Page 58 - #53 English

Management

Story by Ed Arvidson
Buying or Selling a Business

Denisismagilov | Dreamstime.com

Almost every business owner is faced with the pros- Determining a fair price:
pect of buying or selling a business at some point in time. Whether you are looking to buy or sell a business, you
Whether you are just getting started in business, or already own must first be able to identify a fair value. If the business isn’t
a successful operation and want to expand, buying an existing making a profit, then in reality it’s only worth the depreciated
business can present some real opportunities and advantages. value of its equipment and furnishings. In addition to that, some
On the other hand, if you are already in business, but are ready consideration might be given for a portion of the expense that
to call it quits and want cash-out, then selling your business can was incurred for such things as cabinets, modifications made
bring up some serious considerations. to plumbing, electrical, etc. But, beyond that, there is really no
When starting a business, folks normally have two op- other value in the business. This means you might be able to buy
tions: 1. they can start at “ground zero,” create and open a new or sell a distressed business for only 10¢ to 50¢ on the dollar
business, or 2. they can buy an existing, operating business. For of what it cost to open when it was new. Paying a deeply dis-
this article we will explore purchasing an existing business as counted price to take over an existing operation is far less risky
opposed to opening a new one from scratch. than investing $200K to $300K to develop a new one. Especially
The biggest advantages of buying an existing business when there is no guarantee that a new business will ever make
are, it can potentially save you a lot of money, and you’ll know money.
what you are getting in advance. If you can trust the owners On the other hand, if you are considering a business
financial statements, you’ll understand how much the business with a long history of healthy profitability, then it might sell for
is making or losing. Even buying a business that is losing $2,000 far more than the cost of starting a new business from scratch.
a month might be better than creating a new one, and suffering This can still be well worth the investment, especially if risking
a $10K to $15K loss during its first month of operation. Plus, a your entire life savings to start a new business is unthinkable.
business that isn’t profitable will usually sell for only pennies Formulas for determining the value of an existing profitable
on the dollar, so you can save a small fortune in start-up costs. business are numerous. 1 X last year’s annual gross sales is one.
And, if an existing business you are considering is profitable, 2 X annual net profit + depreciated value of assets is another.
then you can probably be assured that if you buy it, it will make But, in reality, any business is only worth what someone is will-
money for you as well, even though it will cost more. ing to pay for it.
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