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Business Valuation

Version: 7 - Build: 20170414 by bizpep.com


Business Valuation is designed to provide an economical, efficient and effective means to assess the value of
business. This valuation method can be used for business purchase, sale, or establishment. It is compact, eas
to use, and requires minimal inputs. Outputs include a 3 Year Forecast, Sensitivity Analysis, Investment Retur
and calculated Business Valuation in tabular and graphical form.

Software is available as a standard spreadsheet (.xlsx file developed with Microsoft Excel) and will run on mo
spreadsheet applications. You can access current software versions at:
http://bizpep.com/businessvaluation.html#download

To start use the sheet tabs to select the Input sheet.


Then add your business inputs to determine a forecast and valuation.
Input is in blue cells only. For full instructions please refer to the Help file at:
http://bizpep.com/businessvaluation.html#help

Software License Details:


Input Licensed Email Address:
Input License Code:
License Valid to Date:
License Confirmation:

In Evaluation Mode some results are Locked and not calculated.


To fully enable this software please purchase a license using the link below.
License Details are sent by email, input these in the blue cells above to fully enable your software.

Purchase a software license from:


http://bizpep.com/businessvaluation.html#purchase
A single user License is only US$69.00 for a full year.
License subscriptions are processed via PayPal the leader in secure internet transaction processing.
As soon as your transaction is complete you will receive License Details by return email.
Input your License Details above, Save and Enable Content to fully enable your software.
Software which is not correctly licensed exposes individuals and business to serious risk.
Copyright © bizpep.com
Business Valuation
Version: 7 - Build: 20170414 by bizpep.com
signed to provide an economical, efficient and effective means to assess the value of a
method can be used for business purchase, sale, or establishment. It is compact, easy
mal inputs. Outputs include a 3 Year Forecast, Sensitivity Analysis, Investment Return,
Valuation in tabular and graphical form.

a standard spreadsheet (.xlsx file developed with Microsoft Excel) and will run on most
You can access current software versions at:
http://bizpep.com/businessvaluation.html#download

To start use the sheet tabs to select the Input sheet.


n add your business inputs to determine a forecast and valuation.
in blue cells only. For full instructions please refer to the Help file at:
http://bizpep.com/businessvaluation.html#help

Not Licensed, for Evaluation Only.


Not Licensed, for Evaluation Only.

n Evaluation Mode some results are Locked and not calculated.


enable this software please purchase a license using the link below.
e sent by email, input these in the blue cells above to fully enable your software.

Purchase a software license from:


http://bizpep.com/businessvaluation.html#purchase
A single user License is only US$69.00 for a full year.
ns are processed via PayPal the leader in secure internet transaction processing.
our transaction is complete you will receive License Details by return email.
ense Details above, Save and Enable Content to fully enable your software.
are which is not correctly licensed exposes individuals and business to serious risk.
Copyright © bizpep.com
Not Licensed, for Evaluation Only. In Evaluation Mode some results are Locked and not calculated.

Input - Business Valuation


Blue cells allow input. View comments by positioning your mouse over the red marker cell or click the hyperlink for the
Instruction Sheet

Current Operating Performance Data This section reviews current business performance for a full year.

Business Name or Identifier Example Business This appears on the Output Sheets.

Business Revenue 500,000 Annual business revenue for the current year.
In evaluation mode Business Revenue applied in Calculation sheets is locked to the Example value of 500000.
Expenses Monetary Percent Set the Expense Input as Monetary or Percent.
Variable Costs Annual costs that vary with the level of revenue.
Materials & Supplies 10,000 2 Cost of items used in the product/service or resold.
Labor excluding Owner 200,000 40 Cost of labor including all benefits and add-ons.
Labor Owner 50,000 10 Cost of an employee who could replace the owner.
Distribution 20,000 4 Cost to get the product/service to the consumer.
Marketing 10,000 2 Cost of marketing and promotion.
Other 20,000 4 Any other costs incurred in the product/service.
Total Variable Costs 310,000 62 Total Variable Costs and their % of Revenue
Fixed Costs Annual costs that do not vary with revenue.
Location 40,000 8 Cost of rent, utilities etc. Exclude ownership costs.
Administration 30,000 6 Cost of administration supplies and requirements.
Labor excluding Owner 50,000 10 Cost of labor including all benefits and add-ons.
Labor Owner 10,000 2 Cost of an employee who could replace the owner.
Interest Costs 0 0 Interest component of loans, Set to 0 for valuation.
Other 0 0 Any other overhead costs not already included.
Total Fixed Costs 130,000 26 Total Fixed Costs and their % of Revenue.
Operating Surplus 60,000 12 Operating surplus before taxation.
Owner Cash Flow 120,000 24 Operating surplus to owner including wages.

Forecast Data Input Relative Indicators to build a 3 Year Forecast.

Relative Indicator Year 1 Year 2 Year 3 Indicators are Relative to the prior year.
Level of Competition 103% 100% 97% >100=Inc, <100=Dec Competition.
Market Strength 105% 100% 100% >100=Inc, <100=Dec Market Strength.
Materials & Supplies Costs 105% 105% 100% >100=Inc, <100=Dec base Costs.
Labor Costs 100% 103% 105% >100=Inc, <100=Dec base Costs.
Interest Rates 100% 105% 95% >100=Inc, <100=Dec base Interest.
Business Market Position 110% 105% 103% >100=Inc, <100=Dec Business Position.
Variable Costs Efficiency 103% 105% 100% >100=Inc, <100=Dec Variable Efficiency.
Fixed Costs Efficiency 100% 102% 105% >100=Inc, <100=Dec Fixed Efficiency.

Fixed Costs Flow-on 25% The % increase in Fixed Costs for each 100% increase in revenue.

Valuation Data

Owners Time Commitment to Business 100% Input the percentage of work hours applied to the business.
Owners External Earning Power 60,000 How much could the owner earn if working outside the business?
Replacement Value of Business Assets 100,000 What is the value of business assets excluding property.
Life of Assets (years) 8 What is the average life of the assets?
Market Value of Property 0 How much could you sell the business real estate for?
Other Investment in Business 148,591 Operating capital, goodwill, etc. This is adjusted by Valuation.
Total Investment 248,591 Current Expected Valuation
Financed Amount 0 Input amount financed, interest rate is calculated.
Equity Investment 248,591 This is the amount of equity in the business.

Output - Business Valuation Model


Current Expected Valuation is 248,591 refer to Valuation Analysis for details.
Summary outputs are included on the Sensitivity and Valuation Analysis Sheets. Details are in tabular form on the Results
Sheets and graphical form on the Chart Sheets. To view comments position your mouse over the red marker cell or click the
hyperlink to access the Instruction Sheet. To display Sheets click the associated button or tab.
Output Sheets
Sensitivity Analysis Input sensitivity factors to determine your forecast and valuation range.
Valuation Analysis Input your desired Return on Investment to calculate the Business Valuation.
Expected Results View Expected Business 3 Year Forecast in detail.
Optimistic Results View Optimistic 3 Year Business Forecast in detail.
Pessimistic Results View Pessimistic 3 Year Business Forecast in detail.
Forecast Revenue Chart View 3 Year Forecast business Revenue; Optimistic, Expected, and Pessimistic.
Forecast Return Chart View 3 Year Forecast business Return; Optimistic, Expected, and Pessimistic.
Operating Surplus Chart View 3 Year Forecast Expected Suplus and Costs.
Surplus & Return Chart View 3 Year Forecast Expected Surplus & Return on Sales and Return on Investment %.
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Sensitivity Analysis - Business Valuation
To test the sensitivity of your forecast input adjustment percentages in the blue cells. Green cells provide Optimistic results,
yellow cells Expected, and tan cells Pessimistic. An Output Summary is provided at the bottom of this sheet.
Optimistic, improve the variation of all Relative Indicators by 20%
Go to Valuation
Pessimistic, degrade the variation of all Relative Indicators by 20%
Current Year Year 1 Year 2 Year 3 3 Year
Average
Business Revenue
Optimistic 500,000 579,688 614,469 660,363 618,173
Expected 500,000 560,680 588,714 625,129 591,507
Pessimistic 500,000 542,085 563,768 591,495 565,783
Operating Surplus
Optimistic 60,000 97,031 122,621 129,748 116,467
Expected 60,000 88,695 106,170 105,372 100,079
Pessimistic 60,000 80,605 90,428 82,386 84,473
Owner Cash Flow
Optimistic 120,000 157,031 184,421 194,638 178,697
Expected 120,000 148,695 167,970 170,262 162,309
Pessimistic 120,000 140,605 152,228 147,276 146,703
Business Return
Optimistic 47,500 84,033 109,766 117,238 103,679
Expected 47,500 75,815 93,115 92,090 87,007
Pessimistic 47,500 67,842 77,170 68,314 71,108
Summary
The 3 Year Average Expected Business Return is 87,007 per year.
Sensitivity Analysis indicates a Return high of 103,679 to a low of 71,108 per year.
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Valuation Analysis - Business Valuation
Input your desired Return on Investment to generate a Valuation. To Update the Return calculations input your Valuation and
click the Update Button. All input is in the blue cells. Green cells provide Optimistic results, yellow cells Expected, and tan ce
Pessimistic. An Output Summary is provided at the bottom of this sheet.

Finance is currently set at Interest 0 Amount


(Set Interest & Amount to 0 for initial Valuation) Adjust Interest Cost Adjust Finance Amount

Sensitivity is currently set at Optimistic 20% Pessimistic


Adjust Sensitivity

Total Investment is currently set at 248,591 This is used for Return Calculations.

Current Year Year 1 Year 2


Business Return
Optimistic 47,500 84,033 109,766
% Return on Total Investment 19% 34% 44%
Expected 47,500 75,815 93,115
% Return on Total Investment 19% 30% 37%
Pessimistic 47,500 67,842 77,170
% Return on Total Investment 19% 27% 31%

For an average 3 Year Return on Investment of 35% Input your required Return on Investment.
Expected Return results in a Valuation of 248,591 This is the calculated Current Expected Valuation.
Optimistic Return results in a Valuation of 296,226 This is the calculated Optimistic Valuation.
Pessimistic Return results in a Valuation of 203,167 This is the calculated Pessimistic Valuation.
Summary
The Average Expected Return from the business is 87,007 per year.
Sensitivity Analysis indicates a Return high of 103,679 to a low of 71,108
An average 3 Year Return on Investment of 35% gives an Expected Valuation of
Sensitivity Analysis indicates a Valuation high of 296,226 to a low of 203,167
Copyright © bizpep.com
n calculations input your Valuation and
ults, yellow cells Expected, and tan cells

0
Adjust Finance Amount

20%
nsitivity

his is used for Return Calculations.

Year 3 3 Year
Average
117,238 103,679
47% 42%
92,090 87,007
37% 35%
68,314 71,108
27% 29%

red Return on Investment.


ulated Current Expected Valuation.
lated Optimistic Valuation.
lated Pessimistic Valuation.

per year.
Expected Valuation of 248,591
.
Expected Results - Business Valuation
Expected Forecast
Example Business
Current Year Year 1 Year 2 Year 3 3 Year
Average
Business Revenue 500,000 560,680 588,714 625,129 591,507
Expenses
Variable Costs
Materials & Supplies 10,000 11,431 12,003 12,745 12,060
% Revenue 2.0% 2.0% 2.0% 2.0% 2.0%
Labor excluding Owner 200,000 222,478 229,086 258,404 236,656
% Revenue 40.0% 39.7% 38.9% 41.3% 40.0%
Labor Owner 50,000 49,697 51,254 54,160 51,704
% Revenue 10.0% 8.9% 8.7% 8.7% 8.7%
Distribution 20,000 21,774 21,774 23,121 22,223
% Revenue 4.0% 3.9% 3.7% 3.7% 3.8%
Marketing 10,000 10,887 10,887 11,560 11,111
% Revenue 2.0% 1.9% 1.8% 1.8% 1.9%
Other 20,000 21,774 21,774 23,121 22,223
% Revenue 4.0% 3.9% 3.7% 3.7% 3.8%
Total Variable Costs 310,000 338,041 346,778 383,112 355,977
Total Variable Costs % 62.0% 60.3% 58.9% 61.3% 60.2%
Gross Profit 190,000 222,639 241,936 242,017 235,531
Gross Profit % 38.0% 39.7% 41.1% 38.7% 39.8%
Mark-up Equivalent 61.3% 65.9% 69.8% 63.2% 66.2%
Fixed Costs
Location 40,000 41,214 41,774 42,503 41,830
% Revenue 8.0% 7.4% 7.1% 6.8% 7.1%
Administration 30,000 30,910 30,716 29,764 30,463
% Revenue 6.0% 5.5% 5.2% 4.8% 5.2%
Labor excluding Owner 50,000 51,517 52,730 53,649 52,632
% Revenue 10.0% 9.2% 9.0% 8.6% 8.9%
Labor Owner 10,000 10,303 10,546 10,730 10,526
% Revenue 2.0% 1.8% 1.8% 1.7% 1.8%
Interest Costs 0 0 0 0 0
% Revenue 0.0% 0.0% 0.0% 0.0% 0.0%
Other 0 0 0 0 0
% Revenue 0.0% 0.0% 0.0% 0.0% 0.0%
Total Fixed Costs 130,000 133,944 135,766 136,645 135,452
Total Fixed Costs % 26.0% 23.9% 23.1% 21.9% 22.9%

Total Expenses 440,000 471,985 482,544 519,757 491,429

Operating Surplus 60,000 88,695 106,170 105,372 100,079


Operating Surplus % 12.0% 15.8% 18.0% 16.9% 16.9%

Owner Cash Flow 120,000 148,695 167,970 170,262 162,309


Owner Cash Flow % 24.0% 26.5% 28.5% 27.2% 27.4%
LESS
Depreciation Allowance 12,500 12,879 13,054 13,282 13,072
Owners External Earning Power 60,000 60,000 61,800 64,890 62,230
Business Return 47,500 75,815 93,115 92,090 87,007
Return on Sales 9.5% 13.5% 15.8% 14.7% 14.7%
Total Investment 248,591
Return on Total Investment 19.1% 30.5% 37.5% 37.0% 35.0%
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Optimistic Results - Business Valuation
Optimistic Forecast improved by 20%
Example Business
Current Year Year 1 Year 2

Business Revenue 500,000 579,688 614,469


Expenses
Variable Costs
Materials & Supplies 10,000 11,750 12,338
% Revenue 2.0% 2.0% 2.0%
Labor excluding Owner 200,000 230,170 235,321
% Revenue 40.0% 39.7% 38.3%
Labor Owner 50,000 49,602 51,166
% Revenue 10.0% 8.6% 8.3%
Distribution 20,000 22,382 22,382
% Revenue 4.0% 3.9% 3.6%
Marketing 10,000 11,191 11,191
% Revenue 2.0% 1.9% 1.8%
Other 20,000 22,382 22,382
% Revenue 4.0% 3.9% 3.6%
Total Variable Costs 310,000 347,477 354,779
Total Variable Costs % 62.0% 59.9% 57.7%
Gross Profit 190,000 232,211 259,690
Gross Profit % 38.0% 40.1% 42.3%
Mark-up Equivalent 61.3% 66.8% 73.2%
Fixed Costs
Location 40,000 41,594 42,289
% Revenue 8.0% 7.2% 6.9%
Administration 30,000 31,195 30,974
% Revenue 6.0% 5.4% 5.0%
Labor excluding Owner 50,000 51,992 53,171
% Revenue 10.0% 9.0% 8.7%
Labor Owner 10,000 10,398 10,634
% Revenue 2.0% 1.8% 1.7%
Interest Costs 0 0 0
% Revenue 0.0% 0.0% 0.0%
Other 0 0 0
% Revenue 0.0% 0.0% 0.0%
Total Fixed Costs 130,000 135,180 137,069
Total Fixed Costs % 26.0% 23.3% 22.3%

Total Expenses 440,000 482,656 491,848

Operating Surplus 60,000 97,031 122,621


Operating Surplus % 12.0% 16.7% 20.0%

Owner Cash Flow 120,000 157,031 184,421


Owner Cash Flow % 24.0% 27.1% 30.0%
LESS
Depreciation Allowance 12,500 12,998 13,215
Owners External Earning Power 60,000 60,000 61,440
Business Return 47,500 84,033 109,766
Return on Sales 9.5% 14.5% 17.9%
Total Investment 248,591
Return on Total Investment 19.1% 33.8% 44.2%
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ptimistic Results - Business Valuation

Year 3 3 Year
Average
660,363 618,173

13,259 12,449
2.0% 2.0%
265,969 243,820
40.3% 39.4%
54,230 51,666
8.2% 8.4%
24,053 22,939
3.6% 3.7%
12,027 11,469
1.8% 1.9%
24,053 22,939
3.6% 3.7%
393,592 365,283
59.6% 59.1%
266,771 252,890
40.4% 40.9%
67.8% 69.2%

43,207 42,363
6.5% 6.9%
29,855 30,675
4.5% 5.0%
53,301 52,821
8.1% 8.5%
10,660 10,564
1.6% 1.7%
0 0
0.0% 0.0%
0 0
0.0% 0.0%
137,023 136,424
20.7% 22.1%

530,615 501,706

129,748 116,467
19.6% 18.8%

194,638 178,697
29.5% 28.9%

13,502 13,239
63,898 61,779
117,238 103,679
17.8% 16.8%

47.2% 41.7%
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Pessimistic Results - Business Valuation
Pessimistic Forecast degraded by 20%
Example Business
Current Year Year 1 Year 2

Business Revenue 500,000 542,085 563,768


Expenses
Variable Costs
Materials & Supplies 10,000 11,117 11,673
% Revenue 2.0% 2.1% 2.1%
Labor excluding Owner 200,000 214,900 222,880
% Revenue 40.0% 39.6% 39.5%
Labor Owner 50,000 49,790 51,339
% Revenue 10.0% 9.2% 9.1%
Distribution 20,000 21,175 21,175
% Revenue 4.0% 3.9% 3.8%
Marketing 10,000 10,588 10,588
% Revenue 2.0% 2.0% 1.9%
Other 20,000 21,175 21,175
% Revenue 4.0% 3.9% 3.8%
Total Variable Costs 310,000 328,745 338,830
Total Variable Costs % 62.0% 60.6% 60.1%
Gross Profit 190,000 213,340 224,939
Gross Profit % 38.0% 39.4% 39.9%
Mark-up Equivalent 61.3% 64.9% 66.4%
Fixed Costs
Location 40,000 40,842 41,275
% Revenue 8.0% 7.5% 7.3%
Administration 30,000 30,631 30,469
% Revenue 6.0% 5.7% 5.4%
Labor excluding Owner 50,000 51,052 52,305
% Revenue 10.0% 9.4% 9.3%
Labor Owner 10,000 10,210 10,461
% Revenue 2.0% 1.9% 1.9%
Interest Costs 0 0 0
% Revenue 0.0% 0.0% 0.0%
Other 0 0 0
% Revenue 0.0% 0.0% 0.0%
Total Fixed Costs 130,000 132,736 134,511
Total Fixed Costs % 26.0% 24.5% 23.9%

Total Expenses 440,000 461,480 473,340

Operating Surplus 60,000 80,605 90,428


Operating Surplus % 12.0% 14.9% 16.0%

Owner Cash Flow 120,000 140,605 152,228


Owner Cash Flow % 24.0% 25.9% 27.0%
LESS
Depreciation Allowance 12,500 12,763 12,899
Owners External Earning Power 60,000 60,000 62,160
Business Return 47,500 67,842 77,170
Return on Sales 9.5% 12.5% 13.7%
Total Investment 248,591
Return on Total Investment 19.1% 27.3% 31.0%
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ssimistic Results - Business Valuation

Year 3 3 Year
Average
591,495 565,783

12,247 11,679
2.1% 2.1%
250,883 229,554
42.4% 40.6%
54,085 51,738
9.1% 9.1%
22,217 21,522
3.8% 3.8%
11,108 10,761
1.9% 1.9%
22,217 21,522
3.8% 3.8%
372,756 346,777
63.0% 61.3%
218,739 219,006
37.0% 38.7%
58.7% 63.2%

41,830 41,316
7.1% 7.3%
29,691 30,264
5.0% 5.3%
54,027 52,462
9.1% 9.3%
10,805 10,492
1.8% 1.9%
0 0
0.0% 0.0%
0 0
0.0% 0.0%
136,353 134,533
23.1% 23.8%

509,109 481,310

82,386 84,473
13.9% 14.9%

147,276 146,703
24.9% 25.9%

13,072 12,911
65,890 62,683
68,314 71,108
11.5% 12.6%

27.5% 28.6%
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Forecast Revenue Example Business

700,000

600,000
Revenue

500,000

400,000

300,000

200,000

100,000

0
Current Year

Year 1

Year 2

Year 3
Year
Forecast Return Example Business

140,000

120,000
Return

100,000

80,000

60,000

40,000

20,000

0
Current Year

Year 1

Year 2

Year 3
Year
O perating Surplus & C osts
Example Business

Operating Surplus Expected

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0
C u rren t Ye a r

Ye a r 1

Ye a r 2

Ye a r 3
Year
P e r c e n t a g e o n S a le s o r I n v e s t m e n t

0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
C u rre n t Ye a r
Surplus & Return % Expected

Ye a r 1
Example Business

Year

Ye a r 2

Ye a r 3
Instructions - Business Valuation
Overview
Outline The Business Valuation Model is designed to provide an economical, efficient and effective
means to assess the value of a business. The forecast input should be based on your subjective
views. These are translated into quantifiable values for model operation. There is no need to
provide "perfect" answers. Use your industry knowledge to make informed estimates. The goal is
to provide a streamline tool to indicate possible outcomes. A recent business taxation return will
assist in determining values for the Performance section. The Business Valuation Model
combines Relative Indicators for future performance with basic financial data (Revenue, Variable
Costs, and Fixed Costs) to value the business. This valuation method can be used for business
purchase, sale, or establishment. It is compact, easy to use, and requires minimal inputs. Outputs
include a 3 Year Forecast, Sensitivity Analysis, Investment Return, and calculated Business
Valuation in tabular and graphical form.

Contact Details For questions, suggestions, support or additional business software please visit:
http://bizpep.com/
Input
All input is on the Input & Analysis Sheets. Click the tab or hyperlinks to access. Blue cells allow input.
Current Operating This section reviews the current performance of your business for a full year period. It is designed
Performance Data to assess the level of expenses that vary with your sales (Variable Costs) and those that don't
(Fixed Costs). It also allocates a realistic labor cost for the owners effort. The focus is on cash
flow excluding assets and taxation. Broad expense categories are provided. Labels in blue cells
can be adjusted however they should reflect the original label type to ensure formula are applied
correctly. Values can be based on the previous years tax return adjusted for current trading.
Inputs do not have to be perfect but should reasonably reflect business operation.

Business Name or Input a name for the business. This appears as an identifier on the Output Sheets.
Identifier
Business Revenue Input the Revenue generated by the business for the current year.
Expenses Select your Expense input as Monetary or Percent. This allows you to input your Expenses
directly in Monetary (Dollars, Pounds etc) or Percentage terms.
Variable Costs Variable Costs vary with the volume of product or service you provide. Only include these costs
in this section and allocate them into one of the six categories.
Materials & Supplies Input the annual variable expense for materials and supplies directly related to producing your
product or providing your service.
Labor excluding Input the annual variable expense for labor (excluding the owner) directly related to producing
Owner your product or providing your service. Labor expenses should include all associated on-costs
and benefits.
Labor Owner Input the annual value of labor provided by the owner that is directly related to producing your
product or providing your service. This variable expense should reflect the effective labor effort
and can be estimated as the cost of an employee who could replace the owner. Labor expenses
should include all associated on-costs and benefits.
Distribution Input the annual variable expense for distribution of your product or service. This may include
Marketing freight costs,
Input the packaging,
annual variableand vehiclefor
expense running costs. Include advertising, promotional publications,
marketing.
sponsorships, client functions, and any marketing or sales expense. Marketing is not essentially a
variable expense, however it is assumed that marketing does influence the level of sales and a
relationship exists between the level of marketing and the level of sales. It is on this basis that it
forms a component of Variable Costs.
Other Input any annual variable expenses not already accounted for.
Total Variable Costs This is the sum of the variable expenses. It is expressed as a monetary value and as a
percentage of revenue.
Fixed Costs Fixed Costs are expenses which remain constant (up to a point) while the volume of sales vary.
Only include these costs in this section and allocate them into one of the six categories.
Location Input the annual fixed location expense. Include rent, power and light, maintenance, building
insurance, security, and cleaning. If you own the property do not include purchase or finance
costs.
Administration Input the annual fixed administration expense. Include office phone, equipment costs, and
stationary.
Labor excluding Input the annual fixed labor expense (excluding owner). This should include any labor expense
Owner not already accounted for in variable costs. Labor expenses should include all associated on-
costs and benefits.
Labor Owner Input the annual value of fixed cost labor provided by the owner. This should include the value of
any labor which has not already been accounted for in variable costs. This fixed expense should
reflect the effective labor effort and can be estimated as the cost of an employee who could
replace the owner. Labor expenses should include all associated on-costs and benefits.

Interest Costs Input the annual fixed Interest Cost. Include only the interest component of loan repayments.
Principle components reflect assets. It is recommended that the business initially be valued with
no Finance or Interest component i.e. 100% equity. This ensures the valuation provides the
required return on the Total Investment. Once you have established valuation details you can then
insert Finance details to determine the impact on the business.

Other Input any annual fixed expenses not already accounted for.
Total Fixed Costs This is the sum of the fixed expenses. It is expressed as a monetary value and as a percentage of
revenue.
Operating Surplus Operating Surplus reflects the before tax operating profit/loss of the business for the full years
trading. It is calculated as the Revenue less Total Variable Costs less Total Fixed Costs. It
excludes asset investment. Assets include property, equipment, and capital reinvestment in the
business. These investment components are considered in the Investment section. The
Operating Surplus represents the day to day (short term) business performance.

Owner Cash Flow Owner Cash Flow is the Operating Surplus plus the value of any Labor provided by the Owner. If
the owner provides no labor for the business Owner Cash flow and Operating Surplus will be
equal.
Forecast Data This section considers factors that influence future business performance. A relative indicator is
used to reflect unit changes in these factors. The base year relative indicator for each factor is
defined as 100%. Relative indicators for each of the next three years are applied to reflect likely
changes in the unit cost or strength of the factor. Each indicator is relative to the prior year. A
10% increase from the previous year is reflected by a relative indicator of 110%. A 10% decrease
from the previous year is reflected by a relative indicator of 90%. Relative indicators for costs
reflect changes in the base unit of the expense such as labor costs per hour or material costs per
unit.

Relative Indicator Relative Indicators are required for each factor for Years 1 to 3. If there is no change from the
previous year the Relative Indicator is 100%. You have provided Revenue and Costs details for
the current Year. Year 1 is the year following the Current Year, Year 2 follows Year 1, and Year 3
follows Year 2.
Level of Competition Input the percentage relative indicator to reflect the level of change from the previous year.
Consider the number of competitors, competitor strategies, potential new entrants. This indicator
has an inverse relationship to forecast Business Revenue. All things being equal as the level of
competition increases Business Revenue decreases.
Market Strength Input the percentage relative indicator to reflect the level of change from the previous year.
Consider market growth, technology & regulatory impacts and customer needs. Market strength
is an indicator of the demand for the type of product or service you provide. This indicator has a
direct relationship to forecast Business Revenue. All things being equal as market strength
increases Business Revenue increases.
Materials & Supplies Input the percentage relative indicator to reflect the level of change from the previous year.
Costs Consider the potential changes in supplier pricing, sources of supply, your bargaining power,
demand for materials, and possible alternative materials. This indicator has a direct relationship
to forecast Materials & Supplies expenses. All things being equal as the unit cost of materials
and supplies increases this Variable Cost expense increases.
Labor Costs Input the percentage relative indicator to reflect the level of change from the previous year.
Consider market forces and availability of skilled staff. This indicator has a direct relationship to
forecast Variable and Fixed Cost Labor excluding Owner, and Labor Owner expenses. All things
being equal as the unit labor costs increase these labor expenses increase. It is also used to
determine future Owners External Earning Power.
Interest Rates Input the percentage relative indicator to reflect the level of change from the previous year. This
is percentage change not actual values. For a current interest rate of 6% a relative indicator of
110% in Year 1 equates to 6.6%, a relative indicator of 110% in Year 2 takes this to 7.26%. This
indicator has a direct relationship to forecast Interest expenses. All things being equal as interest
rates increase this Variable Cost expense increases.
Business Market Input the percentage relative indicator to reflect the level of change from the previous year.
Position Consider your position in the market, and the impact of your current actions. This is a measure of
your standing relative to the competition as perceived by potential consumers. If things will remain
much the same input 100%, indicating no change over the previous year. If you have actions to
improve the position of your business by 10% then the input would be 110%. This indicator has a
direct relationship to forecast Business Revenue. All thing being equal as market position
increases Business Revenue increases. Actions contributing to the business position must be
substantiated and implemented to have an impact.

Variable Costs Input the percentage relative indicator to reflect the level of change from the previous year. This
Efficiency should reflect changes in the relationship between your Variable Costs and revenue. If you have
actions to improve your Variable Costs efficiency (decrease variable costs) by 10% over the
previous year input 110%. Consider changes in processes, distribution or the materials used.
This indicator has an inverse relationship to forecast Variable Costs Materials & Supplies, Labor
excluding Owner, Labor Owner, Distribution, Marketing and Other expenses. All things being
equal as Variable Costs Efficiency increases less materials, labor, distribution and marketing
resources are required resulting in a decrease in these expenses. Actions must be substantiated
and implemented to have an impact.

Fixed Costs Input the percentage relative indicator to reflect the level of change from the previous year.
Efficiency Consider changes in administration processes and Fixed Cost labor requirements. This indicator
has an inverse relationship to forecast Fixed Costs Administration, Labor excluding Owner, Labor
Owner, and Other expenses. All things being equal as Fixed Costs efficiency increases less
administration and labor resources are required resulting in a decrease in these expenses. It
does not apply to Location and Finance expenses. Actions contributing to the business position
must be substantiated and implemented to have an impact. You can use the Decision Assistant
Model to value your actions and determine their business impact, this is available from the
bizpeponline.com web site.

Fixed Costs Flow-on Input the percentage Fixed Costs Flow-on. This indicates the estimated level of fixed costs
adjustment to support revenue variations. Fixed Costs are generally considered a constant
expense, however large sustained revenue variations place pressure on fixed costs and usually
result in an increased fixed cost expense. This may include larger floor area, more administration
costs, or higher financing. The Fixed Costs Flow-on percentage is the amount of increase in
Fixed Costs expense for a 100% increase in revenue. An fixed costs flow-on of 20% reflects a
20% increase in Fixed Costs expense for every 100% increase in revenue. This indicator has a
direct relationship to all forecast Fixed Cost expenses.
Valuation Data This section provides data to value the business. Consideration is given to the owners earning
power outside the business, the replacement value of business assets and their useful life.
Property (Real Estate) valuations are considered constant throughout the period. Annual
replacement costs for other business assets are calculated as the Replacement Value divided by
the Asset Life. This provides for constant reinvestment to maintain the business. This data is
combined with the business forecast to determine a business valuation.

Owners Time Input the percentage of work time the owner commits to the business. This is used to determine
Commitment to the owners return for effort and indicates the available amount of owner resource. Available
Business resource will be applied to any forecast labor increase in Fixed, then Variable Costs where the
owner currently contributes.
Owners External Input the annual income the owner could earn if employed outside the business. Include any
Earning Power benefits. The actual return from the business must compensate the owner for giving up External
Earnings and provide the required return on Investment. A return on Investment only occurs after
the owner has been compensated for External Earnings given up.
Replacement Value Input the replacement value of physical business assets. Exclude property. Consider vehicles,
of Business Assets plant and equipment. This forms a component of the total business investment.
Life of Assets (years) Input the average life of the assets. The Replacement Value of Business Assets will be divided by
the Life of Assets to provide an indication of annual asset depreciation expense. This will be used
in determining the owners return from the business.
Market Value of Input the estimated market value of property owned by the business. Property values are
Property considered stable over the forecast period and no depreciation is allowed for. This forms a
component of the total business investment.
Other Investment in This is the calculated value of any other investment made in the business. It consits of operating
Business capital and goodwill. This forms a component of the total business investment. This amount will
be adjusted in-line with your Valuation Analysis.
Total Investment The Total Investment in the business is the calculated Expected Valuation. It is the sum of
Replacement Value of Business Assets, Market Value of Property, and Other Investment in
Business.
Financed Amount This is the amount of finance carried by the business. It is recommended that the business initially
be valued with no Finance or Interest component i.e. 100% equity. This ensures the valuation
provides the required return on the Total Investment. Once you have established a valuation you
can then insert Finance details to determine the impact on the business. The calculated Interest
Rate is based on the Financed Amount and the annual Interest Cost from the Performance Data.
No principle reduction is considered during the forecast period, only interest expense, principle
components reflect assets.

Equity Investment This is the average annual Return on Total Investment over a three year period.
Sensitivity Analysis Sensitivity Analysis allows you to adjust your Relative Indicators by a set percentage to generate
Optimistic and Pessimistic Forecasts.
Optimistic Input Input the percentage improvement in Relative Indicators to generate an Optimistic Forecast. If
you feel it is "reasonably likely" your Relative Indicators are 20% too low, input 20%.
Pessimistic Input Input the percentage degrade in Relative Indicators to generate a Pessimistic Forecast. If you feel
it is "reasonably likely" your Relative Indicators are 20% too high, input 20%.
Business Revenue This is the forecast revenue generated by the business.
Optimistic This is the forecast based on your Optimistic improvement to Relative Indicators.
Expected This is the forecast based on the Relative Indicators you provided as input.
Pessimistic This is the forecast based on your Pessimistic degradation of Relative Indicators.
Operating Surplus This is the Revenue less Variable and Fixed Costs including payment to the owner for labor
provided.
Owner Cash Flow This is the Operating Surplus plus any labor Earnings of the Owner.
Business Return Business Return is the Owners Cash Flow less a Depreciation Allowance and Owners External
Earning Power. A Depreciation Allowance is required for the long term maintenance of the
business. It is calculated as the Replacement Value of Business Assets divided by the Asset
Lifetime. If the Depreciation Allowance is not reinvested business performance and value will
decrease. The Owners External Earning Power reflects the income given up by the owner to work
in the business. This must be recouped through the business before there is any return on
investment generated.

Valuation Analysis Simply input your desired Return on Investment to calculate your Business Valuation. If you have
applied Sensitivity Analysis 3 valuations will be calculated; Optimistic, Expected, and Pessimistic.

% Return on Total This is the Business Return as a percentage of the Total Investment. It is an indicator of the
Investment quality of the business investment. The higher the Return on Investment the better the
investment. However as the level of risk increases a higher Return on Investment is required to
compensate for the risk taken. Business Return is the Owners Cash Flow less a Depreciation
Allowance and Owners External Earning Power.
Required Return on Investment
This is the Business Return as a percentage of the Total Investment. It is an indicator of the
quality of the business investment. The higher the Return on Investment the better the
investment. However as the level of risk increases a higher Return on Investment is required to
compensate for the risk taken. Business Return is the Owners Cash Flow less a Depreciation
Allowance and Owners External Earning Power.
Expected Valuation This Valuation is based on the Expected Forecast and the required average 3 Year Return on
Investment. It represents the Total Investment in the business and is an indication of Sale or
Purchase price. Based on the Expected Forecast this is the maximum Investment that should be
applied to this business to achieve the required Return on Investment.
Optimistic Valuation This represents the Optimistic Valuation (high). It provides the required average 3 Year Return
based on the Optimistic Forecast. However if the business does not provide a return inline with
the Optimistic forecast the return on Investment will be less than required at this valuation.

Pessimistic Valuation This represents the Pessimistic Valuation (low). It provides the required average 3 Year Return
based on the Pessimistic Forecast. If the business provides a return greater than the Pessimistic
forecast the return on Investment will exceed that required at this valuation.
Output Sheets
Summary outputs are included on the Sensitivity and Valuation Analysis Sheets. Details are in tabular form on the Results
Sheets and graphical form on the Chart Sheets. To display Sheets click the required sheet tab.
Sensitivity Analysis Sensitivity Analysis allows you to adjust your Relative Indicators by a set percentage to generate
Optimistic and Pessimistic Forecasts.
Valuation Analysis Simply input your desired Return on Investment to calculate your Business Valuation. If you have
applied Sensitivity Analysis 3 valuations will be calculated; Optimistic, Expected, and Pessimistic.

Expected Results Full tabular results for your Expected Forecast and Return on Investment.
Optimistic Results Full tabular results for your Optimistic Forecast and Return on Investment.
Pessimistic Results Full tabular results for your Pessimistic Forecast and Return on Investment.
Forecast Revenue 3 Year Forecast Revenue Chart; Optimistic, Expected and Pessimistic.
Chart
Forecast Return 3 Year Forecast Return Chart; Optimistic, Expected and Pessimistic. Return is the Owners Cash
Chart Flow less the Depreciation Allowance and Owners External Earning Power.
Operating Surplus 3 Year Expected Operating Surplus Chart including Variable and Fixed Costs.
Chart
Surplus & Return 3 Year Expected Operating Surplus on Sales, Return on Sales, and Return on Total Investment
Chart percentages.
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