Buyers need to stay focused when looking to buy a business.
Sure, how long the business has been trading, how pleasant the business is to work in, how close is it located to home, how loyal the customers are, are all important but for the buyer the Return On Investment (ROI) and the Size of the Risk should be their main focus.
Generally speaking, the higher the risk, the lower the price. In an ideal world the buyer would like no risk at all, (wouldn’t we all) but that’s just a fantasy. There is no such thing as a totally risk free business. If there was, all Government employees would quit tomorrow and acquire their own businesses.
A common example. Any business that has 50% or more of its turnover with 1 customer must be considered to be high risk. After all, if that customer should leave and go to a competitor (it does happen) the business would be in serious trouble and may even have to close. That business would therefore sell for a much lower price. It’s obviously riskier.
The same business with a very broad base of customers where No 1 customer may be only 5% of turnover would be considered a much lower risk and therefore sell for a much higher price.
The temptation to go for a high ROI business to make higher profits is exciting
but……
Don’t get caught!
ITS RISK VERSUS RETURN……. WATCH OUT!