Buying A Business - It's Not All About Price.

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Buying A Business - It's Not All About Price.

Posted by BBA
11 April 2019
 

When looking at a business to buy, price is the last thing to consider. What's important is the actual operations, systems, procedures, staff, location, financials, competition and growth opportunities. Determining the price is always the last piece of the puzzle.

When looking at buying a business and searching on various websites, one search category is PRICE or PRICE RANGE

The asking price advertised is interesting - but remember is is ONLY a guide. All prices are negotiable and businesses can sell 30%-50% less than the advertised asking price.

WHY? - Most vendors have NO idea what their business is worth. Business Brokers are not valuers and if asked to determine an asking price will randomly select a value based on turnover or a multiplier of Earnings before Interest and Tax (EBIT).

Let’s be fair to Business Brokers, they are not valuers. In many cases they cannot even compare the value of a business with the market because the vendor has not supplied the information or the information that is prepared is to minimise tax and is not a true reflection of performance - on paper it’s losing money.

SO - KEEP PRICE OUT OF IT WHEN FIRST LOOKING

WHAT IS IMPORTANT is the actual operations of the business. Its history in relation to clients, suppliers, debtors and creditors. Its products, systems and procedures. Its location, network and competition. Its product mix, transaction count and margins.

ULTIMATELY is it a business that can grow? Does it have the structure to take it to the next level in terms of revenue and profit and if so, what will it take?

IF the answer to growth is negative - you may be JUST buying a job.

Before price is considered, address the other factors of the business - it will soon be obvious what the business is worth.

ONE THING TO REMEMBER

A good negotiator understands that the seller/vendor is CRUCIAL to the short term success of the business for the new owner.

Having a positive vendor, someone that is helpful and supportive, someone that will introduce the buyer to clients, suppliers and customers, discuss the learnings and opportunities and stay on as a positive influence for a period, as required, is vital.

A good negotiator will have a result that is a win/win for both parties, even when the purchase price is considerably less than the asking price.

WHEN VALUING A BUSINESS - PRICE IS THE LAST PIECE OF THE PUZZLE.

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