Thinking of Buying a Business – Fourth Step

Assessing The Return

So many see the Return on Investment as a return on the profit level of the business. And yes, price being asked should reflect the answer to this question: ‘how much of the future profits of a business are being asked for now in return for gaining access to the future profits and ownership benefits vis a vis the risks associated in owning the business’.

The funds needed to operate a business in the normal course of its trading is the real issue to understand. The price of a business is often expressed in various terms; Price Walk in Walk Out (WIWO), Price + Stock At Value (SAV), Price Or Near Offer (ONO), Price + take Over Leases (TOL), Price + Equipment, Price + Working Capital etc and any combination of the above.

So, a simple profit divided by price equation isn’t going to really give an indication of the actual return. Many missed opportunities and many wasted valuable time and money simply sorting on Return. Buyers should investigate the total funds needed to be invested to operate a business at its normal trading level.

Invariably, the total funds needed to be invested may include tangible assets, goodwill, stock, working capital and work in progress. When added together and compared with the profit levels being achieved, the real return on investment (ROI) becomes apparent. It may or may not look as good as it did with a straight price/profit calculation.

Return on the total funds to be invested to operate the business normally is the key point a business buyer has to decide upon. The decision will reflect the tolerance for business risk of the business buyer. Some will pay more and move quickly to acquire a business opportunity at hand. Some will pay less, and may miss the opportunity. Some will still be analysing the business and never make the decision to buy it otherwise.

If you need assistance with guidance, please get in touch with us. Conversations are private.

Graham Long

0428-649-791

Kevin Lovewell

M: 0401-308-385
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers

Graham Long

M: 0428-649-791
E: Click here to contact Graham Long
Member & Registered Business Valuer
Australian Institute of Business Brokers

Kevin Lovewell

M: 0401-308-385
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers
What others say about Kevin Lovewell

Graham Long

M: 0428-649-791
E: Click here to contact Graham Long
Member & Registered Business Valuer
Australian Institute of Business Brokers
What others say about Graham Long

For Quick Contact

Fill in details below and we will contact you as soon as possible.

©2019 Copyright - Negotia Group | Web Design by Online Specialists | Privacy Policy | Sitemap
Negotia Group
PO BOX 100 Beachmere
QLD4510 Australia
Call 1300-551-757