How much should I pay?

2008-04-14 00:00

Every year, more and more South Africans are leaving corporate structures and going into private enterprise. Over the years, many such would-be entrepreneurs have asked if I would tell them the formula for fixing a purchase price on a business. It is as if they believe there is a cast-in-stone methodology by which a price is determined by the seller that would be acceptable to the buyer: "X minus Y plus Z = selling price".

As a general rule, the buyer should be able to recoup the price he or she paid for the business in the first two years of ownership. If, for whatever reason, the buyer desperately wants the business, then this factor could be pushed out to three years.

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