B&Bs the most expensive small businesses
A Direct Line for Business study reveals that B&Bs are the most expensive type of small company to buy.
- Bed & Breakfasts (B&Bs) are the most expensive type of small business to purchase, when the valuation price is compared to the turnover of the company
- The average small business on sale in the UK is valued at £1.74 for every £1 of turnover generated
- Potential buyers are advised to use multiple metrics to evaluate the value of a small business
New research from small business insurer, Direct Line for Business, reveals that B&Bs are the most expensive type of small company to purchase. When using a valuation model based on multiples of turnover, B&Bs are consistently ranked the most expensive.
Analysis of small businesses for sale in the UK reveals that on average for every £1 of turnover generated, B&Bs have a purchase valuation of t £4.491. The second most expensive small businesses were care homes with a sale valuation of £2.56 per £1 of turnover generated followed by nurseries for children which have a valuation of £1.91 per £1 of turnover. The average small business on sale in the UK is valued at £1.74 for every £1 of turnover generated.
Industry sectors with the lowest sale valuations compared to business turnover are Internet-based businesses and service businesses, which can be picked up for £0.51 and £0.81 per £1 of turnover respectively.
Top three least expensive businesses based on valuation price to turnover
Price to Turnover
Source: Direct Line for Business
B&Bs, care homes and nurseries top the table as they will normally mean that the buyer is also purchasing a valuable asset in the form of a property and/or land with the business purchase. Alternatively, purchasing an internet business will normally involve the transferring of intellectual property, which at the small business stage does not hold as much value as physical assets.
Nick Breton, Head of Direct Line for Business said: “Small businesses are the lifeblood of the UK’s economy and it’s great to see that in many sectors there are deals to be had. People looking to become their own boss or invest in a business can purchase an existing enterprise with a proven revenue stream and customer base.
“However, whilst turnover is a positive marker it isn’t the whole story. Current and future profitability need to be thought about when assessing the potential value of a business as well as the assets that come with the business. There are many different models for valuing a business so it is important potential purchasers analyse the valuation price using a range of metrics. As such, ensure that you have undertaken thorough due diligence and recognise that you are not just taking on a business, you are potentially taking on staff, stock and property, and as such all of this needs to be protected.”
Direct Line for Business’ top tips to think about before investing in a small business
- Do your research! Find out about your market, your competitors and your potential customers. Check to see if there are any planned developments or upcoming issues/regulation that may impact your business in the future
- Review your work/life balance. Can you commit enough time to this new chapter in your life? Make sure you are happy with any impact on your family life
- Reputation, reputation, reputation. Talk to target consumers and ask them their opinion of the business. How well known is the business and are there any disputes you should be aware of?
- Have you seen the business’s finances? Take a good look at the turnover, profits and accounts before you invest. It may be worth investing a little time in getting advice from an IFA, bank or an accountant
- Will there be any other shareholders in the business? If so, it’s worth waiting until the end of the business’s lock-up period, where stock holders are not allowed to sell their shares. If this period is over and original shareholders have not sold out, it is a good sign that the business is healthy
- Remember this is not a quick win. Understand that your returns may not be imminent and that you may not see a profit for the first three or four years
- Meet the staff. As we all know employees do not always like change. Engage with staff before you buy to get an understanding of how the change will affect them and what skills they are bringing that will help you grow your new business
- Depending on the type of business you will need to look at the appropriate registration for licenses from the relevant authorities.
For more information on Direct Line for Business insurance visit: https://www.directlineforbusiness.co.uk/business-insurance-products
Notes to editors
- Analysis of 726 businesses for sale through business sales portal Daltonsbusiness.com, May 2015
For further information please contact:
Direct Line for Business
Launched in 2007 Direct Line for Business provides a range of insurance products for the small business sector direct by phone or on-line.
Direct Line for Business insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Direct Line for Business and U K Insurance limited are both part of Direct Line Insurance Group plc.