s off.
2. Return on your time. Take the earnings, take off a fair wage for the hours you’ll work. What’s left is your actual return on the money. Is it better than the alternatives?
3. Can it carry the debt? If you’re borrowing, the business has to pay you, pay the loan and still have something left for a bad month. Have a look at financing a business purchase for the general idea.

Where to get the real figures

The asking price on a listing is the vendor’s hope. The real story is in the Information Memorandum, the tax returns, the BAS statements and the lease. You’ll usually sign an NDA before you get them. Here’s what’s in an IM and why you sign the NDA.

Then get a qualified professional to go through them with you before anything goes unconditional. Money spent on a proper check is the cheapest insurance you’ll ever buy.

Selling? Same rules, other side of the table

If you’re the vendor, everything above is how buyers will pick your business apart. Tidy books, documented add-backs and a business that runs without you will lift the price more than any sales pitch. Start with preparing your business for sale.

Have a look at real numbers

The best way to learn valuation is to look at real businesses and their asking prices. Have a squiz at all our current listings, or the businesses for sale in Townsville and Kirwan. Then read the Townsville town profile to see what drives the local economy.

Want a second set of eyes on a business you’re looking at, or a rough idea of what yours might fetch? Give me a call. Worst case, you’ve had a useful conversation.

Frequently asked questions

What multiple do small businesses sell for in Queensland?

There's no single number. Owner-operated small businesses often trade somewhere around one to three times the owner's adjusted annual earnings, with franchises, long leases and low owner dependence sitting higher and risky, one-person shows sitting lower. Treat any rule of thumb as a starting point, not an answer.

Is a business valued on revenue or profit?

Profit, almost always. Revenue tells you how busy the place is; profit tells you what it pays. Buyers and lenders care about the earnings the business can reliably produce for a new owner.

Is stock included in the asking price?

Usually not. Most listings say 'plus stock' or 'plus SAV' (stock at value), meaning stock is counted on settlement day and paid for on top of the price. Check the listing and the contract.

Do I need a formal valuation to buy a business?

Not always, but a lender may ask for one, and for bigger deals it's worth paying for. At minimum, get the figures checked by a qualified professional before you sign anything unconditional.

General information only. This isn't financial, credit, tax or legal advice and doesn't take your circumstances into account. Get advice from a licensed professional before you act.