The sale price for most businesses include assets (plant & equipment), fixtures & fittings, stock (usually at valuation (SAV) at the time of settlement), trading name, trademarks, goodwill and intellectual property. Debtors/debts are not included, as these are retained by the vendor who pays out the creditors at settlement. It is rare for the corporate structure of private companies to be sold due to the possibility of unknown liabilities associated with the company.
Many considerations need to be taken into account when estimating a business’ worth including sales, costs, profits, assets, liabilities, tax and legal issues.
When you are considering the purchase of a business, know exactly what you are buying! Create a list and place your own value next to each item and do your sums. Equipment should be valued at the depreciated value (can be obtained from the vendor’s financials, (asset register) and notwhat was paid for it years ago.
- Why and what are the reasons the business is being sold?
- Is there goodwill being asked? Is it fair and reasonable?
- Does the business have a good name/reputation? – Is this included in the sale price?
- Has the equipment been well maintained; will it last another 5 years?
- Is the stock re-sellable, or is it unusable or outdated?
- Are there licenses and are they transferable to me?
- Are there any ‘fixed contracts’ in place, will they stay with the business?
- Can the business run without the existing owner?
- Does it include training?
- Can you see any patterns or trends with sales? What is the business’ customer base? Who are the current suppliers?
- Is it profitable?
- Has the vendor been taking out appropriate wages (commensurate to the skills)?
These are just some of the questions to ask to ensure that you know exactly what you are buying. Ask for an inclusions list. The vendor’s solicitor should have prepared this by now, and if not the vendor to provide you one.
