When buying a small business, price & value may not be the same
You are looking to buy a small business. You see something you are interested in. Right industry, right location but is it the right price? In today’s market everyone is looking for a bargain. The difficulty in assessing the price of a small business is that there may not be a lot of ready comparisons available in the market.
If you are looking to buy a business where there is a large and active market – something like a newsagency, pharmacy or coffee lounge then comparisons will be available. And there are industry models that tend to set pricing for these types of business. However if you are looking at a more unique business and where there is not a lot of public information then the going can get tougher.
If you need an opinion on price, be careful and make sure you get the information you are really after.
FIND OUT MORE
Why Price and Value are not the same thing
Q. I am looking to buy a business. I’ve had my accountant value a couple that I was interested in, however the valuation came in well below the asking price. Am I looking at the wrong type of businesses or are they normally over priced?
A. It is not uncommon for the price of a business to exceed its true value. There are a couple of reasons for this.
Firstly, price and value are not the same thing. In a perfect market they should be, but we don’t operate in such a market.
Normally price will trade at either a premium or a discount to value. Price is a measure of the current market and available supply and demand. Where there is a limited supply of a particular type of business or a good quality business then it is likely that the business will trade at a premium to value.
FIND OUT MORE
When a valuation can help
Q. We’re planning to sell our business. Should we have a valuation completed in advance of the sale to support our asking price? Will this give our sale price greater credibility in the market, if it is supported by an independent valuation?
A. An independent valuation opinion is a valuable piece of information if you are looking to establish your sale price and you are unsure of what a fair market price is for your business. However if you are clear on the price for your business, it is less valuable as a support tool to convince a prospective purchaser. In most cases a purchaser will want to obtain their own independent valuation. Their reluctance to accept a valuation commissioned by the vendor will be a concern that you may have influenced the valuation in some way or that it is a valuation opinion, ‘friendly’ to the vendor.
FIND OUT MORE
How do I know how much my business is really worth? We’ve been talking to a new investor and are starting to doubt our assumptions about its value.
Business owners are often so invested in their business they lose sight of what the value of their business really is. If you put your heart and soul, and sweat and tears into the business you expect it will be worth the effort. FIND OUT MORE
What value is right for you – understanding valuation methodologies
Not all businesses are valued in the same way. In fact, there are over twenty different valuation methodologies. And, applying different methods will not produce the same result. To know what your business is really worth, you need to identify the most appropriate valuation methodology to apply to your business. FIND OUT MORE
Loading ...
