Are some businesses not worth selling?
Wednesday, July 18, 2007/
It’s a myth that professional firms, such as IT consulting and accounting and medical practices, get such low prices they are not worth selling.
Last week we discussed the fact that retailers and hospitality businesses dominate the business for sale listings, while businesses in business services and construction are under represented.
This has prompted some feedback that some professional firms, such as IT consulting and accounting and medical practices, get such low prices that they are not worth selling. This is an urban myth.
Let’s start with accounting practices. BizExchange is currently analysing a recent survey of CPA public practices in which they were asked to value practices of various sizes among other related questions. An early review of the data has confirmed the broader market value of business services at an earnings multiple of two or more. This is a good deal better than many retailers of equivalent size.
IT consulting firms were the other business service to be dismissed in the feedback, and once again the lack of buyers and lack of value is incorrect. To not advertise a business for sale on the basis that you think there are a shortage of buyers is a nonsense anyway. It is like not advertising roles in your firm because you think there will be few candidates. It becomes a self-fulfilling prophecy.
Tradespeople are another group that are in the habit of putting the tools in the shed, and picking up the fishing rod as a means of entering retirement. Once again they could be missing out on some significant, tax-free, retirement funding by not selling their business.
While it is true that all of these businesses have little in the way of physical assets, they do represent substantial opportunity value to anyone looking to enter or expand in their industry. Some of the key value is in their brand awareness (including priority status in Yellow Pages), existing customer base and reputation.
The other very significant factor in this tight employment market is the existing staff. Buying an existing business can be a great way to expand a business into a new territory, even if the longer term goal is to re-name and re-brand the business. Gen-X and Gen-Y are aware of this and are looking for these opportunities – so if you have a business to sell, why not enter retirement a little richer.
If there are any IT firms out there still in doubt, BizExchange is offering free listing to the first 10 IT firms for sale or investment to respond to this offer. And BizExchange is happy to put its money on the line and will offer 10 free listings to construction businesses for sale.
Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations.
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Paul D Hauck from ICT Strategic Services writes: If it’s my comments you’re referring to, you interpretation is… unexpected… by comparison with what was intended. As we’ve discussed, I think these businesses have great value, are getting great valuations, and are very much in demand – and that’s our core business (so my vested interest is clear).
My point was that advertising is only one way to sell a business. Where the business can be operated by someone without special skills, and will be sold for an approachable amount (less than $1 million, say), this might be a good way to reach the thousands of potential buyers.
Where a business requires a special skillset to run it, or has a higher price tag than what (most) individuals can manage, advertising is not the best way to reach your target market – although as we have discussed, it might be a part of the mix.
Where the business has a few hundred (or less) likely buyers, you do better to bring the opportunity to them directly. This has the added advantage that you will speak to counterparties who have a core strategic driver to buying the business – and hence may see more value in it.
That’s why we focus on direct contact within our specialist industry, and why we generally recommend that if a specialist is available in your industry, they’re certainly worth talking to about being pro-active.
We certainly don’t see a lack of value in many sectors at the moment, but if a hands-on business (turnover below 250,000-500,000, say) requires a highly specialised background (like IT consulting), is the likely buyer for it going to be reading a listing dominated by “retailers and hospitality businesses”? Or is he more likely to be running a similar business, that’s looking to grow?
That said, I think BizExchange is a great idea, and look forward to adding your service to the mix that we use – especially if you’re giving it to us for free…
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