Businesses for sale.. Dreamers or am I missing something
Discussion
Hi,
I've been looking for a while at either expanding my current business or completely changing what I do and buying an existing business, latter preferred.
Searching various sites I've found a few interesting opportunities, then once you've drilled down into the figures all is nonsense.
For example.
Business for sale £120K
Last 4 years revenue has decreased from £460k down to just over £300K. (hence why its for sale I guess)
Net profit -£18K. How the hell do they intend to sell it? Running at a loss, has only £15k worth of assets, Leashold property.
Not forgetting the "genuine reason for sale" and a fantastic opportunity in the particulars.
So, how do sellers expect to sell something if its running at a loss? Banks wouldn't lend against this especially as the property is leasehold.
Am I missing something?
I've been looking for a while at either expanding my current business or completely changing what I do and buying an existing business, latter preferred.
Searching various sites I've found a few interesting opportunities, then once you've drilled down into the figures all is nonsense.
For example.
Business for sale £120K
Last 4 years revenue has decreased from £460k down to just over £300K. (hence why its for sale I guess)
Net profit -£18K. How the hell do they intend to sell it? Running at a loss, has only £15k worth of assets, Leashold property.
Not forgetting the "genuine reason for sale" and a fantastic opportunity in the particulars.
So, how do sellers expect to sell something if its running at a loss? Banks wouldn't lend against this especially as the property is leasehold.
Am I missing something?
528Sport said:
Hi,
I've been looking for a while at either expanding my current business or completely changing what I do and buying an existing business, latter preferred.
Searching various sites I've found a few interesting opportunities, then once you've drilled down into the figures all is nonsense.
For example.
Business for sale £120K
Last 4 years revenue has decreased from £460k down to just over £300K. (hence why its for sale I guess)
Net profit -£18K. How the hell do they intend to sell it? Running at a loss, has only £15k worth of assets, Leashold property.
Not forgetting the "genuine reason for sale" and a fantastic opportunity in the particulars.
So, how do sellers expect to sell something if its running at a loss? Banks wouldn't lend against this especially as the property is leasehold.
Am I missing something?
I think this is down to how business sales agents work.I've been looking for a while at either expanding my current business or completely changing what I do and buying an existing business, latter preferred.
Searching various sites I've found a few interesting opportunities, then once you've drilled down into the figures all is nonsense.
For example.
Business for sale £120K
Last 4 years revenue has decreased from £460k down to just over £300K. (hence why its for sale I guess)
Net profit -£18K. How the hell do they intend to sell it? Running at a loss, has only £15k worth of assets, Leashold property.
Not forgetting the "genuine reason for sale" and a fantastic opportunity in the particulars.
So, how do sellers expect to sell something if its running at a loss? Banks wouldn't lend against this especially as the property is leasehold.
Am I missing something?
Some business sales agents charge upfront fees, monthly fees and somewhere around £6k sales commission or to cancel the agreement (hidden in the small print of course). Pubs, cafes and B&B's are the usual targets.
So their model is to compliment business owners and over estimate how much they could sell it for. The seller is locked in and then the price starts falling.
In the real world I think the above example would sell for about £18k and assets. But the assets valued at the dispose of value, not a lot.
EDIT: Just noticed the minus in front of that £18k, hahaa unbelievable.
Edited by AnimalMother on Thursday 7th January 13:44
Surely it depends why it's running at a loss - what's the EBITDA? Interest on onerous bank financing (that the new owner may not require) could be one reason profit is negative (unlikely, I admit), or even paying interest on shareholder loans, deliberately making the business run at a loss to reduce tax liabilities. You'd need to see the full accounts to really understand what's going on.
What industry is it?
What industry is it?
There's many reasons. A few I've experienced:
Ten years ago we had a client; a small waste management company that had grown from a skip hire business. They were successful in winning a number of council waste and recycling collection contracts, all of which were bid way under cost resulting in the company running at a continued loss with a very large debt. Looking at their account's you'd not give them credit for a Mars bar let alone consider them attractive for acquisition. But they had two things; very good cash-flow and at least 10, gilt-edged public sector contracts lasting between 7 and 15 years. They where acquired by one of the big waste companies for around £40m IIRC.
Incentive companies often trade at a loss but value is accrued from the retention of breakage - the cash value of unredeemed points which can be massive.
Company accounts provide little more than an indication of a company's worth and health. There's a myriad of things that can affect the value and attractiveness of a business which are seldom discovered until due diligence and quite often, only after the purchase has gone through. I know of one seasoned and successful serial business buyer who only looks at the books a long way into the negotiation process.
Ten years ago we had a client; a small waste management company that had grown from a skip hire business. They were successful in winning a number of council waste and recycling collection contracts, all of which were bid way under cost resulting in the company running at a continued loss with a very large debt. Looking at their account's you'd not give them credit for a Mars bar let alone consider them attractive for acquisition. But they had two things; very good cash-flow and at least 10, gilt-edged public sector contracts lasting between 7 and 15 years. They where acquired by one of the big waste companies for around £40m IIRC.
Incentive companies often trade at a loss but value is accrued from the retention of breakage - the cash value of unredeemed points which can be massive.
Company accounts provide little more than an indication of a company's worth and health. There's a myriad of things that can affect the value and attractiveness of a business which are seldom discovered until due diligence and quite often, only after the purchase has gone through. I know of one seasoned and successful serial business buyer who only looks at the books a long way into the negotiation process.
I worked for a small company, the owner had a massively inflated opinion of what his company was worth.
It had ongoing overdraft over over £100K, rented office, no assets. The competition was limited as you had to have a special license to run this type of business and they were restricted.
Someone offered a good chunk of change (£1M +) to buy the join as they wanted in but couldn't set up a new company.
Owner refused as it wasn't enough. In the end company nearly went busy had to be hastily sold off for not a lot.
It had ongoing overdraft over over £100K, rented office, no assets. The competition was limited as you had to have a special license to run this type of business and they were restricted.
Someone offered a good chunk of change (£1M +) to buy the join as they wanted in but couldn't set up a new company.
Owner refused as it wasn't enough. In the end company nearly went busy had to be hastily sold off for not a lot.
944fan said:
Owner refused as it wasn't enough. In the end company nearly went busy had to be hastily sold off for not a lot.
Which is where I've always been advised by someone who made the same (albeit bigger) mistake to take the offer.Assuming it's reasonable take it, because who know what happens to the business tomorrow and you might never get another offer. The thinking is an entrepreneur will take the money and do something else with it, a guy wedded to the business won't know what else to do, and there's the issue.
No help to the OP other than to say a lot of people are wedded to the business, see value in their years invested and want buyers to agree, and overvalue it to the point of stupidity.
I'd stay well away from sale sites and use local knowledge to find someone who is struggling, due to retire, needs investment or whatever.
AyBee said:
Surely it depends why it's running at a loss - what's the EBITDA? Interest on onerous bank financing (that the new owner may not require) could be one reason profit is negative (unlikely, I admit), or even paying interest on shareholder loans, deliberately making the business run at a loss to reduce tax liabilities. You'd need to see the full accounts to really understand what's going on.
What industry is it?
childcare..What industry is it?
We wish to buy into something that can't be replaced by a computer!
My wife has experience in the industry.
bob-in-toon said:
Most of the stuff you find on businesses for sale type sites is pretty poor - as are many of the "business brokers". What type of things are you after?
Something my wife and me can run.childcare sector as the wife has great experience. I'm wanting to get away from technology within the next few years.
I see from your profile up norf... :-)
There's a garden centre (of sorts) near me. It's hardly ever open, owner is a bit nutty, its accounts must be dire. Would I buy it? f
king right I would buy it! Its position is ideal, there's sufficient space and a long trading history, so no planning issues.
So as others have pointed out, there's more to consider than the books.
In any case, if the owner of an existing business isn't working in it (due to ill heath or whatever) and is paying staff instead, then the profits could well go minus, especially if the manager doesn't care.
king right I would buy it! Its position is ideal, there's sufficient space and a long trading history, so no planning issues.So as others have pointed out, there's more to consider than the books.
In any case, if the owner of an existing business isn't working in it (due to ill heath or whatever) and is paying staff instead, then the profits could well go minus, especially if the manager doesn't care.
DSLiverpool said:
Look at privately advertised companies - once an agent is onboard the seller is honeymooned as the sales agent will have a minimum commision so doesnt care what it sells for once they have the contract.
That doesn't make sense. The agent will get a chunk of the sale proceeds so the more it sells for the better. Privately advertised companies might also be ones even agents don't want to touch!Frimley111R said:
That doesn't make sense. The agent will get a chunk of the sale proceeds so the more it sells for the better. Privately advertised companies might also be ones even agents don't want to touch!
Explain slightly better - the (less scrupulous) agency will know the company is worth nothing or very little but to get the contract and secure the minimum commission fee (which covers any sale by any means not just via the agency) they will tell the seller its worth far more. I assume a seller listed business would have a more realistic maybe accountant advised valuation.
condor said:
528Sport said:
hildcare..
We wish to buy into something that can't be replaced by a computer!
My wife has experience in the industry.
Set up your own childcare business from scratch then We wish to buy into something that can't be replaced by a computer!
My wife has experience in the industry.
Easier to buy existing.
We are looking at a few options.
Thanks everyone for advice
Dave
bob-in-toon said:
Yes I live in Newcastle - work in Corporate Finance (accountant) - so mainly working on due diligence, M&A, disposals etc.. If you like drop me an email and I'll see if there is anything I know of that may be suitable - will be happy to advise either way
robert.cooper@cliveowen.com
PM sendrobert.cooper@cliveowen.com
cheers,
Dave
bob-in-toon said:
Yes I live in Newcastle - work in Corporate Finance (accountant) - so mainly working on due diligence, M&A, disposals etc.. If you like drop me an email and I'll see if there is anything I know of that may be suitable - will be happy to advise either way
robert.cooper@cliveowen.com
any experience in valuing a letting agency? just curious at this stage.robert.cooper@cliveowen.com
superlightr said:
any experience in valuing a letting agency? just curious at this stage.
Yes I actually carried out a due diligence exercise on an estate / lettings agent last year which one of our clients was looking to buy. In that case they had already agreed a valuation in principal so it was more a case of ensuring the deal stacked up.Valuing a business very much depends on the size and sector - plus depends if you're on the buying or selling side! If you would like some advice please feel free to drop me an email.
Cheers
Robert
528Sport said:
Could do, I assume youve not had the pleasure of dealing with Ofsted?
Easier to buy existing.
We are looking at a few options.
Thanks everyone for advice
Dave
Make an insulting offer.Easier to buy existing.
We are looking at a few options.
Thanks everyone for advice
Dave
The likelihood is that business will still be on the market in a year, most are.
Perhaps sweeten it with early completion if you can realistically turn it around, the key is to work on the basis that you are paying money for nothing.
There is no goodwill, people will come and go as they please, fixtures and fittings are second hand consumables and there aren't any property assets.
Give it a punt sit back and wait.
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