How much should I pay for a business?

The value of a business is typically worth between 3 and 5 times the net adjusted profit, but of course be lower or higher. Most deals end up around the 3.5 times benchmark but factors that affect valuation are the financial health of the business, strength of interest and whether the business holds any valuable patents or has a strong brand.

What is EBITDA?

Earnings before interest, tax, depreciation and amortisation. It is a benchmark way of allowing for a fair comparison of business with different capital structures and policies for writing down asset values. Other adjustments would be for directors’ wages and cost or earnings that are not at the core of the business.

Can I protect my anonymity for as long as possible?

At Henley Business Group we are acutely aware of the sensitive nature of buying a business and will at all times endeavour to ensure the highest level of confidentiality and discretion. We will not release your details until you allow us to do so.

Will the seller be required to work after the sale?

This is a point which is always up for negotiation. In our experience the seller is involved with the purchaser for a period after the sale to ensure a smooth transition of customers to the acquirer but each case needs to be judged on its own merits.

How long does it take to buy a business?

This normally depends on the urgency of both the seller and acquirer. You can expect the whole process to take from anything from six weeks up to six months. A distress sale can be done in a matter of days but this would of course be reflected in the price. Some business are more complex than others and by virtue of that the due diligence process will be more involved.

What protection will I get when buying a business?

You will be protected by the contract with emphasis on warranties and indemnities along with a letter of representations from the seller. Payments may be contingent on certain targets being met or customer retention ratios. It is imperative you use a solicitor who is familiar with business transfers.

Am I able to pay over a period of time?

Usually not although there may be a retention period of 3 months until the final calculations are completed for matters such as stock valuations or recovery of book debts. Targets upon which a portion of the monies are contingent may be set but you should expect to have to pay all monies at time of sale in the vast majority of deals.

Will I have to purchase the premises?

That depends on the seller’s circumstances and also on whether the business itself owns the buildings. Typically premises are either rented from a 3rd party or owned by the directors or their pension fund. IF you do not have funds for the property purchase Henley Business Group can assist in sourcing a suitable buyer, allowing you to focus on buying the actual business itself.

Do you ever have businesses for sale at knockdown prices?

Yes we do. Usually it involves a serious illness or bereavement situation, but it also happens when there is a bankruptcy, insolvency or legal situation that forces the seller’s hand.

In all these circumstances you can expect to pick up a bargain with a large discount. But as they say – everything is in the price, so don’t expect any clawback indemnity or warranties.

The seller doesn’t want to use a solicitor but I do!

That is probably to your advantage!

Do people ever pay above the market rate?

Yes, depending on the circumstances. The seller may have a highly specialised niche business with valuable long term robust contracts, essentially a brand. This could push the value up by 50% or more if the buyer accepts that the seller has something of particular value, or if the deal makes particular strategic value to a buyer and he or she does not wish to lose the opportunity.