Whether you’re a roadside nu vendor or the proprietor of a million-dollar resort, the fundamentals of business valuation remain consistent.

It’s common for businesses in the Cook Islands to be significantly under or overvalued by their owners, leading to detrimental decisions or financial losses due to an inaccurate appraisal of their venture’s worth. The backbone of economic sustainability is business, making the comprehension of your business’s value paramount for its endurance and meaningful contribution to the owners, their families, and the broader community.

In a compact market, pinning down the exact worth of a business is as complex as estimating a house’s market value in a limited real estate environment. A myriad of elements influences a business’s valuation, including market access, scalability, replicability, competition, regulatory adherence, skill availability, reliance on key individuals, revenue, profitability, and whether the business can operate under management without the owner’s direct involvement.

The process of recording and categorizing all business transactions into “Accounts” is instrumental in valuing a business. It underscores the importance for business owners to diligently record sales and purchases, distinctly separating business from personal expenditures.

Consider Tama’s Nu Stand as a straightforward valuation case study. Tama, who sells nu at the local market, relies on Papa to gather and prepare the nu, while Mama meticulously records the transactions. Utilizing Papa’s truck, Tama transports the nu to the market, selling each for $5.00 and averaging sales of about 100 nu every weekend. The question then arises: how do we determine the value of Tama’s business, encapsulating all these dynamics?

Mama keeps good records and as a result Tama knows what his business is worth. After all expenses including paying for family labour Tama makes $3,888 per year in profit. Tama has been advised that investors (another family) wants to make 15% return each year on what they purchase. Tama calculates $3,888/15% and now knows he can sell his business for $25,920.

Jeff Tikitau Elite Management (JTEM) can support the community by providing comprehensive business appraisal services, helping local enterprises assess their value and make informed financial decisions. Reach out to the JTEM Team today.

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