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.