Buying a business
Discussion
Lots of talk on PH about starting a business, but not that much on buying an established one.
Anyone done that?
Did it go OK?
Any recommended background reading / websites / forums (ok fora for lurking pedants)?
An idea of expected costs would be useful.
Presumably there are solicitors to feed, forms to fill out, official bodies to notify?
Ta.
Anyone done that?
Did it go OK?
Any recommended background reading / websites / forums (ok fora for lurking pedants)?
An idea of expected costs would be useful.
Presumably there are solicitors to feed, forms to fill out, official bodies to notify?
Ta.
rfisher said:
Lots of talk on PH about starting a business, but not that much on buying an established one.
Anyone done that?
Did it go OK?
Any recommended background reading / websites / forums (ok fora for lurking pedants)?
An idea of expected costs would be useful.
Presumably there are solicitors to feed, forms to fill out, official bodies to notify?
Ta.
Yes, three times.Anyone done that?
Did it go OK?
Any recommended background reading / websites / forums (ok fora for lurking pedants)?
An idea of expected costs would be useful.
Presumably there are solicitors to feed, forms to fill out, official bodies to notify?
Ta.
Yes, yes, no.
There's loads, but in my case it's my experience, and that of my team, rather than that of strangers that I've used.
Pick a number between £5k and £300k. It depends on many ithings including how much due diligence you do yourself, the size of the business and how many advisers you choose to invlove.
Yes. This last question suggests to me that you're new to company ownership, in which case there's a lot for you to learn. If you're not sure about the process, I'd suggest that's where you start.
rfisher said:
Any figures in terms of what you may be able to take out of a £300k initial investment business?
My 5-300k figure above was the legal and professional fees, not the cost of the business!As to what you could take out of a business into which you've invested £300k? Absolutely nobody could even begin to answer that question except to say "less than £301,000."
In theory, if the business is valied at £300k, it's profitable, but how profitable is impossible to know.
If you're looking for somewhere to put £300k in order to generate an immediate income, then this almost certainly isn't the answer, I'm afraid.
Ive been looking in to this recently too. Finding a lot of franchise resales coming up (not that I am interested in taking on a franchise) so I requested to see accounts etc. Some of the asking prices are just plucked out of the air e.g. £200k for a business generating £40k a year.
Makes no sense to me.
Is there a ball park for asking price v profits/turnover?
Makes no sense to me.
Is there a ball park for asking price v profits/turnover?
PrancingHorses said:
Is there a ball park for asking price v profits/turnover?
There used to be, but there are a great many variables now, so it's harder to do. I generally start with 3-5x net profit, and then add stock, machinery and other assets, but that's never the valuation you end up with You also need to consider whether you want to buy a job or not. Many businesses especially in the price range quoted need the constant involvement of the owner,
There's the assets of the business to consider too. You could buy a freehold guest house, if you get no guests you've still got the house.
There's the assets of the business to consider too. You could buy a freehold guest house, if you get no guests you've still got the house.
All very interesting so far - thanks.
If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
rfisher said:
All very interesting so far - thanks.
If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
Depends on the sector and the length of your piece of string. Business's can go for anywhere between 1x EBITDA and 10x EBITDA and even higher in some sectors.If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
Find an example business that interests you, then give us some details and we'll pull it apart / help you.
rfisher said:
All very interesting so far - thanks.
If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
It's impossible to know. It's not anywhere near as simple as that. Many years ago, I sold a business generating 100k net profit for 1.8m. More recently I sold another generating maybe 200k net for 500k.If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
Seriously, you're asking the wrong question. It starts with how much the business is asking, and then you do your due diligence to determine what you think you can generate from it. You then decide what it's worth to you, and try to negotiate a price with the seller.
You don't start with "I need 50k a year, and 3x earnings is £150k, so what can I buy for that?"
As others have said, lots of variables that make a specific answer impossible
For example, what does "generate £50k gross" even mean? What does "a £300k initial investment" mean?
I think there are better places for you to start. e.g. what type of business does your current experience set you up to (part) own / run? Are there any that you wouldn't even consider? Are you geographically restricted? Why do you want to buy one? How do you know "a £300k initial investment" directed towards buying an existing business is a better use of that investment than starting from scratch? Is the "£50k gross" an absolute drop dead minimum that if the business missed it by 1p for a couple of months you would be toast?
Quite a bit of thinking to do before waving £300k about imo.
For example, what does "generate £50k gross" even mean? What does "a £300k initial investment" mean?
I think there are better places for you to start. e.g. what type of business does your current experience set you up to (part) own / run? Are there any that you wouldn't even consider? Are you geographically restricted? Why do you want to buy one? How do you know "a £300k initial investment" directed towards buying an existing business is a better use of that investment than starting from scratch? Is the "£50k gross" an absolute drop dead minimum that if the business missed it by 1p for a couple of months you would be toast?
Quite a bit of thinking to do before waving £300k about imo.
rfisher said:
All very interesting so far - thanks.
If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
Hello, If I simplify the question a bit that may be useful.
So, if I would like to generate £50,000 gross from an existing business, how much should I expect to pay for the business and how much should I expect to pay in fees involved in buying it?
Rough estimates or real life examples would be great.
Ta.
Based upon your questions I would say that you might be better either fix trying to work for an SME where you can see how a business operates, or start a business from scratch.
Buying an existing business without experience of how businesses operate will probably mean you’ll overpay and/or buy someone else’s problems and liabilities.
PrancingHorses said:
Ive been looking in to this recently too. Finding a lot of franchise resales coming up (not that I am interested in taking on a franchise) so I requested to see accounts etc. Some of the asking prices are just plucked out of the air e.g. £200k for a business generating £40k a year.
Makes no sense to me.
Is there a ball park for asking price v profits/turnover?
My Dad used to say "three times net profits" and as Duncan Bannatyne says "turnover is vanity, profit is sanity".Makes no sense to me.
Is there a ball park for asking price v profits/turnover?
But you're right, some valuations are complete Jackanory.
singlecoil said:
You also need to consider whether you want to buy a job or not. Many businesses especially in the price range quoted need the constant involvement of the owner,
This times 100. A lot of businesses are not businesses at all in reality.The other thing to look out for are businesses "with potential for growth". If there is potential, why hasn't the current owner tapped into that?
I have been through this on both sides more than once. Some good some not so good. My thoughts:
Finding a good business to buy is difficult. Just like the best houses, they come up rarely. If possible, do not use a listings broker like knightsbridge or any of the other business brokers if you can avoid it. Their business model is to contact business owners, talk up the valuation, get the business to sign up and pay them a fee. This often ends badly because the valuation put on the business by the broker is way off reality. Word of mouth or speaking to accountancy firms (they often have M&A teams representing their clients) is a good starting point.
Valuations. The valuation matrix will vary depending on sector and the business itself. A very stable business with ongoing contractual income (services) will achieve a higher multiple compared to a cyclical business that depends on footfall (retail). Often 3x or 5x times net profits are used for valuations but this can go up to 8x or more for the most stable businesses with strong order books and contracts. You also need to consider the real running costs (as elluded to earlier by another poster). If the target business makes £100k profit, but the owner manager takes it all as dividend instead of PAYE income, you need to consider if you want the 'job' or want someone else to do it. The maths then is to deduct the cost of paying someone else to do the job to give you a real net profit figure as the owner rather than the worker.
What are you actually going to buy? Looking at any business to purchase you need to consider the liabilities. Due diligence will help with this, but the cleanest approach is to buy the assets and goodwill and leave the corporate entity behind, along with any hidden liabilities. It is normal in any sale contract for the seller to give warranties that everything is as described with no skeletons in the closet. Relying on these through a legal action if things do go bad is not a good thing to have to do and is best avoided if possible (unless you are batting at multi million £ deal sizes).
Finally, consider why the business is being sold. Is it because the seller knows something about that industry you don't, or is it a sale due to retirement, ill health, etc. If it looks too good to be true is usually is, and the devil is always in the detail, if something in the accounts looks wrong, it often is.
On the question of 'pulling' £50k income from a business once purchased, it depends entirely on all the factors above, but yes, it is achieveable. Many businesses sell for multiples that make the return on the investment look very attractive compared to returns from the markets/banks, so depending on how deep your pockets are you could achieve you goal.
Finding a good business to buy is difficult. Just like the best houses, they come up rarely. If possible, do not use a listings broker like knightsbridge or any of the other business brokers if you can avoid it. Their business model is to contact business owners, talk up the valuation, get the business to sign up and pay them a fee. This often ends badly because the valuation put on the business by the broker is way off reality. Word of mouth or speaking to accountancy firms (they often have M&A teams representing their clients) is a good starting point.
Valuations. The valuation matrix will vary depending on sector and the business itself. A very stable business with ongoing contractual income (services) will achieve a higher multiple compared to a cyclical business that depends on footfall (retail). Often 3x or 5x times net profits are used for valuations but this can go up to 8x or more for the most stable businesses with strong order books and contracts. You also need to consider the real running costs (as elluded to earlier by another poster). If the target business makes £100k profit, but the owner manager takes it all as dividend instead of PAYE income, you need to consider if you want the 'job' or want someone else to do it. The maths then is to deduct the cost of paying someone else to do the job to give you a real net profit figure as the owner rather than the worker.
What are you actually going to buy? Looking at any business to purchase you need to consider the liabilities. Due diligence will help with this, but the cleanest approach is to buy the assets and goodwill and leave the corporate entity behind, along with any hidden liabilities. It is normal in any sale contract for the seller to give warranties that everything is as described with no skeletons in the closet. Relying on these through a legal action if things do go bad is not a good thing to have to do and is best avoided if possible (unless you are batting at multi million £ deal sizes).
Finally, consider why the business is being sold. Is it because the seller knows something about that industry you don't, or is it a sale due to retirement, ill health, etc. If it looks too good to be true is usually is, and the devil is always in the detail, if something in the accounts looks wrong, it often is.
On the question of 'pulling' £50k income from a business once purchased, it depends entirely on all the factors above, but yes, it is achieveable. Many businesses sell for multiples that make the return on the investment look very attractive compared to returns from the markets/banks, so depending on how deep your pockets are you could achieve you goal.
Edited by anonymous-user on Friday 22 May 11:03
Good post.
soofsayer said:
I have been through this on both sides more than once. Some good some not so good. My thoughts:
Finding a good business to buy is difficult. Just like the best houses, they come up rarely. If possible, do not use a listings broker like knightsbridge or any of the other business brokers if you can avoid it. Their business model is to contact business owners, talk up the valuation, get the business to sign up and pay them a fee. This often ends badly because the valuation put on the business by the broker is way off reality. Word of mouth or speaking to accountancy firms (they often have M&A teams representing their clients) is a good starting point.
Valuations. The valuation matrix will vary depending on sector and the business itself. A very stable business with ongoing contractual income (services) will achieve a higher multiple compared to a cyclical business that depends on footfall (retail). Often 3x or 5x times net profits are used for valuations but this can go up to 8x or more for the most stable businesses with strong order books and contracts. You also need to consider the real running costs (as elluded to earlier by another poster). If the target business makes £100k profit, but the owner manager takes it all as dividend instead of PAYE income, you need to consider if you want the 'job' or want someone else to do it. The maths then is to deduct the cost of paying someone else to do the job to give you a real net profit figure as the owner rather than the worker.
What are you actually going to buy? Looking at any business to purchase you need to consider the liabilities. Due diligence will help with this, but the cleanest approach is to buy the assets and goodwill and leave the corporate entity behind, along with any hidden liabilities. It is normal in any sale contract for the seller to give warranties that everything is as described with no skeletons in the closet. Relying on these through a legal action if things do go bad is not a good thing to have to do and is best avoided if possible (unless you are batting at multi million £ deal sizes).
Finally, consider why the business is being sold. Is it because the seller knows something about that industry you don't, or is it a sale due to retirement, ill health, etc. If it looks too good to be true is usually is, and the devil is always in the detail, if something in the accounts looks wrong, is often is.
On the question of 'pulling' £50k income from a business once purchased, it depends entirely on all the factors above, but yes, it is achieveable. Many businesses sell for multiples that make the return on the investment look very attractive compared to returns from the markets/banks, so depedning on how deep your pockets are you could achieve you goal.
Finding a good business to buy is difficult. Just like the best houses, they come up rarely. If possible, do not use a listings broker like knightsbridge or any of the other business brokers if you can avoid it. Their business model is to contact business owners, talk up the valuation, get the business to sign up and pay them a fee. This often ends badly because the valuation put on the business by the broker is way off reality. Word of mouth or speaking to accountancy firms (they often have M&A teams representing their clients) is a good starting point.
Valuations. The valuation matrix will vary depending on sector and the business itself. A very stable business with ongoing contractual income (services) will achieve a higher multiple compared to a cyclical business that depends on footfall (retail). Often 3x or 5x times net profits are used for valuations but this can go up to 8x or more for the most stable businesses with strong order books and contracts. You also need to consider the real running costs (as elluded to earlier by another poster). If the target business makes £100k profit, but the owner manager takes it all as dividend instead of PAYE income, you need to consider if you want the 'job' or want someone else to do it. The maths then is to deduct the cost of paying someone else to do the job to give you a real net profit figure as the owner rather than the worker.
What are you actually going to buy? Looking at any business to purchase you need to consider the liabilities. Due diligence will help with this, but the cleanest approach is to buy the assets and goodwill and leave the corporate entity behind, along with any hidden liabilities. It is normal in any sale contract for the seller to give warranties that everything is as described with no skeletons in the closet. Relying on these through a legal action if things do go bad is not a good thing to have to do and is best avoided if possible (unless you are batting at multi million £ deal sizes).
Finally, consider why the business is being sold. Is it because the seller knows something about that industry you don't, or is it a sale due to retirement, ill health, etc. If it looks too good to be true is usually is, and the devil is always in the detail, if something in the accounts looks wrong, is often is.
On the question of 'pulling' £50k income from a business once purchased, it depends entirely on all the factors above, but yes, it is achieveable. Many businesses sell for multiples that make the return on the investment look very attractive compared to returns from the markets/banks, so depedning on how deep your pockets are you could achieve you goal.
I think you need to provide some context. What do you mean by "business"? Valuation mechanisms, acquisition structures and associated costs vary enormously depending on the kind of thing you're buying. There's a world of difference between buying, say, a high-street bike shop and a medium-sized IT services provider; they're not really the same kind of transaction at all.
I've done both. I'd say AMA, but I wouldn't claim to be any kind of expert. I suspect there are people on here who have many times my handful of transactions.
I've done both. I'd say AMA, but I wouldn't claim to be any kind of expert. I suspect there are people on here who have many times my handful of transactions.
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