What return to expect for an investment

Janex

Hi everyone,

I am selling my business for £1million (it is a successful holiday cottage business with 9 properties and 25 years of trading with good figures).

However, all the people who have been interested so far have backed out saying that they can't make the figures work for them. So I am interested to know what the good people of the MSE forum think a good amount of profit would be on an investment of one million pounds...

For example if you had £1mill to invest, and you were still working age and you wanted a going concern, what would you expect to earn back for the investment of £1mill.

Also, out of interest, if you didn't want to work, what would you expect back per year from investing in, say, a) risky stocks or b) an unrisky high interest bank account.

I would imagine most people don't have £1mill hanging around so I am assuming most of the interested people need some sort of finance, so this does change things however, I know what I pay back each month on my business loan and we seem to make it work... (We're selling for family reasons!)

Thanks in advance, it is always much appreciated,

Janex

lincroft1710

If you're selling 9 properties for £1,000,000 then they must either each be very small or in a low price area.

fewgroats

Er, this is the small business forum...

Lomast

Do you own the cottages or are you just acting as an agent as £1m sounds very cheap for 9 properties but if you dont have the collateral then the figures are going to need to be outstanding to value the company at that price

paddyrg

They're 'owned' on a business loan, so it's unclear what the million quid actually buys, how much equity there is in the business, etc

CKhalvashi

paddyrg wrote: »

They're 'owned' on a business loan, so it's unclear what the million quid actually buys, how much equity there is in the business, etc

I was going to suggest that they're mortgaged already.

I'd have thought that a rough guide price would be what the properties are worth plus a small amount (no more than 5-10%, probably less), minus what's owed on them on a zero-cash sale basis.

antrobus

Janex wrote: »

...I am selling my business for £1million (it is a successful holiday cottage business with 9 properties and 25 years of trading with good figures)....

What sort of holiday cottage business? Why don't you just sell the nine properties individually?

Janex wrote: »

...However, all the people who have been interested so far have backed out saying that they can't make the figures work for them....

I think your best option is to try and work out why that is the case.

Janex wrote: »

..So I am interested to know what the good people of the MSE forum think a good amount of profit would be on an investment of one million pounds...

Depends on how much work is involved.

lincroft1710

Janex wrote: »

(it is a successful holiday cottage business with 9 properties and 25 years of trading with good figures).

However, all the people who have been interested so far have backed out saying that they can't make the figures work for them.

This would suggest :

1. the business isn't as successful as you have believed it to be, or

2. your potential buyers have unrealistic expectations, or

3. your potential buyers cannot do simple arithmetic, or

4. your asking price is too high, or

5. your purchase price of the properties made this business viable, current property prices do not

scaredofdebt

I looked into buying a business a couple of years ago.

The general rule of thumb when buying a business is to pay around 2-3 years profit* for it. So is your business generating £500k profit per annum?

I suspect not, but you may also be selling assetts as part of the deal, ie the equity in the cottages, so that would skew the figure upwards.

If the assets are worth say £800k and the business makes around £100k per annum then £1M is about right.

But it is only a rule of thumb, if the business is secure (as it seems to be) then the 2 year rule needs to be revised upwards, so you could reasonably expect to sell if for more than the 2 years worth of profit (plus assetts).

More info:

http://www.smallbusiness.co.uk/running-a-business/buying-or-selling-a-business/1656048/how-do-i-value-my-business.thtml

* not sure if this is gross or net profit, could be a huge difference!

motorguy

Janex wrote: »

Hi everyone,

I am selling my business for £1million (it is a successful holiday cottage business with 9 properties and 25 years of trading with good figures).

However, all the people who have been interested so far have backed out saying that they can't make the figures work for them. So I am interested to know what the good people of the MSE forum think a good amount of profit would be on an investment of one million pounds...

For example if you had £1mill to invest, and you were still working age and you wanted a going concern, what would you expect to earn back for the investment of £1mill.

Also, out of interest, if you didn't want to work, what would you expect back per year from investing in, say, a) risky stocks or b) an unrisky high interest bank account.

I would imagine most people don't have £1mill hanging around so I am assuming most of the interested people need some sort of finance, so this does change things however, I know what I pay back each month on my business loan and we seem to make it work... (We're selling for family reasons!)

Thanks in advance, it is always much appreciated,

Janex

Ok, the problem i see it is that people who are going to be buying the business are having to mortgage the properties - probably close to what the business is worth.

I would suggest that the repayments on close to a million (even say £800,000) is not being covered by the rental income each year - or not significantly enough for it to be worth their while.

In fact - thinking about this - they will be looking at a commercial letting mortgage for all the properties. There are quite stiff terms on which they will do that in terms of LTV and rental income.

How does your business look when you plug in say a 75% LTV into this calculator?

http://www.mortgagesforbusiness.co.uk/buy-to-let-mortgage-calculator/

Just playing around with that calc. If someone is borrowing £750,000 then the repayment is going to be around £4,700, so £56,400 per year.

How much rental income do you bring in per annum? Are you paying VAT out of the income?

motorguy

Janex wrote: »

Hi everyone,

I am selling my business for £1million (it is a successful holiday cottage business with 9 properties and 25 years of trading with good figures).

However, all the people who have been interested so far have backed out saying that they can't make the figures work for them. So I am interested to know what the good people of the MSE forum think a good amount of profit would be on an investment of one million pounds...

For example if you had £1mill to invest, and you were still working age and you wanted a going concern, what would you expect to earn back for the investment of £1mill.

Also, out of interest, if you didn't want to work, what would you expect back per year from investing in, say, a) risky stocks or b) an unrisky high interest bank account.

I would imagine most people don't have £1mill hanging around so I am assuming most of the interested people need some sort of finance, so this does change things however, I know what I pay back each month on my business loan and we seem to make it work... (We're selling for family reasons!)

Thanks in advance, it is always much appreciated,

Janex

Back to your original question.

Setting aside the purchase aspect of it, if i was running that sort of business, i'd expect to be able to extra a salary of £50K a year out of it.

As mortgage repayments would be approx £60,000, and lets assume another £10K per annum costs, another £10K for things i havent yet thought of, so thats us at £130K. You're then into the realms of paying VAT, so thats going to add 1/6th to your costs, so £160,000.

Maybe i'm all wrong though. Maybe buyers of this would look at interest only loans, take a small wage and sell in 10 years on the market upward swing?