Pricing a Business for Sale
The biggest mistake usually in pricing and business for sale is made by referring to financial information in isolation from other information. Price always rests with what a willing buyer is prepared to pay for the surety of the present profit level is being maintained.
Financial records and information may well provide present profit levels. They can only indicate future profit levels. They, by no means, assure those levels will continue into the future.
The risks to future profit levels can only be really judged if the physical nature and environment of the business is understood.
The physical nature and environment of a business can be analysed by investigating the business issues around:
- Its position (location, industry, demography and economy);
- Its Assets (Plant and Equipment, Fixtures and Fittings and Capital Invested);
- Its Activities (products, customers, supplier, competition and compliance); and
- Its Management (organisation, policies, systems and procedures).
Without the physical nature of a business being investigated, the risks to the future profits cannot be judged well. Using financial information assumes the past will be repeated into the future, hardly a reasonable assumption.
In my view, the vast majority of business offered for sale seem to be priced using mainly financial information. The result is most businesses are overpriced and are never likely to be sold.
If you want your business ‘priced for sale’ talk to me.
Graham Long 2019
