Buying a business is often seen as a quick way for you to get started or expand. But beware. The business agent isn’t working for you. They are working for the seller. The agent is usually paid a commission on the sale price so the more they can persuade you to pay, the more they earn.
Some agents offer us commission for helping them sell a business – in other words to persuade our clients to pay as much as possible so we – and them – earn more.
We prefer to be independent and advise our clients properly. This might not make us richer but helps us maintain our integrity and sleep well at night.
Businesses offered for sale via business sales agents are usually overpriced. A recent example was a business which two agents said was worth £80,000+ and was eventually sold for £15,000. Neither we nor the client thought the price suggested by the agents was credible, and it wasn’t.
By all means, look at a business offered by a business sales agent, but always question the asking price.
Get someone who understands accounts and the business to look at the available information – preferably us. We can arrive at a sensible valuation and help you negotiate with the seller. We will help you identify the risks involved in the business – the riskier the business, the lower the price should be. Something conveniently forgotten by agents who often work on (inflated) multiples of sales or profit.
Sellers will sometimes hide things in the accounts. Our experience across a range of different businesses, helps us spot the anomalies – and question them.
A few years ago we examined some accounts and were sure the profit margin was not correct. The profit being shown was higher than we expected, thereby (theoretically) substantiating a higher sale price.
After some investigation, the seller admitted that some of the stock sold had actually been provided by his brother who ran a similar business.
A recalculation, using more realistic figures, reduced the asking price by a lot.
There are ways to make a business look more profitable for a number of years, quite legally. It often means paying a bit more tax for a couple of years – but the benefit can outweigh the tax. A business which declares £10,000 additional profit might pay £2,000 extra tax – but the asking price could increase by £50,000, £60,000 – or even £100,000.
Extreme caution is always advised.
Someone came to us after parting with £40,000 on a business. Unfortunately, they came after they had completed – not before. To put it bluntly, the business they had bought was worthless and it lasted less than one year before they realised they could not make money and closed it. They were £40,000 poorer and had spent a great deal of time and effort trying to make it work.
Asking us, or any other competent company, to check any business you are consider buying is not going to be free but our experience is that our input can save many ££££s.
Contact us by phone (01509 816150) or complete the enquiry form below. We will always spend an hour with you FREE of charge. This preliminary chat may be enough to identify obvious issues.