Brokers and chartered accountants overlap here, but they don't do the same job. Brokers prepare appraisals for owners deciding whether to sell. Formal valuations, the kind a bank, court or Inland Revenue relies on, are prepared by chartered accountants. The methods below show up in both, used with different depth.
The methods at a glance
| Method | How it works | Best suited to |
|---|---|---|
| Earnings multiple (EBPITDA) | Adjusted owner earnings × a multiple | Owner-operated small businesses |
| Capitalisation of future maintainable earnings (CFME) | Sustainable earnings ÷ a required rate of return | Established, profitable businesses |
| Discounted cash flow (DCF) | Future cash flows discounted back to today | Growing businesses, long-term contracts |
| Comparable sales | Prices paid for similar businesses | Most sales, as a check on any method |
| Asset-based | Value of assets less liabilities | Asset-heavy or low-profit businesses |
| Revenue multiple | Recurring revenue × a multiple | SaaS and subscription businesses |
Earnings multiple
This is the method most buyers and sellers of small NZ businesses use. You normalise the accounts to find EBPITDA, which is earnings before proprietor's wages, interest, tax, depreciation and amortisation. Then you multiply it by a figure that reflects risk.
It works well because it mirrors how a buyer thinks. They're buying a job plus a return on their money, and they want to know how many years of earnings they're paying for.
The weak point is the multiple itself. It has to come from real sales evidence, not a figure someone heard at a barbecue.
EBPITDA or EBITDA? Once a business is large enough to have a manager on a market salary, buyers often switch to EBITDA, which treats owner or management wages as a cost. The multiples applied to EBITDA tend to be higher, because the earnings don't rely on the owner turning up.
Capitalisation of future maintainable earnings
CFME is common in formal valuations by NZ chartered accountants. It takes the earnings a business can sustain into the future and divides them by a capitalisation rate, the return a buyer would want for the risk.
A rate of 25% is the same as a multiple of 4. A rate of 40% is a multiple of 2.5. The maths is close to an earnings multiple, but the method pushes the valuer to justify both numbers in detail: why those earnings are maintainable, and why that rate reflects the risk.
Discounted cash flow
DCF forecasts cash flows several years ahead and discounts them back to today's dollars. It suits businesses whose future looks clearly different from their past, like a company with new long-term contracts or one going through rapid growth.
The catch is that small changes in assumptions move the answer a long way. For most small owner-operated businesses, it adds complexity without adding accuracy. Chartered accountants use it where the forecast is well supported.
Comparable sales
What did similar businesses sell for, in similar locations, under similar market conditions? That evidence underpins every broker's appraisal. Under the Real Estate Agents Act rules, a licensed broker's appraisal must be supported by comparable sales and reflect current market conditions. Where good comparables don't exist, the broker has to say so in writing.
Comparables are only useful when they're true sales, not asking prices. Broker sales records and paid sales databases are the usual sources.
Asset-based methods
Here the value comes from the balance sheet: tangible assets at market value, less liabilities. There are two common versions.
Net tangible assets values the business as a going concern based on what it owns. It suits property-heavy or equipment-heavy businesses.
Liquidation value asks what the assets would raise if sold off separately. It sets a floor, and it's relevant when earnings don't justify a price above the gear.
For most trading businesses, asset value is a check rather than the main method. A transport operator with a fleet of trucks and thin margins is the classic exception.
Revenue multiples
Software and subscription businesses are often priced on annual recurring revenue (ARR) rather than profit, especially when they're reinvesting heavily to grow. Buyers look closely at churn, gross margin and growth rate. Revenue multiples suit businesses with predictable subscription income. They rarely suit a café or a trades business, where profit is what counts.
Which method suits your business?
A rough guide:
- Owner-operated business under about $1 million in price: EBPITDA multiple, tested against comparable sales.
- Larger business with management in place: EBITDA multiple or CFME, tested against comparables.
- Business with heavy plant and modest profit: asset-based, with earnings as a cross-check.
- SaaS or subscription business: revenue or ARR multiple, alongside earnings where they exist.
- Shareholder exit, separation or tax matter: a formal valuation by a chartered accountant, usually CFME or DCF with an asset-based check.
The method is only as good as the inputs. Most of the work in how to value a business in NZ sits in normalising earnings. The multiple matters just as much, because business valuation multiples in NZ vary widely between sectors.
Getting a figure for your business
If you're planning a sale, we'll prepare a written appraisal using the earnings approach that suits your business and back it with comparable sales. It's free and confidential. If you need a formal report, we'll point you to an independent business valuation from a chartered accountant.