How do they value the business for sale

[delmundo60]

I am just in the process of buying a convenience store combined with take away food. The current business owner is selling for $350K includes stock. I need to know if it is worth it or make a lesser offer. Is there anyway I can find out how much he/she paid for it when he took over. I would appreciate any answer and advice.

[redcrx]

what he or she paid for it wont matter as such. What you will be buying is the customer base, the value isnt just based on stock. The current owners may have built up a large turnover and profit after taking it over.

Theres nothing to stop you making a lesser offer if you wish to, the worst the owner can do is refuse it.

Perhaps you could discuss this with an advisor at business link? http://www.businessli...0230127718|3820511047

[redcrx]

heres some info on valuing a business too http://www.businessli...90&topicId=1074410825

[delmundo60]

Hi redcrx,
I trust that you and your family are fine and well. Just want to say thank you for your time reading and replying to my post. I am just a bit confused because some business in similar are selling way less. I just often wonders how they put a value and a price on the business for sale. Anyway, thank's heaps for your kind reply.

Cheers, delmundo60

[cassa333]

I have known businesses sold for example XXX for the building and stock and xxx for the business which is, depending on the type, bassed on turnover and income and goodwill etc.

Look at the last years (possibly two or three yrs) accounts. If it is in good nick and is still sustainable then make an offer based on that.

Some people will put it on the market at way over the true value just as a punt to find a sucker or knowing they will be knocked down....

[delmundo60]

Hi Cassa333,

I trust that you and your family are safe and well. Thank you for your time and for replying to my post.

Just want to clarify what you meant by basing the price on the last 2 - 3 years accounts. Say for example business net profit is showing in 2007-100K, in 2008-120K, in 2009 - 130K So, it equals to $350K. Is that the value of the business and therefore buy it at that price and if they take less it will be a bonus. If this is so, I will use this formula.

I just don't want to pay the asking price then laugh behind my back thinking I am a sucker. Please advise.

Can I ask have you ever bought a business? If so, did you pay the asking price?

Either way I will let you know of the outcome. It is still a long process yet.

Take care and have a great day.

Cheers, delmundo60

[buildersmate]

"Just want to clarify what you meant by basing the price on the last 2 - 3 years accounts. Say for example business net profit is showing in 2007-100K, in 2008-120K, in 2009 - 130K So, it equals to $350K. Is that the value of the business and therefore buy it at that price and if they take less it will be a bonus. If this is so, I will use this formula."

I'm sorry, but I don't even know how to start with advice, based on your current level of knowledge of business economics.
No, you simply cannot add up the profit made in the last 2 years and offer that for the business - and I doubt very much that Cassa means that.
You really need professional advice and the best place to get it for free (or cheap) is via Business Link.

[delmundo60]

Hi buildersmate,

Thank you for your time reading and replying to my post and of course thank you for your advise. I guess this is the first time me buying a business and I am doing all I can to gather all the information I need. The link that redcrx has sent me was very helpful.

Subscribe to this thread and I will keep you all posted of the outcome.

Look after yourself and your family and take care.

Cheers, delmundo60

[cassa333]

Your right BM I didn't mean that.

I simply ment that if the accounts for the last couple of years were good then compare how much they are asking and see if it is reasonable. If for example you needed to take out a loan to pay for the business how many years trading would it take to repay? Could or would the buisiness succesfully pay back the investment in reasonable time? That sort of thing.

My (now ex boss) went down the pan (last week) by paying toooooo much for a business that was good for some time before because of 1. how it was run and 2. local business. He bought it then HAD to run it differently and the local business simply dried up. Net result building down from 980,000 to 600,000 and business down from 600,000 down to 98,000

The books aren't everything.

[delmundo60]

Hi Cassa,

The thought of losing money on a business is pretty scary. Makes me wonder if it's worth going into it. I really need to think more seriously before I do it. Thanks for your advise.

Take care.