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TAANZ - Travel Agents Association New Zealand link to website

T. 09 524 6178      F. 09 524 6179     E. contactus@taaccounting.co.nz

Are you looking to sell your Travel or Tourism Business?   August 2014

HOW IS THE VALUE CALCULATED?

I get asked to value a Travel or Tourism business’s every few weeks.

A valuation for a Travel / Tourism Business is usually completed using one of 4 methods:

Return on Investment method – this says that if you invest your money in a business you should expect a return from your investment. Is it going to be a risky investment – then you will need a higher rate of return. Is it a safe investment – the return can be less.

The valuer works out the arms length return from the business (normalized earnings). Then this is multiplied by an appropriate multiplier which takes into account among other things, the consistency of earnings, reliance upon owners, and continuity of staff, market and economic conditions. This multiplier could be between 0 and 5 for a private company. This is the accountants “Return on Investment” valuation.

Income Valuation method – this is based upon the amount of commission and other income that the business earns – when the new owner takes over they can assume that the income is going to continue to be earned  by the Business. This method ignores the expenses of the business, because they can be so variable. This valuation is often used when 2 businesses are merging.

Market Valuation – this takes into account what travel and tourism businesses have recently sold for in your area. As we are involved in a large number of these each year we have this information in our files.

Asset Valuation – this is the least desirable method as it is really a wind up or close- down value.

The Actual Sale Value of your business will hopefully be somewhere in the range of values predicted by the methods above.

HOW CAN YOU INCREASE THE VALUE OF YOUR BUSINESS

To obtain the highest accountants valuation your business has to have the best financial results.

By benchmarking your business an accountant can guide you as to how you can improve your financial performance.

Each year we produce bench marking information for our clients. We have what we call the TOP 10. This is the TOP 10 travel business’s based upon Net Profit as a % of income.

So if a TOP 10 business had income of $500,000, it would earn a Net Profit before Tax of $145,000 after paying all salaries (including shareholders) and expenses.

Our detailed benchmaking will guide you as to how to achieve the best financial results and consequently the best value for your business.