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  Will your succession be a success?

For many people, their principal asset is their business. Sooner or later the aim is to sell out for the best price which raises the questions of what the business is worth now and how best to maximise the selling value when you want to move on.

Many people only sell one business in their lives so it is important to understand that anyone looking to buy will be looking to the future more than to the past. In order to maximise selling price you have to be able to demonstrate that the business is healthy and that the prospects are favourable. The more you put into preparing the ground now, the happier you are likely to be at sale time.

How do I know this business is worth what they are asking?

It is not unusual for businesses which are selling for comparatively low prices to be expensive on the basis of the risk related return they would provide to a rational investor. Quite simply, if you borrow money to buy an asset such as a business or a rental property, that asset must produce sufficient income for you to meet the interest repayments and provide a return to compensate for the risk of going broke.

One reason people may pay too much for businesses is that they are buying a job. If you own the business you work in you need to be remunerated appropriately for your labour plus you must have a profit to provide you with a return as the owner. The good news is that there are bargains to be had when shopping for businesses but you need to understand what constitutes value otherwise you could wind up with a lemon.

The bottom line is that it pays to take professional advice whether you are contemplating the sale or the purchase of a business. It could save you big time.