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Valuing a Business
8. Industry Rules of Thumb
In some industry sectors, buying and selling businesses is common. This leads to the development of industry-wide rules of thumb.
8.1 The rules of thumb are dependent on factors other than profit. For example:
- Turnover for a computer maintenance business, or a mail-order business.
- Number of customers for a mobile phone airtime provider.
- Number of outlets for an estate agency business.
8.2 Buyers will work out what the business is worth to them.
- Take the example of a computer maintenance business with 10,000 contracts but no profits. A larger competitor may pay £100 per contract to buy the business. This is because it could merge the two businesses and make large profits.
Labels: Buying/Selling a Business
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