Buying a business

[Laserline2]

Hi all, Long term lurker on here. Looking for a bit of advice, I have been offered the possibility of buying an existing business due to retirement. Trying to keep details a little bit limited but its based on machinery sales and servicing. I have access to a decent amount of funds to offer a lump sum to the current owner. But the biggest problem i have is how to value it? Could anyone help me as to ways they have used to value a business and also ways which would make a smooth transition from one owner to another (Lump sum followed by monthly payment etc). Thank you in advanced

[Zoon]

Laserline2 said:

Hi all, Long term lurker on here. Looking for a bit of advice, I have been offered the possibility of buying an existing business due to retirement. Trying to keep details a little bit limited but its based on machinery sales and servicing. I have access to a decent amount of funds to offer a lump sum to the current owner. But the biggest problem i have is how to value it? Could anyone help me as to ways they have used to value a business and also ways which would make a smooth transition from one owner to another (Lump sum followed by monthly payment etc). Thank you in advanced

Most businesses are valued with a large element of goodwill.
You can't really put a value on it so it's waste of time trying.
What you need to do is come to an agreed figure that you are both happy with.

[All that jazz]

Zoon said:

Laserline2 said:

Hi all, Long term lurker on here. Looking for a bit of advice, I have been offered the possibility of buying an existing business due to retirement. Trying to keep details a little bit limited but its based on machinery sales and servicing. I have access to a decent amount of funds to offer a lump sum to the current owner. But the biggest problem i have is how to value it? Could anyone help me as to ways they have used to value a business and also ways which would make a smooth transition from one owner to another (Lump sum followed by monthly payment etc). Thank you in advanced

Most businesses are valued with a large element of goodwill.
You can't really put a value on it so it's waste of time trying.
What you need to do is come to an agreed figure that you are both happy with.

Finding out things like turn over, profit etc would perhaps be a more useful answer in order to get some idea of the business worth.

[Zoon]

All that jazz said:

Finding out things like turn over, profit etc would perhaps be a more useful answer in order to get some idea of the business worth.

It will give you an idea, but as you cannot value goodwill it will only be that.
Therefore it is quicker to establish what they are looking for and see if it is close to what the OP is willing to pay.

[StevieBee]

The method I've long heard touted is net profit x 6 + assets but it really comes down to how much the seller wants to sell for balanced with how much you want to buy it for.

[Frimley111R]

There are so many factors that affect value that event 'full professional' valuations are only submitted as guides and frequently/usually provide a value range, no more than that.

I'd look at what it would cost to start up from scratch?
What is the actual value of his machinery and stock if he was to liquidate it?
Is anyone else interested in buying it? If not you're in a strong negotiating position.
Look on businessesforsale.com and Daltons to see what similar businesses are up for.
Is there any guaranteed income for the future such as contracts?
Business owners always over value their businesses!
Consider an earn-out, i.e. you pay him a percentage on sale and then he gets the rest assuming he stays in the business achieves a set revenue figure (this is common in many sales).
Bear in mind that in small businesses the owner often 'is' the business and all the contacts and work are as a result of his long term relationships with customers. If so you definitely need a good hand over period so that these contacts are passed to you.

[Jockman]

Zoon said:

All that jazz said:

Finding out things like turn over, profit etc would perhaps be a more useful answer in order to get some idea of the business worth.

It will give you an idea, but as you cannot value goodwill it will only be that.
Therefore it is quicker to establish what they are looking for and see if it is close to what the OP is willing to pay.

This is good advice. Purchasing a company at this level is both qualitative and quantitative.

By all means calculate your ebitdar and apply any multiplier between 4 and 9 - even use the formula posted above - but if the guy doesn't like you he really will make you sweat.

If it were a limited company I would be on companies house beta service looking for key information. I would not exclude details on spouse nor would I exclude dates of birth. These 2 components were crucial in my last acquisition.