How much should I offer for a business?

Question

Benjamin O’Henry owns and operates O’Henry's Data Services and wants to sell the business. I am interested in purchasing the business and obtain its most recent monthly unadjusted trial balance. I am willing to pay 20 times the monthly net income I could expect to earn from it and his asking price is the ending capital. After computing the net income, I came up with $6350. After multiplying this number by 20 I found that I would be willing to pay $127000 for the business. I computed the ending capital and came up with $144750. Under these conditions, how much should I offer O'Henry? Give your reason.

Answer 1

This home work assignment is listed on the Jiskha site: http://www.jiskha.com/display.cgi?id=1157767518

The site has suggested steps that you need to do to complete the analysis.

Best wishes.

Answer 2

Strictly from a financial viewpoint.
Look up the PE ratio of publicly traded companies in similar industry. Get the audited financial results of Ohenry's for the past five years. Compare the PE to the public companies. In general, you pay much less for a private company, say 30-50% of the average PE of the public companies.

Answer 3

You are only $17750.00 apart. I would initially offer $120,000.00 for the business, and see if he makes a counter offer. You now have $7000,00 of your proposed figure to negotiate with. If you think that the business is worth it, and you can afford it, you might go a little higher than you wanted to. If he is trying to sell the business, he may come down some. Ideally, you'd split the difference between your offer and his asking price.

Answer 4

The question you should be asking?

When O'Henry leaves, why would Clients stick with you? There is no relationship established.

Why don't you start your own and build it like o'henry did?

Just a thought or 2.