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Page 48
How To Investigate Any Business Opportunity
Total assets-appraised value $70, 412 $72,194
* Independent appraiser. Excludes assets to be retained by Rombaugh.
How Much To Pay?
If Critser feels that his return on investment should be capitalized over 5 years, his offering price, based
on anticipated profits for the year ahead, would be $79,500 (5 years=20 percent per year; $15,900 /
0.20=$79,500 ). If, on the other hand, the purchase was based on the appraised value of assets only,
the purchase price would be $70,412 plus any provision for goodwill.
Since both of these figures are well below the suggested price of $100,000, negotiation will be neces-
sary. Here are some questions that might arise :
1. In light of future sales and profit possibilities, are the assets worth more than the sale price?
2. Is the risk less than Critser anticipates? To pay $ 100,000, he would have to reduce his risk level to
between 6 and 7 years.
3. Is Rombaugh's price too high in the light of future sales and profit possibilities under new manage-
ment?
4. How much confidence does Critser have in his ability to realize an acceptable return on his invest-
ment?
5. Is the actual value of this business as a going concern closer to $68,000, $80,000, or $100,000?
6. How much is the goodwill of this business actually worth to Rombaugh? To Critser?
7. What kind of compromise might be satisfactory to both the buyer and the seller?
Negotiating The Buy-Sell Contract
The final objection of the negotiation process is a written agreement covering the details of the proposed
buy-sell transaction. Some of the details - price, terms of payment, price allocation, form of the transac-
tion, liabilities, warranties - are matters over which the interests and motivations of the buyer and seller
may be in sharp conflict.