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Thread: Value of business

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    Value of business

    Hi all,

    I would like to know how work the value out of a business for sale?

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    Hi Hope
    What info do you have? How old is the business? What is the nature of the business is?

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    I hate these questions because the sales value of a business is far from predictable.

    The real value is what someone is prepared to pay, but at the risk of oversimplifying it, you can get a rough idea using two key elements - the return (profit) per annum and the level of involvement required by the owner.

    Looking at the level of involvement, the lowest level would be where the owner selling holds a key skill required by the business. The bad news is you're limited in terms of who you can sell to. The good news is the salary drawn by the owner could be counted into the "profit" equation, but you'll do well in many instances to get the equivalent of one year's profit as the sales price.

    Next is where the owner has to attend to the day-to-day management. Again, the salary drawn by the owner/manager might be included in the calculation of annual earnings - and the sales price might be roughly double that value.

    The most valuable businesses are where the owner really doesn't have to do much more than hire and fire the top management. Here a sale price will commonly start at seven times the annual return and depending on the track record of the business, may be significantly higher than that.

    WARNING: This is a huge simplification - there are factors that could skew these rough guide figures. And I believe there are other ways of trying to determine a value too.

    But ultimately whatever method you use, it's no guarantee as to what you would get. It really does comes down to what a buyer would be prepared to pay. And there are all kinds of circumstances that could seriously impact that.
    The trouble with opportunity is it normally comes dressed up as work.

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