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How do you tell someone their business asking price is too high?
Posted on 3/4/15 at 7:33 am
Posted on 3/4/15 at 7:33 am
Would you sit down with them over dinner and explain your position with the valuation you received? My wife and I want to buy the business where she works, but the owner has way overvalued it. It seems he pulled a number out of the sky while we had it professionally valuated.
12
Posted on 3/4/15 at 7:45 am to LSUSUPERSTAR
Maybe that's what it's going to cost to get him out. The true value is what someone is what the buyer and seller agree to. Everything else is speculation.
Posted on 3/4/15 at 7:47 am to LSUSUPERSTAR
Everyone values what is theirs at a higher price than it actually is. It's human nature. Get your ammunition together and schedule a meeting. Find a middle ground that both parties can live with and that can sustain the business and pay him off. Do not get shoehorned into a deal that guts the company to pay off the previous owner.
Posted on 3/4/15 at 7:48 am to VABuckeye
with facts
Posted on 3/4/15 at 7:48 am to LSUSUPERSTAR
I think you answered your own question.
If he truly doesn't understand the valuation process, provide him with documentation on how valuations are normally handled in the particular industry. A lot of small business owners are fairly clueless on how to properly value their company.
If he truly doesn't understand the valuation process, provide him with documentation on how valuations are normally handled in the particular industry. A lot of small business owners are fairly clueless on how to properly value their company.
Posted on 3/4/15 at 7:50 am to LSUSUPERSTAR
Break down the numbers for him and the true valuation of a business. FYI: Different business models have different formulas of valuation. Never value a business based off potential success or escalating projections. If there is nothing proprietary about your business model then someone can do it just the same. If it is a clientele based business then those clients may also follow the owner to another business. Make sure there is also a multi year no compete clause in your contract. This is a huge risk for you so don't settle because your afraid to negotiate. Also if you are unable to discuss business with someone are you sure you want to run one? Most businesses fail because of mismanagement, this is often due to disconnect and lack of communication between owner and employees.
Posted on 3/4/15 at 7:50 am to poochie
Is it something you can do if he refuses? Make him a professional and fair offer. Let it be known she may start here own company for half that amount if yall can't come to terms.
The thought of having a competitor, who knows his business and customers, and losing a top employee will snap him back into reality.
The thought of having a competitor, who knows his business and customers, and losing a top employee will snap him back into reality.
This post was edited on 3/4/15 at 7:57 am
Posted on 3/4/15 at 7:54 am to LSUSUPERSTAR
quote:
My wife and I want to buy the business where she works, but the owner has way overvalued it.
You sure this isn't a negotiating tactic? Because he's got a really good idea of how much the business makes, the profit margin and what it's worth to him.
You're talking in pure dollars and cents - and your valuation may very well be correct - for you to buy it. Your BATNA (best alternative to negotiated agreement) is to walk away and continue looking for an investment opportunity. HIS BATNA is to keep doing what he's doing. You can see how each side can have a different valuation of that opportunity and both be correct, yes?
In any event, if there have been offers and counter-offers at this point, I would make your absolutely best offer - make it open for a reasonable period - say 3 days, 5 days, whatever and let him mull it over. If he counters or says no - you're in no worse a position than you are now.
Negotiation is tricky business under the best of circumstances.
Now, did y'all approach him with the idea of buying the business or did he put it up for sale and then you considered buying it?
Posted on 3/4/15 at 8:25 am to LSUSUPERSTAR
Been there, done that, but I had the assistance of the Best CPA in the country
First you have to find out what is really important to each party, then design a contract that can reasonably achieve all of those goals, the buyout does not need to be traditional in nature,
do i remember your wife being a vet and taking over a practice? if so look at separating the building from the deal and signing a lease for 5 years,from the owner that would guarantee him rental income? look at part of the deal to include royalties to the original owner based on % of receipts for the next 2-3 years, helps soften the blow for the amount of money yall have to come up with and spreads his income out over a few years to help keep him in lower tax brackets
First you have to find out what is really important to each party, then design a contract that can reasonably achieve all of those goals, the buyout does not need to be traditional in nature,
do i remember your wife being a vet and taking over a practice? if so look at separating the building from the deal and signing a lease for 5 years,from the owner that would guarantee him rental income? look at part of the deal to include royalties to the original owner based on % of receipts for the next 2-3 years, helps soften the blow for the amount of money yall have to come up with and spreads his income out over a few years to help keep him in lower tax brackets
Posted on 3/4/15 at 8:36 am to LSUSUPERSTAR
Business goodwill is a b*tch
Posted on 3/4/15 at 8:42 am to Odinson
quote:If you're on the wrong side.
Business goodwill is a b*tch
Posted on 3/4/15 at 8:45 am to LSUAfro
quote:
If you're on the wrong side.
Of course. This is pertaining to the OP.
Posted on 3/4/15 at 8:52 am to LSUSUPERSTAR
If I remember right it's a vet office?
Don't over pay for things you can't put your hands on
Don't over pay for things you can't put your hands on
Posted on 3/4/15 at 8:56 am to LSUSUPERSTAR
I love to use the word "comfortable," as in "I've had the business valued by XYZ Co. and this is the amount I'm comfortable with ... If you're comfortable with that, wonderful. If you're not comfortable with that number, I understand.
As previously posted, laying out all your facts first would be appropriate.
As previously posted, laying out all your facts first would be appropriate.
Posted on 3/4/15 at 8:56 am to LSUSUPERSTAR
Figure out how much it would cost to open your own shop from scratch, keep that figure in mind, and is there anything preventing that from happening such as a non compete ?
Posted on 3/4/15 at 9:15 am to LSUSUPERSTAR
There are a lot of sole proprietor professionals out there (attorneys, doctors, CPAs, etc) that go to the grave not having sold their business because they never truly come to terms with what their business is worth.
It is easy to value the fixed assets, valuing the intangibles is always the issue. Since your wife is involved in the business currently, she should have an easier time hanging on to the clients, but certainly 100 percent retention never occurs.
Sellers want all cash up front, and buyers want to spread the risk and cash out over time. Thus, you end up negotiating on multiple fronts. How you structure the deal has big implications for tax purposes for both the buyer and the seller.
In any event, you can't overpay for a business. Understand a valuation, though, is just an estimate in value. If you don't want to go over the valuation, then I would be willing to be flexible on other parts of the deal. If you are going to pay more than the valuation, then you need to dictate more of the terms.
But sure, sit down over dinner, out of the office, and just have a reasoned, impersonate discussion. Show him the valuation - I'm sure he was aware you were getting one - and allow him the chance to refute any of the conclusions in the report. Maybe the appraiser didn't understand something. Maybe the seller's opinion is too high.
It is easy to value the fixed assets, valuing the intangibles is always the issue. Since your wife is involved in the business currently, she should have an easier time hanging on to the clients, but certainly 100 percent retention never occurs.
Sellers want all cash up front, and buyers want to spread the risk and cash out over time. Thus, you end up negotiating on multiple fronts. How you structure the deal has big implications for tax purposes for both the buyer and the seller.
In any event, you can't overpay for a business. Understand a valuation, though, is just an estimate in value. If you don't want to go over the valuation, then I would be willing to be flexible on other parts of the deal. If you are going to pay more than the valuation, then you need to dictate more of the terms.
But sure, sit down over dinner, out of the office, and just have a reasoned, impersonate discussion. Show him the valuation - I'm sure he was aware you were getting one - and allow him the chance to refute any of the conclusions in the report. Maybe the appraiser didn't understand something. Maybe the seller's opinion is too high.
Posted on 3/5/15 at 7:32 am to Tigerpaw123
quote:
do i remember your wife being a vet and taking over a practice?
Yes. That was the original plan when she started a few years ago and she has been running it for the most part as her own. She brings in over 85% of the revenue at this point.
We will be separating the building into a different loan but will talk about purchasing everything. We would rather purchase everything now so that he can retire and not be involved any longer. We do have a contingency that we could agree to a price and he could stay on as owner for another year or two, but he would have to increase her pay based on her production.
I'm hoping that he will see the value of having someone ready to buy right now. If not, he will have to put it on the market, and the potential owner will run the same numbers we did.
Thanks for all the advice. We are waiting for the official papers from our appraisal (we already went over the numbers in their office, just need the report). After that, we will sit down and try to reach an agreement.
Posted on 3/5/15 at 7:42 am to LSUSUPERSTAR
quote:
she has been running it for the most part as her own. She brings in over 85% of the revenue at this point.
If this is the case, why not open her own practice?
Posted on 3/5/15 at 7:54 am to Kjun Tiger
Non-compete, location, client base. We would rather come to an agreement on this facility.
Posted on 3/5/15 at 9:18 am to LSUSUPERSTAR
quote:
he could stay on as owner for another year or two, but he would have to increase her pay based on her production.
Flip it around. She takes over as owner right away, and he is given an employment contract for a year or two. He's an employee. Make the employment agreement part of the purchase agreement. It will allow the retiring guy the chance to transition the 15 percent over to her.
quote:
If not, he will have to put it on the market, and the potential owner will run the same numbers we did.
And he might have to pay a broker.
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