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how to determine whether an existing is worth what they are asking

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  • how to determine whether an existing is worth what they are asking

    So how do I figure out whether this business is worth the price they are asking? What kind of professional would be the right person to help me figure this out? Please help. Thank you

  • #2
    You could do a seminar on this topic alone for 90 minutes to 2 hours.

    You can hire a licensed commercial opportunity appraiser often available at larger real estate companies. Compare the asking price with the appraisal and negotiate. I have been helping to sell with ads and consultation pet care businesses for exactly 30 years this year. I cannot appraise having no license. It is a serious business and appraisals must be done to standards as they can end up in court.

    One of the things valued is GOODWILL, you can look that up. If you have operated a business 20 years in a community, well known in the community, even registered trademarks this value goes up. This is the time having a registered logo and examples of how you have used it for many years on the web, in ads etc really helps. Even 10 years is impressive. So an appraiser looks at that.

    Otherwise businesses without real estate included, or say a mobile vehicle included, no big retail inventory, just the business oppty, can be guesstimated by looking at professionally prepared records including the last 3 years profit loss filed with the IRS. In fact appraisers won't appraise without those. Now this is also where those that don't declare all the cash they take in lose out. Gross sales looks less obviously.

    So a basic business might get ONE TIMES THE NET OPERATING INCOME shown on the Schedule C, and better ones sometimes ONE TIMES THE GROSS SALES shown on the same form. This is all very rough, just rule of . Guesstimate. I often feel CPA's and agents selling grooming businesses, well sometimes are high to start with at least. Not all though. Many just don't understand the numbers specific to grooming where half or more of a grooming service goes out in commission before payroll taxes. Most CPA's say a business' payroll gross wages should stay under 35%, how can that be in grooming when commissions are 50% and up most of the time. That shocks them, discussed with dozens of them.

    Amazingly some sellers will actually acknowledge they don't declare all the cash, so expect. REALLY? You just admitted to felony income tax evasion and perjury. Honestly, I hear this several times a year.

    Hope this helps a little. When we sold our business the buyer got an independent appraisal at her expense, we got an appraisal at our expense, and we both shared the cost of 3rd appraisal. They came in pretty similar and settled in the middle.


    • #3
      Did you ever record a seminar on this?


      • #4
        Thank you for your quick response.


        • #5
          Originally posted by Brit View Post
          Did you ever record a seminar on this?
          Yes but that was 20 or so years ago and those tapes are just too old in today's world.