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Reply To: My business have been valued at 3.5 times EBIT. In light of massive losses In March, April, May and most likely June, can these losses be ‘normalised’ i.e removed in a a valuation? Or is that just a discussion to be had with a purchaser. Also, for a service based business being bought my another service business, what is the spectrum or cash vs workout that is considered normal?

To whom it may concern,

If your business bounces back to pre-covid numbers within the next couple of months, it would absolutely be fair to keep the initial valuation. The key to any business valuation is future maintainable earnings (hence this is why normalisations occur); if covid19 has caused a structural changes and you are unlikely to recover back to your pre-covid trading obviously this will have a negative affect on your valuation.

I run a company that provides business valuations and I’m more than happy to give you free advice in this regard; my email is chris.small@abcbusiness.co.nz