Selling in a Recession! 

Fundamentally, there are two elements impacting value in the eyes of a business buyer.

One is the Profit Level, and the other is the Risk to that profit level. The risk is that profits will not be maintained in the future. This is often referred to as the multiplier or the return.

The ‘multiplier’ is the Rate of Return (expressed as times-earnings) that a buyer seeks to get back, in exchange for the total amount of funds that had to be invested.

The total amount of funds invested includes the cost to buy all the tangible assets (property, plant and equipment, stock, etc.), PLUS the Working Capital needs; AND any Work in Progress.

In some businesses, the value of the business, in terms of the total funds invested, might be represented only by the cost price of working assets acquired; it might also be represented by the sum of the costs of tangible assets plus working capital plus any work in progress.

In others, the total funds invested also includes payment for goodwill.

Whether or not goodwill exists is determined by the level of risk to the profit level being maintained.

Almost uniformly true for all purchases is that “due diligence” being undertaken by prospective buyers is more thorough and more invasive than at any time previously. Buyers and Third-party advisers will check every detail before settlement.

Financiers are more “risk-averse” now when it comes to lending to businesses, irrespective of the claims made in their promotional materials. This lack of support from financial institutions is resulting in an increasing number of business sales transactions being facilitated with partial funding via  “Vendor Finance.”

Speak with us about your business and how we can help you exit profitability.
Call Us Now!