Sale price of business directly relates to profit?

Discussion in 'Starting & Running a Business' started by Jamestangjjj, 19th Aug, 2015.

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  1. sanj

    sanj Well-Known Member Premium Member

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    Depends on the business. Goodwill and systems can often be extremely valuable.
     
  2. sanj

    sanj Well-Known Member Premium Member

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    Good post. Quite frankly im surprised some people are saying goodwill is worthless nowadays. Thats certainly not the case across the board. If it was businesses would also sell for net assets, there would be no multiple of earnings etc.
     
    Last edited: 21st Aug, 2015
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  3. Lizzie

    Lizzie Well-Known Member

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    I was thinking in terms of BV's mechanic garage ... the goodwill he paid for was worthless ... if it were a branded garage (ie, O'Neills) then the "brand" goodwill is worth paying for
     
  4. legallyblonde

    legallyblonde Well-Known Member

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    I was always under the impression the sale price should be equivalent of 4 years profits... but not my area of expertise!
     
  5. sanj

    sanj Well-Known Member Premium Member

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    Bv's is just one example, i dont think it can be used to say nowadays goodwill is worthless.

    Sometimes a business has no goodwill and sometimes it does.
     
  6. RPI

    RPI SDA Provider, Town Planner, Former Property Lawyer

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    Very industry specific and even more specific

    A general practice law firm might only be 0.8 times
    A personal injury firm bought by one of the listed boys might be 8 times
     
  7. Tillie

    Tillie Well-Known Member

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    About goodwill... You cannot say that goodwill is worthless... If Coles or Woolworths were for sale, at first a buyer has to pay for all physical assets and brand name Coles or Woolworths. These assets might be worth a couple of billion dollars, but no way that you could buy either of those businesses with so little amount money. The purchase price would be more like 12 - 15 times profit multiple. The difference between physical and brand name assets and purchase price is goodwill, which is formed from e.g. customer loyalty, future profit expectations etc.
     
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  8. TMNT

    TMNT Well-Known Member

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    There is a little food business that i have a bit of history with. current owneers bought it from previous owners who stuffed it for around 90k

    The busirnss was very new but high rent is a killer

    Just over 12 months later. Theyve changed it for thr better howeevr the turnover isnt great.
    Its for sale now and ive had a look at the business profile and their net profit has been declared at zero, and thats without any addbacks depreciation etc

    However theyrr asking for 300k plus

    Not sure what the justification for the price is but it looks like its been a fruitless venture for them. ...... unless they do sell it for anywhere near the asking price

    Maybe they are hoping some clueless person will buy it
     
  9. Pursefattener

    Pursefattener Well-Known Member

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    Sounds like a big ask , ha ha . What would you offer for the business , if anything ?
     
  10. TMNT

    TMNT Well-Known Member

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    I have two theories
    1. Broker seems quite shady . So possibly they conviced them to put a high price and hope somone woukd offer a higher price
    2. They actually put a lot of effort into the venue, a lot of passion, eg complete overhaul of menu. Live music. Event nights. Sponsorships. New facebook page. Loyalty programs. Maybe they thought this should be reflected in the price

    From acomplete business perspective id say its worth 10kto30k for someone who wants give it a fresh shot

    The killer is the 47% rent at existing turnover
     
  11. Pursefattener

    Pursefattener Well-Known Member

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    Apart from rent , where is all the money going to ? Sounds like an interesting one to analyse etc .
     
  12. TMNT

    TMNT Well-Known Member

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    Cost of goods. Wages.

    Basically turnover is 6k per week. Rent being 2.4k per week. 7 day operation

    Ouchy!

    Feel sorry for them as they did give it a good shot
     
  13. geoffw

    geoffw Moderator Staff Member

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    Typically food costs I that sort of business would be 30-35% of turnover. Wage costs similar (if the owner did not work in this business). That doesn't leave much.
     
  14. Pursefattener

    Pursefattener Well-Known Member

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    Turnover doesn't sound like much to me . I would think if turnover could be doubled somehow it would make a big difference .

    Tough lesson for the owners . Unlikely to sell for much ?
     
  15. Bayview

    Bayview Well-Known Member

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    Just on that - and given my circumstances with my current business - I would be very, very reluctant to pay any good will for any auto workshop business that was for sale - no matter how good the figures appear to be.

    And; I have been watching another auto/tyres business which has been for sale for a number of months - all this year at least; from my observation.

    I have recently made contact with the agent (now that we've sold our house and have a much better financial position), and it turns out to be a business I know quite well, and one of my competitors, and not far away. Good opportunity for me, possibly.

    I received the usual facts and figures, and asked him several questions about the business - one of which was; "How long has it been on the market?"

    The answer I got back was "4 months" o_O

    Based on my past (bad) experience, I would really only be interested in offering to buy the stock based on independent valuation, and equipment as valuation determines.
     
  16. TMNT

    TMNT Well-Known Member

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    ^^^^
    It all depends on the market and what is deemed as acceptable for that industry at the time.

    If you went and offered every mcdonalds the cost of stock and equipment theyd probably march you into a mental asylum

    Good will has its valid place in every industry. The extent and value will depend on a milion factors.
    If you thought every business was only worth stock and equipment its no different to having a garage sale.

    Obviously if the vendor is desperatw thats another story

    If youre looking at finding more stock or equipment why dont you look on Gumtree or google for sale?
     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    Goodwill is different from the brand. Goodwill is generated by the business in repeat clientele whereas the brand is what has been built up through advertising, intellectual property, systems etc which can then be repeatedly rolled out to other sites.
     
  18. Bayview

    Bayview Well-Known Member

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    I'm looking to buy a business for a song, and make a cashflow from it.

    Sorta like all the folks here looking to buy IP's for under-market....a "low-ball" offer if you like. ;)

    The stock and equip are tangible things, but the rest is not; so worth a punt.
     
  19. TMNT

    TMNT Well-Known Member

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    BMV... my favourite term!!!!
     
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  20. Lizzie

    Lizzie Well-Known Member

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    That's why I'd be prepared to pay for "brand" (if the figures made sense) - and this can include goodwill - but I wouldn't pay for goodwill without brand.
     
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