How to read a business-for-sale listing

Start with profit, and check what kind it is

Sellers describe profit in different ways. Owner's earnings is profit before the owner pays themselves a wage. Net profit after owner's wage has already taken out a fair salary for the person running it. EBITDA is profit before interest, tax, depreciation and amortisation, and is more common for larger businesses.

The same business can look very different depending on which figure is used, so only compare businesses that use the same kind of profit. On NextOwner, every listing says which one it is.

Compare the price with the profit

Divide the asking price by the yearly profit. The answer is roughly how many years of profit you'd be paying for the business. It's a quick way to compare similar businesses in the same industry.

A lower number isn't always a better deal. Businesses that depend heavily on the owner, have a short lease or rely on a few big customers often sell for less because they carry more risk.

Look closely at rent and the lease

Rent is often the biggest fixed cost. Compare it with yearly revenue to see how much of every dollar goes to the landlord.

Check how many years are left on the lease and whether there are options to renew. The lease usually has to be transferred to you, and the landlord normally needs to agree to that.

Count the owner's hours

A business that makes good money but needs the owner there 60 hours a week is a job as much as an investment. If you plan to employ a manager instead, take their wage off the profit to see what's left for you.

Check what's included in the price

"+ SAV" means stock at value is paid on top of the asking price. Also check which equipment, vehicles, licences, websites and phone numbers come with the business.

Then check the figures for yourself

The numbers in a listing come from the seller. Before you commit, ask for financial statements, tax returns and business activity statements, and have an accountant review them with you.