Businesses in the Australian mid-market, of which there are 300,000, have a combined annual revenue of $4.1 trillion dollars making average of 10.4% net profit before tax. However, 20% of all operating businesses in Australia don’t make any profit! In this blog we address the very real question facing those owners who are not making any profit, is my business worth anything?

Businesses are often valued based upon a multiple of their earnings, referred to as the PE ratio (price to earnings ratio). Earnings are defined in various ways, but EBITDA (earnings before interest, tax, depreciation, and amortisation) is the most frequently used. This articulates a basis to assess the future cash flows available to a new owner. There are other methodologies such as a DCF (discounted cash flow) which again helps assess the future cash flows available to an owner, and many more to boot. The accounting profession has sought to make a science out of valuing a business. In reality, valuations are perhaps more akin to an art. If you don’t believe me spend a few hours looking at valuations on the ASX. If you’re still not convinced come and visit our offices – we won’t need long to convince you!

When a buyer buys a business, they are simply seeking to own the future cash flows of the business. So why all the focus on historical earnings? Well history is one basis to assess what might happen in the future. Once the buyer has assessed the current maintainable earnings (the underlying normalised earnings after adjusting for one-off or extraordinary income or expenses), they will then need to assess how many years forward they might pay to own those earnings – hence the PE multiple. The average forward PE on the ASX is currently 16.8 (S&P/ASX200 Index August 12 2025).

So, if a business makes zero or has negative earnings, is it therefore worth nothing? The short answer is without doubt, no. However, the market of potential buyers probably shrinks.

Without the prospect of predictable future cash flows you are relying on the assets in the business being attractive to the buyer beyond their ability to generate immediate profit as a stand-alone entity. Other companies in the same or adjacent sector might see tremendous value in the companies’ customers. Maybe they can leverage those customer relationships in relation to their existing business. Maybe the products or the services have some important IP and benefit to the buyer’s company that could save them time and money through ownership. Often a company in and around the same space recognises in the vendor company cost synergies, that if applied to their business could see it make a profit once any duplicate costs are removed.

If the business is in the same space, removing a competitor can have value. So too can bringing parts of the operation or product manufacturing in-house, resulting in the gross profit, with some light adjustments, falling through to the bottom line for the buyer. 

We have seen these deals get done regularly, they must obviously be genuinely strategic in nature and are often referred to as trade deals, because a buyer already in the trade is far less likely to be put off by poor numbers. When done well these deals can be lucrative for a buyer and extremely beneficial for a vendor if properly structured.

We have many examples of strategically motivated deals resulting from matching an acquirer’s specific criteria with the particular features of a business which meet some or all of the buyer’s needs. A word of warning; rarely are these deals done quickly or easily, and almost never do these buyers come knocking on the door. Matching a vendor, where the business is not showing earnings, typically demands a thorough sweep of the market, most participants will not be interested, however if the right owner is approached intelligently, and the acquirer has appetite to look at a situation without earnings, then an equitable deal might be possible. In all cases we think the vendor should consider obtaining some representation to test genuine interest, help negotiate the terms and guide vendors through the process towards in stages toward a successful completion.          

As the saying goes, ‘a business is worth whatever a buyer is prepared to pay for it’.