Paying over the odds for a company is never a wise move

One simple way to go into business is to purchase a small company that is already up and running.

You know the firm in question can make money, but just how much should you be willing to pay to take it over?

Steve Pateman, chief executive NatWest & RBS Business Banking, looks at the best ways to determine a firm's value.

QUESTION
Deborah Scott, England.
I am looking at possibly buying a business, but am unsure as to a reasonable price to pay.

Are there some guidelines you can give me as to how to calculate the value of a small company?

ANSWER
Steve Pateman, chief executive NatWest & RBS Business Banking
Unfortunately your bank will not be an expert in evaluating the price of a business.

However they will point you in the right direction of an accountant who, using the information available on the business, will be able to give you a good indication as to a reasonable price to pay for the company.

They will take into consideration a number of different factors, from past business performance to location and customer base.

It is also worth using the internet to gauge the price of similar businesses in your area.

Contacting your local council will also be able to give you a good idea as to whether or not the location and the surrounding area is marked as a potential regeneration area.

I would also advise that you take a look at the Startups website - link on the right - as it provide in-depth, useful information on buying a business

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