The Value of a Business

Date Added: 01/06/2012 by Mark Ryall - MRM Finance

The value of the business in a management rights complex is determined by the net operating profit multiplied by a factor.    The factor can range from 3 – 6 times depending on a number of key areas:

  • Supply & Demand
  • Location of the complex
  • Term of the agreements
  • The level of the Net operating profit
  • Amount of the body corporate salary
  • Competition
  • Age of the complex
  • Source of Bookings
  • Duties of the manager – supervisory or manage all aspects
  • Occupancy
  • Relationship with body corporate
  • Type of complex – permanent, holiday, corporate, student, mixture
  • Experience of the operators

An example would be:

Net operating profit of $200,000 x 5 = $1,000,000 (value of the business)
Unit value $500,000
Total value $1,500,000

When you are considering the value of the business component, you need to be mindful of the above key areas and view them as a group, rather than individual key areas.   Improving areas such as source of bookings, occupancy and term of the agreements can have a positive impact on the value of your business. 

A business that is generating an income in excess of $500,000 will generally be in the high range of 5.5 times.  
A business that is generating an income in excess of $1,000,000 are rare and can command a much higher multiplier towards 6 times
A business that is generating  an income of $60,000 will generally be at the lower range closer to 3 times. 

The value of the business and unit determines the level of borrowing’s that you can raise against the complex.   A number of financiers will lend up to 70% against the complex subject to the sufficient income, term of the agreements and value of the unit.   The financier will also take into account any external liabilities that you may have. 


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