Business for sale Essay
This paper will look at a business enterprise located in England that has been offered for sale. It is a real estate located in UK England in Sidmouth town. It’s a well established superb seafront café that has been in operation for more than thirty three years. It has an ice cream kiosk in the same town. This is the second time the business has been advertised for sale in the year 2010. It has high standard equipments where one can spend his quality time. The business has an incessant beach view; 48 of the beach views are situated in the front of the property on a seaward facing an open veranda.
However, it does not operate through out the year because its operation is determined by seasons and the frequent of tourist visits. Superb seafront café and ice cream kiosk operates from April to November seven days a week from 10 am to 5 pm (Anon. “Superb Well Established Seafront Café for Sale” 2010).
Superb seafront café is held on a renewable lease agreement and currently it six years remaining before the lease expires. As at February 2010, the trading accounts revealed that the total business production was £160k exclusive of Value Added Tax (VAT) with an estimated gross profit of 71.7%. For the last three, the business has been registering increased growth rate and accounts are available to prove this. It is a small business which employees a minimum of two employees and a maximum of eight depending on the season (Anon. “Superb Well Established Seafront Café for Sale” 2010).
Business valuation is the procedure taken to access the economic value of an owner’s interest in a business. This procedure is used by financial market contestants in determining the price they are willing to receive or give on the sale of a business. There are varies valuation techniques but can be categorized into four approaches. The first approach is Asset Accumulation (Gabehart & Brinkley 2002). This approach is based on liquidity of the business assets such as plant and equipment. In the advertisement of the sale of the superb seafront the business assets has not been given thus this approach may not be appropriate in assessing the economic value of the business.
The second valuation approach is the discounted cash flow method. It is based on the business cash flow and it is considered as the best valuation method because it concentrates on the business cash generating potential. In valuation of the superb seafront café, we can not use this approach because we do not have the cash flow at the moment but it is available on request (Millen & Evans 2010).
Market value is a valuation method that is used on quoted companies. The market value of the business is determined by the number of shares issued and the price per share. The seafront café is not a quoted company thus we can not use the market value approach as a valuation method. The last valuation approach is called the price Earnings multiple valuation (Second Venture Corporation 2010). This is determined by dividing a company’s share price by its share earnings. It can be used by quoted companies as well as non-listed companies.
Superb seafront café and ice cream kiosk has been offered at an asking price of £115,000. This is a fair value because the estimated annual operation is £160, 000. The business is located near the sea where tourist can spend their leisure time. It is a viable business for an investor to acquire because it is already an established business (Tyson 2008). However, one can not be guaranteed of the returns because it is seasonal. The business has been operating for along time but the number of employees remains constant which is questionable. Does it mean that the business has not been expanding?
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Anon. “Superb Well Established Seafront Café for Sale” (2010). Retrieved on June 2, 2010 from, http://www.businessesforsale.com/Superb-Well-Established-Seafront-Cafe-For-Sale.aspx
Gabehart, S. & Brinkley, R. (2002). The business valuation book: proven strategies for measuring a company’s value. AMACOM Div American Mgmt Assn
Millen, C. M. & Evans, F. C. (2010). Valuation for M&A: Building Value in Private Companies Volume 587 of Wiley Finance. John Wiley and Sons
Second Venture Corporation (2010). Business valuation methods. Retrieved on June 2, 2010 from, http://www.secondventure.com/business-valuation-methods.asp
Tyson, E. (2008). Investing For Dummies. For Dummies