How is an already established business valued

[B-Beauty]

Just as it says on the title really , how exactly is an already established business valued for the purposes of say buying into the salon as a partner ?
What is taken in to account when valuing the business , does anyone have experience in this area many thanks

B x

 

[virtues2011]

Just as it says on the title really , how exactly is an already established business valued for the purposes of say buying into the salon as a partner ?
What is taken in to account when valuing the business , does anyone have experience in this area many thanks

B x

It's based on net profit, book value, and goodwill - stock is a very small element of it along with fixtures and fittings, they don't often play a large part in it as they depreciate quickly. You need your own vision when buying into any business. I've written this recently on another thread...

Creative accounting often happens to make the business look more appealing to potential buyers, sole traders do not have to file accounts by law and many don't employee a bookkeeper - accountants and bookkeepers are very different! You can request for an audit from an accountancy firm but the only real way you can determine what happens in a business is to ask for the commercial bank statements. Any professional business would have a dedicated commercial bank account.

What fascinates me are the potential buyers who come along to a view a business that is relatively cheap and then say "Oh it's not making much of a profit is it?" If it was it would be reflected in the price. Not so many businesses are sold that make a great profit and if they are then you pay for it! Personally I'm not put off by buying a business with little profit as I have the financial means to support it and a vision of what I want to achieve - however most don't have, and this is where you can get into difficulty very quickly. I was told many years ago if you can't afford to lose it - don't do it.