Short answer
The value of a business increases when it generates sustainable profit, grows year over year, can operate without the owner, and has clean books. These four pillars apply to both its sale and its succession.
Verified on from Andi Haxhillari, Certified Accountant. Compared with Articles 56 and 59 of Law No. 29/2023 and Article 22 of Law No. 25/2018.
The value of a business is what a reasonable buyer would pay for it today, or what you would leave to your heirs. It is driven by four things: sustainable profit, year-over-year growth, owner independence, and clean books. All four are worth building even if you never intend to sell the business.
How do I increase the value of the business and how do I plan for the future? A business that depends entirely on the owner is a job. A business that runs even without its owner is an asset. This is the lesson from John Warrillow's Built to Sell, and it applies even to the owner who will never sell, because a sellable business is simply a healthy business. Jim Collins adds the flywheel: value doesn't come from a single big push, but from small, patiently accumulated rotations. At this level, you learn what drives value, how to plan the year, how to allocate profit, and how to prepare the business to be passed on one day.
This page explains what increases value, how the year is planned, how profit is distributed, and what buyers see in your numbers, with examples in lek. For each topic there is a more detailed subpage linked within the text.
Read also: Tax on dividends, rate 8%, and how profit is distributed.
| The question | Answer in effect today |
|---|---|
| What increases the value? | Sustainable profit, growth, owner independence, and clean books. |
| What does the buyer see? | The actual revenue the business generates, for at least three consecutive years. |
| How is the profit divided? | Dividend, reserve, and reinvestment, by decision of the assembly. |
| Dividend Tax | 81 TP3T on the distributed amount, Article 59 of Law No. 29/2023 |
| Deadline for financial statements | July 31, Article 22 of Law No. 25/2018 |
| Deadline for the decision on profit | July 31, to the tax authorities, Article 56, paragraph 2, of Law No. 29/2023 |
It's supported by four pillars: recurring annual profit, steady growth, a business that runs even when the owner is away, and clean books that the buyer trusts without rechecking.
The most neglected pillar is the third. When customers, pricing, and decisions all go through the owner, the buyer is buying a job, not a business. You can find the steps for each pillar on the page. How the value of the business increases.
With a one-page plan. There, write down how much revenue you're targeting, what margin you're aiming for, what you will invest, and how much you will withdraw as the owner. With targeted revenues of 12,000,000 lek and a targeted profit of 151 TP3T, the plan clearly states that the year must close with a profit of 1,800,000 lek.
Every month, compare the plan with reality and correct early, when the difference is still small. You can find the plan format on the page of annual financial plan, while the monthly breakdown on the page of annual budget.
The year's profit is divided in three directions. One portion goes to you as a dividend, one portion remains as a reserve for the tough months, and one portion is reinvested for growth. The allocation is decided by plan, not in haste when the account looks full.
The dividend is taxed at 81% on the amount distributed. From a dividend of 2,000,000 lek, 160,000 lek in tax is withheld, leaving you with 1,840,000 lek. The distribution is decided by the assembly, and the decision on the allocation of the profit is filed with the tax authorities by July 31. How the percentages are divided, see the page of Profit distribution, while the page's withdrawal limits How much can I withdraw from the business?.
They look at the money the business actually generates, year after year. The reported profit is adjusted to remove personal expenses mixed in with the business, and then compared for at least three consecutive years.
A profit that jumps up and down lowers its value even when the average is good, because the buyer pays for what he can predict. How owner's profits are calculated is explained on the page of value-adding indicators.
Preparation starts two or three years in advance, not in the last month. It requires four things: clean accounts, recurring income, a business that runs without you, and regular contracts with clients, suppliers, and employees.
This applies equally when the buyer is a stranger and when it's your child. Both want to know what they're taking on and how much money the business brings in without you. You'll find the steps in order on the page of preparation for sale or inheritance.
With small pushes in the same direction. Jim Collins calls this the wheel of momentum. A small profit, well reinvested, brings a bit more profit the next year, which is reinvested again. How you build your wheel is shown on the page of the wheel of financial momentum.
A limited liability company ends the year with a profit of 3,000,000 lek after tax. The partners decide to divide it into three parts: 1,500,000 lek in dividends, 750,000 lek in reserves, and 750,000 lek in reinvestment.
The dividend is taxed at 81%, so the company retains 120,000 lek and the partners receive 1,380,000 lek. The tax is paid by the 20th of the following month. The reserve of 750,000 lekë covers three months of fixed costs for a business that spends 250,000 lekë per month.
The reinvestment goes into a device that yields 401 TP3T per year. It adds about 300,000 lek in profit each year thereafter. This is momentum in numbers, and it's precisely this sustained growth that a buyer sees.
Every time there is a tax or financial change that affects your business, we notify you directly by email with a practical explanation.
Send me free notificationsMore often as a multiple of the owner's net profit, where the multiple depends on the sustainability of the profit and on how much the business relies on the owner. For a first look, use the simple valuation format at Resource Center.
A reserve covering at least three months of fixed costs is a good starting point. Businesses with seasonal revenue need more.
Two to three years ahead, because the buyer will see at least three years of clean, comparable numbers.
Dependence on the owner, a single client that brings in the majority of revenue, and accounts where personal expenses are mixed with business expenses.
By July 31, the same deadline as for the financial statements, in accordance with Article 56, paragraph 2, of Law No. 29/2023.
The four pillars apply to every form of business. The way ownership is transferred differs: in an LLC, the shares are transferred, whereas a sole proprietor has no shares and so transfers the assets, contracts, and clients.
The four pillars: profit, growth, independence from the owner, and systems.
Read →From goals to numbers, a plan that's read and followed.
Read →How much to divide, how much to keep, how much to reinvest.
Read →When a business is about to change hands, and what lowers its value.
Read →How a small profit, when reinvested wisely, turns into momentum.
Read →What buyers and heirs see in your numbers.
Read →Accounting, financial statements, tax returns, and financial advisory services in a monthly package. The first consultation is free and with no obligation.
You build the value, while clean accounts are our specialty. The balance sheets, income statement, and the numbers a buyer sees are prepared every year as part of the monthly package.
