Thank you for your comments regarding the building. As you know, I'm a finance guy so know next to nothing about buildings
Originally Posted by Joyous
If you ask this question of three different accountants you’ll get three different answers. Business valuation is an art rather than a science. Past profits are only one aspect of the valuation, the bottom line being that the value of a business is whatever you’re willing to pay for it. Joy
I agree with your comments about accountants
(no worries I'm one of them - in my former life, I was the CFO for a listed PLC amongst other things). I know how to price an exotic option but pricing a sole trader day nursery business is proving more difficult. Hence my reason for asking others. I think it is very much a 'gut feel' thing with limited information.
The vendor has given us three years' profit and loss information. Fee income is straightforward and about 55% of it is spent on salaries. The rest is the normal stuff and I don't think one can achieve much savings with them. Building/house is the only asset of any meaningful value.
In terms of future potential one can argue that growing levels of women in the workforce and dwindling levels of new nurseries - the fee income will grow above the rate of inflation. The place is also located in an affluent area. However, the regulation is also getting tougher which means higher costs. All in all, the profits should grow above the rate of inflation. However, my wife is not going into this business to make lots of money.
Moreover, the seller is not in a forced sale situation. She wanted to sell it last year but then changed her mind. You have a point about the staff but I think all the staff would stick around for some time except for the manager/owner.
Any more thoughts anyone? We need to make an offer soon.