What is the ROI?
A. The ROI stands for RETURN ON INVESTMENT. This is the way that most, although not all businesses are valued here in WA. Essentially it means the percentage of the purchase price (if run at the same sort of profit) that the buyer would expect to get as a return each year exclusive of his personal drawings. For example if he were to buy a business at a 50% ROI that would mean he would be likely to get 50% of his initial purchase price back in the first year effectively taking two years to get it all back. The reasoning behind the ROI difference is the risk attached to each particular business. The heavier the risk – the higher the ROI therefore the purchase price is lower in relation to the net profit. Because it is % based, you will see as the figures get higher, the monetary difference is huge. Remember …the stronger the business, the lower the ROI and the riskier the business, the higher the ROI! More information and examples are covered in my free client information pack which yo
