my business is exactly the same as hers as my turnover is also my profit bar a few trivial expenses
Which implies that your input and your time are worthless!
So it is totally possible for you to take a small trader who has built a job and rmeove them as long as the £'s stack up?
Yes, totally! See the story of Crazy Martin and Dave below.
Surley you must have a spreedsheet or formula you use?
I am not a M&A expert by a long chalk - I sold one proper company and two mini concerns and last year I sold my share of another company to realise some bread for a new enterprise, as I avoid debt (again, see below). But the answer is right at the end of this piece - so you'll have to wait!
Out of curosity who normally buys? Buyer or seller?
(BTW - try using a spelling checker!) I assume you mean who pays - each pays for their own lawyer and accountant. I state £5k but we could probably get it cheaper as we deal with these two professions on a regular basis. But I put in there £5k because it's Wednesday and I am accounting for my own time and the time of staff here who would have to deal with a purchase. When you employ people, you become painfully aware that when Mrs. Bookkeeping or Mr. Processing is dealing with something, the clock is ticking!
The days when a blacksmith trained his son as a blacksmith who eventually took over the family business in the village... are long gone.
That is somewhat true in the UK and US.
Here are some well known private (partially or totally) family companies like Aldi, Liddle, VW, Bosch, BMW, Bertelsmann, Miele, Bauer Media, I could go on and on - and add non-German companies like Wallmart, Hoffmann-LaRoche and our local plumber (third generation) and the company that built the offices I am sitting in (second generation). And of course, yours truly!
The German economy relies heavily on the 'Mittlestand' - the medium-sized company, which is nearly always a family affair.
Our local electrical contractor in Germany is the son of a Polish electrician who built up a small business and handed it over to his son who was by that time a fully qualified master electrician. Soon he had about five employees and now 25 years later, he employs nearly 100 people and is handing it over to his son.
And through all stages of growth the most difficult stage by far was the hiring and training of the first employee!
So, OMB, when selling your business don't tell me I could "just" replace you with an employee. You couldn't replace you with an employee!
I would second that BUT I would add the proviso IN THE UK.
OMBs make
two major mistakes in the UK and it is inevitable that I am going to compare them with Germany, where I started and learned how to run a business.
1. The first mistake is to overload the company with debt. Debt is just a tool - but your friend, it is not! Here and there, you may need to iron out the lumps with a bit of judicially placed debt, but UK companies go for sudden growth and have to pile on the debt in huge amounts and this always comes to bite them in the end. This goes all the way to the top - large companies seem to love to do sale-and-lease-back deals on any properties they own and supermarkets ask for 100-day payment terms, leased vans, staff from an agency and of course, they can't wait to go public and sell shares! All that is other people's money! And the trouble with other people's money is other people - they want it back. And in the case of shareholders, they insist on profits - although that is often NOT in the company's interest long term.
2. Because of Mistake One, they are forced to make Mistake Number Two. No equity! It's all smoke and mirrors and the 'owners' (they THINK they are the owners but the real owners are the banks and all those 'Other People'!) are in reality all mouth-and-trousers'. The company may employ a few hundred or even thousands, but if push comes to shove, the net value of the company is ZERO. The shops are rented, the goods are not paid for, the lorry-park belongs to the leasing company, half the staff are from agencies, the machines are leased, the data is in the cloud, as are the thoughts and dreams of the management.
But I promised a story about Dave and Crazy Martin.
Dave started a loudspeaker shop in Germany back in the 70s and that soon developed into a speaker and cases and lighting parts shop and gradually it became a wholesaler. I met Dave at the Frankfurt Musikmesse (music fair) and started ordering stuff from him. He also had a range of little electronic devices like cable testers, DC power supplies and audio splitters, goofy little things like that. He bought them in from Crazy Martin who built them in his shed. A classic OMB!
Crazy Martin could just about keep up with demand, so Dave made him an offer - cash, a proper workshop and a job for life!
Today Martin's company is part of Dave's company and produces over 100 different products ranging from guitar amps to splitter boxes. The secret of Martin's success was rugged and reliable quality.
And that brings me neatly to the secret of success for a OMB and the secret of becoming a member of the 'Mittlestand' with a few hundred and maybe even a few thousand employees and a company worth billions -
solid reliable quality!
@Clinton keeps telling us that the only true measure of value in a company is profit - it isn't!
Profits are nice, but overall equity is better. To equity belong things like reputation, customer base, market share and of course valuable things like cash, profits, buildings and land.
@Craig3141 asked if there is a magic formula - yes,
add up the value of reputation, customer base, market share, cash-in-hand, profits, buildings and land - and subtract risk and debt.
(Well, I never said it was going to be easy, now did I?)
