Business Maintainable Earnings (also known as 'Future Maintainable Earnings') reflect the ability of a business to generate earnings into the future.
BME is one of the most important concepts the market will consider when assessing business value – it is particularly critical for determining a business' going-concern value, including the value of goodwill.
The following infographic shows how to take account of abnormal fluctuations in your business’ performance (i.e. normalise) when calculating your BME.
This calculation is often done on the previous three years’ performance and then looking forward – to at least the next 12 months. The results are also often weighted based on seasonality and other market and business-related factors.
The calculation involves analysis over a number of years because BME represents future maintainable earnings, and therefore the analysis needs to consider business health factors, internal and external risks, and other issues that impact the business.
As business owners looking to drive value in a business, the stronger and more consistently you can build the picture of BME and show that it is robust, the better your chances of driving greater value when looking to sell, all other things being equal.
If would like assistance to determine your BME or assess business value – whether you are buying, selling or looking to grow the value of your business – contact the team at JPAbusiness on 02 6360 0360 or 02 9893 1803 for a confidential, obligation-free discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.