How to read a business-for-sale listing: what the figures and terms really mean

A business-for-sale listing is a summary prepared by the seller or their broker. It helps you decide whether to enquire, not whether to buy. This guide explains each field on BizExchange listings and the questions it should prompt. When a listing passes that first test, our due diligence guide covers the checks that come next.

Who supplied the figures

Listing figures come from sellers and brokers. As our editorial policy explains, BizExchange does not verify them unless a listing says so. Treat every number as the seller's claim until you have checked it: business.gov.au says buyers need to independently collect and check a business's financial information.

Sellers still cannot say what they like. The ACCC's guidance for business says information a business provides must be accurate, truthful and based on reasonable grounds, that it makes no difference whether the business intends to mislead, and that in some circumstances leaving out important details can be misleading. Ask your solicitor how the rules apply to a particular sale.

Asking price

BizExchange shows the asking price in one of four ways:

• Fixed. The figure the seller is asking.
• Offers over. The seller is inviting offers above that figure.
• A range. The band the seller expects to negotiate within.
• Price not published. The seller discusses price only with enquirers.

Whichever form it takes, an asking price is the seller's opening position, not a valuation, and business.gov.au notes that you may need to negotiate the price before you reach an agreement. Our guide to how small businesses are valued explains how prices are usually worked out.

Stock, WIWO and other shorthand

• Plus stock at valuation (SAV). BizExchange shows "plus stock at valuation" ("+ stock" on listing cards) when stock is extra. You pay for saleable stock on top of the asking price, valued at or around settlement.
• Stock included. If a listing does not say stock is extra, ask rather than assume. business.gov.au lists whether inventory on hand is included as a due diligence question.
• WIWO (walk in, walk out). Sellers use it to suggest the price covers what you need to take over and start trading, sometimes including stock.
• Under management. Suggests a manager or staff run the business day to day, without the owner working in it full time.
• Owner-operated. The owner works in the business, and the profit may depend on their hours.

None of these terms has a fixed meaning. Get the seller's meaning in writing and make sure the contract matches.

Turnover and profit

Turnover is a year's sales before costs, shown on BizExchange as stated by the seller. It tells you the size of a business, not what it earns.

Profit is what is left after costs, and each listing labels its basis:

• Net profit. What remains after all business expenses. Whether a wage for the owner has been deducted varies.
• EBITDA. Earnings before interest, tax, depreciation and amortisation.
• Owner's benefit. The total financial benefit to one full-time working owner, including their wage and personal expenses run through the business.

These measure different things and are not comparable: owner's benefit adds back costs that net profit deducts, so setting one listing's owner's benefit beside another's net profit flatters the first. Sellers may also adjust profit with add-backs, which our guide to add-backs and normalised profit explains how to test.

The multiple

BizExchange listing cards show a Multiple: the asking price divided by the published profit, or n/a when either figure is missing. It is a quick comparison with real limits:

• it carries the profit basis with it, so multiples worked on different bases are not comparable
• it uses an asking price and unverified profit, not an agreed value
• it leaves out stock, so on a "plus stock at valuation" listing your total outlay is higher than the price it uses
• it says nothing about risk, such as a short lease or a business that depends on its owner.

Compare multiples only between similar listings on the same profit basis.

Lease and rent

Listings may show the lease term, options, expiry date and annual rent. Rent is shown plus outgoings, so ask which outgoings the tenant pays and what they cost.

To compare occupancy costs between listings, divide the rent plus outgoings by the turnover. What is sustainable varies by industry and location, so use the result to compare and question, not as a pass mark.

business.gov.au suggests asking whether the landlord will agree to transfer the lease into your name or you will need a new one. See our guide to assigning a commercial lease.

Years trading, trading days and staff

• Years trading. How long the business has operated, which may be longer than the current owner has had it. business.gov.au suggests examining the past three to five years of financials, so ask what records exist.
• Trading days. What you are taking on. Compare them with the staff numbers to see who covers each shift.
• Staff. Ask whether the count includes the owner or family members, and whether they are paid.

Reason for sale

The reason for sale is the seller's own account. Retirement or a change in family circumstances may be exactly what it seems, but test it against the rest of the listing: a short lease, falling profit or a new competitor can also explain a sale.

Location

BizExchange shows location at suburb level, and the seller shares the exact address after a confidentiality agreement. When a seller keeps the location confidential, the listing shows "Confidential location" and names only the region. Sellers may do this to stop staff, customers and competitors learning of the sale early, so do not approach the business unannounced.

Who is selling

• Broker listing and Listed by. A business broker placed the listing, and "Listed by" names them. The broker is engaged by the seller, so get your own advice.
• ABN. Ask the seller for the business's ABN, look it up yourself in ABN Lookup and check the entity name matches the seller in the contract. An active ABN, which ABN Lookup describes as a current registration, does not verify the turnover, profit, lease or anything else in the listing, and ABN Lookup says it cannot guarantee its own information is accurate, up to date or complete.

Questions each figure should prompt

• Asking price. What exactly is included? Does the price include GST? The ATO says no GST is payable on the sale of a going concern if certain conditions are met, so ask your accountant how it applies.
• Stock. What is it worth now, and how will it be counted and valued?
• Turnover. Which year? Does it match the Business Activity Statements and bank deposits? Is it rising or falling?
• Profit. Which basis and year? Accountant-prepared statements or the seller's own figures? Does it allow for a wage for the owner's hours? Is any of it a forecast? The ACCC says claims about the future need reasonable grounds at the time they are made.
• Multiple. What is your total outlay once stock is added?
• Lease and rent. What are the outgoings, when is the next rent review, and how long is left, including options?
• Trading days and staff. Who works which hours, including the owner, and who will stay?
• Reason for sale. What has changed recently?

From listing to enquiry

1. Enquire. The enquiry form on each listing goes straight to the seller or listing agent. Introduce yourself and ask your first questions. Our guide to financing a business purchase and business loan calculator can help you prepare.
2. Ask for an NDA. The form lets you ask to sign a confidentiality agreement (an NDA) first. Expect the business name, exact address and financial records only after one is signed, and read it before you sign.
3. Move to due diligence. Check every listing figure against the records with your accountant, and have your solicitor review the lease and contract. Our due diligence guide and due diligence checklist set out what to check.