Asking Price - versus Sale Price

[A-n-d-y]

Hi, newbie here...

I am looking at a business, which I think it overpriced... I am waiting to get the accounts and see the numbers, but its my gut saying it's too much.

I don't have the full story yet, but I have been talking with the current owner, and they wanted to get a business agent in to value it... so I'm guessing because I expressed an interest before it was on the market, it's probably a bit inflated.

My question is... if a business broker/agent has recommended an asking price, how far off what it's really worth, might it be.. I'm thinking max 10%

Be interested to know other people's thoughts... I will at some point have to decide if to make a low ball offer, or walk away, because at the ticket price, it's not for me.

thx
Andy

 

[NickGrogan]

Anything up to 100%

 

[Mr D]

Have seen a business go for 10% of the asking price.
Have seen a business go for more than 75% of asking price.

Have seen multiple businesses for sale that appear to never sell.

The broker is effectively making up a figure - may be based on experience of what similar things have sold for, may be simply a figure to get seller to sign with their service.

If you don't think a business is worth £x, then offer less or walk.

 

[A-n-d-y]

Thanks for replies,

Yep I guess there is always the offer what I think it’s worth as the ultimate end game,

But at this point, I was assuming the agent has some basis, and their client won’t take my offer if it deviates too much, but also expecting it has been topped up a bit to accommodate an offer...

Don’t want to be too rude by saying that I think their valuation is a bit fantasy land..

But I will know more when I see the numbers, maybe it’s a veritable gold mine

 

[NickGrogan]

But at this point, I was assuming the agent has some basis

That is a big assumption

 

[Clinton]

But at this point, I was assuming the agent has some basis...

He probably doesn't. Most agents are full of bullsh*t.

Here's how they value businesses.

My question is... if a business broker/agent has recommended an asking price, how far off what it's really worth, might it be.. I'm thinking max 10%

Max 10%?! Ha, ha. You are funny!

I was talking recently with someone who's been trying to buy a business listed with KBS, one of the largest business brokers in the UK (K3, their parent, is actually listed on the stock exchange).

My contact had exchanged 16 emails - SIXTEEN - trying to get KBS to explain how they came to their valuation. First they tried to ignore the question. Then they claimed that the person who valued the business no longer works at KBS so they couldn't provide how he came to that figure. Then, finally, after my contact had a little chat with the vendor himself, and confronted KBS, KBS admitted that it wasn't a valuation as such.

They had simply posted whatever price the vendor told them to post!

Or, in their words, "the valuation was based on the vendor's aspirational price".

You couldn't make this sh*t up!

The KBS price was £500K. A proper valuation put the value at circa £10K.

So much for your "10% out"!

 

[Mr D]

I suspect when selling most of us would prefer £500k over £10k any day.

 

[A-n-d-y]

Where I am at, is I think the business is great, but I would only buy it, if there was some advantage over and above where I could get to by setting up down the street.

Currently they have a well established brand, and loyal customers, so that is worth something to me.

I also would not like to compete with them, so buying has that appeal too;

The business has only just gone on the market, so if I don't agree with their valuation, there will be some time before the owner is willing to hear that. But, I'm not going to hang on a long time until a few more people make offers, because mine would just be the offer to beat.

I thank you all for you replies... sounds like nothing is hard and fast
thx
Andy

 

[Mark T Jones]

What most buyers seem to overlook is that price and valuation are actually irrelevant - what you need to be looking at (in intimate detail) is the value of that business to you.

Of course, on the off-chance that that figure is higher than the asking price you make a discounted offer

 

[Chris Ashdown]

I dont know how you even estimated the price as overpriced when you have not seen the last three years accounts to be able to make any judgment

For your investment what do you expect to get out of it per year as reward and do the accounts show that amount is possible at present rates

Don't assume they owners are stupid and not thought of many ways to improve the business and tried them, so you come along with a wonderful new plan to increase sales by a massive percentage

If you are as naive as you appear about selling agents , then you really need professional advice from a independent expert who can help you understand fully the accounts and hopefully something about the market

How do you define a "well established brand, and loyal customers" assume this is based upon the owners telling you this. Don't want to compete shows a lack of understanding, all companies compete, its just part of life, Restaurants often open up next door to a existing one allowing customers a easy choice

 

[Mr D]

As always in business, check everything. The seller and any agent they have are not on your side and don't work for you.

 

[Clinton]

If you are as naive as you appear about selling agents , then you really need professional advice from a independent expert ...

Good advice, but the OP is unlikely to follow it.

I've spoken with thousands of people like the OP over the years. When they start with "the business is great" and move on to defending the business / the opportunity when any question is raised about it, they're generally sold on the idea (rather than deciding after DD)

What the OP is really looking for is not what it may appear at first sight. He's not after advice, IMO. From the type of copy in the OP I expect Andy is fully confident he has all the savvy and skills to do this himself

 

[A-n-d-y]

Thanks for the constructive comments, the others are more hilarious than they are helpful.

 

[Mark T Jones]

Thanks for the constructive comments, the others are more hilarious than they are helpful.

My advice would be to re-read the hilarious ones and take them very seriously

Good advice often comes with a bitter taste.

 

[Prime81]

when places get taken over and people who are loyal find out the owner has changed that loyalty only lasts as long as the products/services are the same or better. How many places have you heard of being taken oven then people start saying ' it used to be good there but it's gone down hill since the new owners took over'. It depends on your level of service going forward and the expectations of the loyal customers.

 

[A-n-d-y]

when places get taken over and people who are loyal find out the owner has changed that loyalty only lasts as long as the products/services are the same or better. How many places have you heard of being taken oven then people start saying ' it used to be good there but it's gone down hill since the new owners took over'. It depends on your level of service going forward and the expectations of the loyal customers.

Indeed it is likely that much of what people like about the place, is coming from the current owner, and part of my decision making process will be to determine if this business minus some lost loyalty would put me in a better position, than starting fresh and building loyalty.. I can see both sides.

At this point, it is very early, I am still waiting on more details, so hopefully the picture will start to develop over the coming weeks.

 

[Mr D]

Indeed it is likely that much of what people like about the place, is coming from the current owner, and part of my decision making process will be to determine if this business minus some lost loyalty would put me in a better position, than starting fresh and building loyalty.. I can see both sides.

At this point, it is very early, I am still waiting on more details, so hopefully the picture will start to develop over the coming weeks.

Its a learning process.

If you can keep a level of detatchment, avoiding the trap of falling in love with owning that business, you can evaluate the business on its merits and problems.

A lovely business that I really wanted I had to walk away from. The figures worked for the seller, they could not work for me.

 

[A-n-d-y]

Its a learning process.

If you can keep a level of detatchment, avoiding the trap of falling in love with owning that business, you can evaluate the business on its merits and problems.

A lovely business that I really wanted I had to walk away from. The figures worked for the seller, they could not work for me.

Thanks Mr D; yep that is the feeling I was starting with, I am a numbers person and the agent/owner haven't given me the numbers yet, except for asking price.. and based on gut (I know others have questioned this, but anyway), I think it might be a reluctant 'not for me'. However, open to seeing great things when the numbers come in.

I think my original question was coming from a feeling that I expect the agent has over-egged a little; because why not... but I thought they perhaps would not have over egged too much. So trying to get a sense of it.

My newbie naive approach was perhaps to expect the agent to be using a basis for the valuation, perhaps know that basis I could understand. In the 90s I worked for Humberstones and was a business transfer agent and we did have a formula for valuing a business which was reasonably robust in terms of X times profit, plus B&M etc., but there was a degree of knowing the area, knowing the ceiling prices and what people would spend on a certain proposition. I was hoping to get some up to date guidance on that, as I whatever I think it's worth, I would like to be able to argue that with some basis too

I am obviously keen on this business, as I have said, it wasn't on the market and I approached the owner to see if they would sell; but this isn't based on having a few too many beers with rose tinted glasses. It will come down to the numbers in the end.

thanks again to all taking the time to post