A little about the ready-made business market
My name is Nikolay, I work as a ready-made business broker at Altera Invest. Starting to write this article, I prepare in advance for criticism and negativity based on a variety of prejudices, both to the business sale deals themselves and to the intermediary profession in general.
Of course, these biases are based on the experience of interacting with unscrupulous people, therefore they have a right to exist.
What is a ready-made business?
Business as an object of sale is a set of specific elements that allow you to make a profit. But what is profit is a much more complicated question and worthy of a separate article, so I will limit myself to a very primitive assumption:
Profit is money that can be taken out of a business without being killed.
So this is what these elements can be:
The right to lease premises.
Customized advertising channels.
Supplier base.
Base of regular customers.
Technologies and processes for creating added value.
Website, phone number, social media profiles.
Tangible assets (equipment, furniture).
Trade remains.
When you create a business from scratch, you are essentially purchasing or creating similar items and building them into a single system. At the same time, you run the risk that some of the elements will require more investments than will bring results or simply will not function
The way out is to buy a ready-made business and adapt it for yourself, or just continue to make a profit
How is the business price formed?
When a buyer decides to buy a business, he doesn't care how much money was invested at the start or what business plans his creator drew. The real price criteria are:
Profit, which determines the payback period of the investment in the purchase, and also allows the ready-made business to compete with other investment instruments. That is, even if you have invested 10 million rubles in your restaurant, and it brings in 100 thousand, they will not buy it for 10 million, because the buyer for this money would rather buy commercial real estate with the same profitability, but much lower risks and involvement. Actually, further on about them.
Risks. If your business is an online store selling trending goods, it will sell at a very low profit multiple, because there is a risk of not recouping the investment until the trend downturn. If your business breaks the law (hostel in a residential stock), it will sell for much cheaper than the same, but legal. A business with a short-term lease will be cheaper than a business with a registered long-term
Involvement. The more “passive” a business is, the more it will be worth with equal risks. For example, before the quarantine problems arose in the hotel sector, it was sold on average for 2–3 years of payback, given the very low cost of tangible assets. That is, you paid 30 profits in advance for mainly the lease and booking rating.
The liquid value of tangible assets. That is, not the price for which you bought a combi steamer in your cafe, but the price at which you can sell it on Avito. The balance of goods is the maximum at the wholesale purchase price, and sometimes with a discount from it.
From all this we get the average business price:
Price = Profit x 18 + LSMT
If there are risks above the market, a reduction factor is applied. If the involvement of the owner is lower than the market average, it is increased.
And yes, when I talk about price, I am guided by the prices of actual deals, not the desires of the sellers listed in the sale.
Do they sell a good business?
In fact, of course, no one will sell a passive risk-free business with a payback higher than a deposit in a bank.
But in reality, a business is not a machine for the uninterrupted production of money and there can be many real reasons for selling:
The business owner is emotionally or physically tired of this activity and does not see further prospects and himself in the project. This is especially evident in catering transactions, since the business is very tiresome. In this case, the sale means making a profit for several months or years in advance when you relinquish duties and responsibilities.
The owner believes that he can invest money with more profitability or less risk. If you think that this means low quality of the business, since the owner “does not believe in it,” you are right in a certain percentage of cases.
Conflict of founders. Interests often diverge. Someone wants to invest and business money, and someone wants to withdraw, everyone believes that they are investing more efforts than a partner and other internal conflicts. Selling a stake is an extremely rare story, so in such cases it is often easier to sell a business entirely.
Does all this mean that bad businesses don't sell? Of course not. There are always enough unscrupulous sellers in any market, but “bad” or “good” is an extremely subjective assessment.
Sometimes a business is bought not because of the entire system of elements described in the first section, but because of the “good” part of them, in order to then replace the “bad” ones with our own. Someone buys broken cars too.
Finally
So that the article does not get too long, I will finish here for now.
If the topic seems interesting to you, I will gladly tell you about other facets of this market:
Why do you need business brokers. We hinder or help this market and how we differ from realtors (be sure to write in the comments that we are the same unnecessary scammers and villains).
Which businesses are better bought and sold.
Is it worth buying your first business or is it better to open it yourself.
What risks arise during and after the sale from the seller and the buyer.
I am happy to answer your questions!
Перевод статьи:301 группа.Жарасова Сымбат
Of course, these biases are based on the experience of interacting with unscrupulous people, therefore they have a right to exist.
What is a ready-made business?
Business as an object of sale is a set of specific elements that allow you to make a profit. But what is profit is a much more complicated question and worthy of a separate article, so I will limit myself to a very primitive assumption:
Profit is money that can be taken out of a business without being killed.
So this is what these elements can be:
The right to lease premises.
Customized advertising channels.
Supplier base.
Base of regular customers.
Technologies and processes for creating added value.
Website, phone number, social media profiles.
Tangible assets (equipment, furniture).
Trade remains.
When you create a business from scratch, you are essentially purchasing or creating similar items and building them into a single system. At the same time, you run the risk that some of the elements will require more investments than will bring results or simply will not function
The way out is to buy a ready-made business and adapt it for yourself, or just continue to make a profit
How is the business price formed?
When a buyer decides to buy a business, he doesn't care how much money was invested at the start or what business plans his creator drew. The real price criteria are:
Profit, which determines the payback period of the investment in the purchase, and also allows the ready-made business to compete with other investment instruments. That is, even if you have invested 10 million rubles in your restaurant, and it brings in 100 thousand, they will not buy it for 10 million, because the buyer for this money would rather buy commercial real estate with the same profitability, but much lower risks and involvement. Actually, further on about them.
Risks. If your business is an online store selling trending goods, it will sell at a very low profit multiple, because there is a risk of not recouping the investment until the trend downturn. If your business breaks the law (hostel in a residential stock), it will sell for much cheaper than the same, but legal. A business with a short-term lease will be cheaper than a business with a registered long-term
Involvement. The more “passive” a business is, the more it will be worth with equal risks. For example, before the quarantine problems arose in the hotel sector, it was sold on average for 2–3 years of payback, given the very low cost of tangible assets. That is, you paid 30 profits in advance for mainly the lease and booking rating.
The liquid value of tangible assets. That is, not the price for which you bought a combi steamer in your cafe, but the price at which you can sell it on Avito. The balance of goods is the maximum at the wholesale purchase price, and sometimes with a discount from it.
From all this we get the average business price:
Price = Profit x 18 + LSMT
If there are risks above the market, a reduction factor is applied. If the involvement of the owner is lower than the market average, it is increased.
And yes, when I talk about price, I am guided by the prices of actual deals, not the desires of the sellers listed in the sale.
Do they sell a good business?
In fact, of course, no one will sell a passive risk-free business with a payback higher than a deposit in a bank.
But in reality, a business is not a machine for the uninterrupted production of money and there can be many real reasons for selling:
The business owner is emotionally or physically tired of this activity and does not see further prospects and himself in the project. This is especially evident in catering transactions, since the business is very tiresome. In this case, the sale means making a profit for several months or years in advance when you relinquish duties and responsibilities.
The owner believes that he can invest money with more profitability or less risk. If you think that this means low quality of the business, since the owner “does not believe in it,” you are right in a certain percentage of cases.
Conflict of founders. Interests often diverge. Someone wants to invest and business money, and someone wants to withdraw, everyone believes that they are investing more efforts than a partner and other internal conflicts. Selling a stake is an extremely rare story, so in such cases it is often easier to sell a business entirely.
Does all this mean that bad businesses don't sell? Of course not. There are always enough unscrupulous sellers in any market, but “bad” or “good” is an extremely subjective assessment.
Sometimes a business is bought not because of the entire system of elements described in the first section, but because of the “good” part of them, in order to then replace the “bad” ones with our own. Someone buys broken cars too.
Finally
So that the article does not get too long, I will finish here for now.
If the topic seems interesting to you, I will gladly tell you about other facets of this market:
Why do you need business brokers. We hinder or help this market and how we differ from realtors (be sure to write in the comments that we are the same unnecessary scammers and villains).
Which businesses are better bought and sold.
Is it worth buying your first business or is it better to open it yourself.
What risks arise during and after the sale from the seller and the buyer.
I am happy to answer your questions!
Перевод статьи:301 группа.Жарасова Сымбат