No, the buyer’s offer is not even close to the asking price – why! Sylvia has been operating her bookkeeping business as a solo-preneur for 15 years now. She works out of her home with no staff and enjoys a 95% of revenue as cash to owner, revenue less all expenses or net income. Her clients have known her for years. It seems reasonable she would be able to command a nice purchase price but….
the buyer making the offer has a different perspective.
For this type of business the buyer could be either an individual wanting to operate just as Sylvia has, enjoying that same margin, or another, larger bookkeeping or accounting business. In the case of the larger company, what Sylvia’s current buyer has in mind is hiring a staff person to do the work, taking perhaps 40% of that 95% margin, reducing profit to owner. If this buyer also has to increase rent for office space, this too could reduce the margin.
The buyer is making an offer less than what Sylvia hoped for because from his perspective the income he will enjoy is considerably less than what she has. It is not unreasonable but, then, Sylvia may just say no and wait for another possible suitor.
Note: Such a buyer might go ahead and pay a higher price because they want to buy into the industry, see ways to capitalize on Sylvia’s clients for other money-making services, add net income to defray excess cost in another segment of their business, etc. – a strategic purchase.
