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Greg Loe posted a new Selling A Business thread on 12/23/2010

How would you determine the sale price for a service company with a 20% average growth per year? No current competition.

A local company is wanting to retire. He's had no competition for 7 years. And has had an average of 20% growth per year. The owner is looking to sell us the company. We need to determine a purchase price for the company. Of course his price will be a lot higher than mine.
My thinking is just adding one competitor will cause his company to loose business.
My company is going in to his service field whether we purchase his business or not. We project we will get 25% of his business with only light marketing the first year.
So what I need is a common way to put a price on his business.
Any ideas will help, Thank you
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Alice Nadin Responded on 12/28/2010


You may find this tutorial at SCORE.org helpful:
http://www.score.org/ValuingaBusiness.html

and you local SCORE Chapter has free counseling services to help as well. Use the Find SCORE option at www.score.org to locate that chapter.

Alice, SCORE Pittsburgh
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Karen Fischer Responded on 5/17/2011


There is more to it than coming up with a price of what it is worth based on growth. Determine if the business would be worth anything to anyone that didn't have the same experience (gather you do). I am guessing you are buying it just for the customer base. In a lot of service based businesses - the truth of the matter if the owner got hit by a car - the business would be worth absolutely nothing.

Valuing a business is a bit of an art as there are many factors that play into it, but to your point - someone selling always thinks his business is worth more. Have you signed NDA and done due diligence on his financials?

There are plenty of things out there "free" to guide you, but if this was my money I would go to an accountant that focuses on small business M/A.



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Greg Loe Responded on 5/19/2011


Thank you for the response. We did take the financials to score to look of. We decided the business can only go down from where it is. There is new competition in the area with much lower prices. Even if each competitor only took 5%, it would be a huge loss to the new owners.
Too risky for us to buy.
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