buying a shop

rocketfixer

Not sure if this is the correct area for this thread , but here goes.

lawrie28

check the books carefully. WHy would you sell something for £50k, if it was eaning you £40k per year? General rule is 3 to 4 times earnings before tax, so £120-£160k would be about right. Speak to an accountant, and ge tthem to carry out Due Diligence on the business.

moneybelle

On the other hand what is stop someone buying 40 K's worth of stock and starting from scratch without the premiuim of £50K.

geordie_joe

moneybelle wrote: »

On the other hand what is stop someone buying 40 K's worth of stock and starting from scratch without the premiuim of £50K.

I think the 50k is for the actual shop too. Anyone can buy stock but they still need somewhere to sell it and an established business is the best bet.

Still can't understand someone selling the business for little more than one years profit.

nephilim

When I wanted to buy out a computer shop in my local area, it turned over about £100k a year, after costs its net profit was around £60k a year, and to buy it, the guy wanted £300k from me to buy it, which is well out of my price range, but generally the 3x - 4x rule is usually the correct one.

moneybelle

nephilim wrote: »

but generally the 3x - 4x rule is usually the correct one.

There is no correct rule; depends on the business (barriers to entry), the competition, economic climate, the health/situation of the seller, the location, likelihood of rent increase, length of lease, track record, goodwill, so many factors to a larger or smaller extent. The correct price is whatever the buyer is prepared to pay.

I dare say a good business could be worth 3 to 4 times, but many would not be.

I have seen several people take the plunge and regret spending their nest egg or redundancy, and have resold at much lower price.

sassybooboos

you might know the performance of the business.
but they may be lots of hidden expenses you don't know about.

i bought a business 3yrs ago and boy did i learn the hard way, there were things i just hadn't thought about. eg licenses, advertising etc.

also never believe the books they can be fiddled to look good and bad depending what the owner wants someone to believe.

my advice would dont put yourself in deep financially (risking your home etc if not ltd) really not worth it.

and having your own business isn't all that, its a lot of stress and worry for sometimes not much profit.