The most important question.
WHY IT MATTERS
The reason determines how much of the value is real.
WHAT GOOD REASONS LOOK LIKE
Retirement Ill health Relocation Pursuing something else Partnership dissolution Estate matters
WHAT CONCERNING REASONS LOOK LIKE
Declining performance A major customer leaving or about to Regulatory or legal problems Competition arriving Lease expiry or premises loss Equipment requiring replacement Key staff departing
WHAT SELLERS SAY
Usually something acceptable.
WHAT TO DO
Verify it independently.
HOW
Examine the trend in the figures Speak to people in the industry Check public records and any proceedings Assess the market yourself
WHAT THE FIGURES REVEAL
Whether performance is stable, improving or declining.
WHY TRENDS MATTER MORE THAN LEVELS
A business earning well but declining is worth far less than the current profit suggests.
WHAT TO EXAMINE
Several years, not one.
WHAT TO ASK DIRECTLY
What the biggest risks to the business are What they would fix if they stayed What they think will happen after they leave
WHY THOSE QUESTIONS
Honest sellers answer them, and the answers are informative either way.
WHAT TO ESTABLISH
What is happening in the market generally.
WHY
A whole sector declining explains a sale and it affects value.
WHAT TO BE ALERT TO
Urgency to complete Reluctance to allow investigation Information provided late or incompletely
WHY
They indicate something the seller does not want examined.
