Handbook of Business Valuation

By Thomas L. West; Jeffrey D. Jones | Go to book overview

CHAPTER THIRTY-FOUR
Valuing Country Businesses

BRIAN KNIGHT

In all types of business acquisitions there are three factors that will govern the decision whether or not to buy: (1) the price, (2) the financial structure of the proposed deal, and (3) the overall value of the deal to the particular buyer at the time of ownership transition. The degree of emphasis placed on the price, structure, and value will vary among different buyers.

There are elements in the pricing and in the structuring of transactions that are common to most types of business, irrespective of location, whether in the city or urban centers, town, country, mountain, or rural areas. “Country” business valuations differ from other types and locations only in their buyers' subjective judgment of values with particular meaning to them. The fired executive seeking to buy a more secure job, and the middle and senior management types looking for a “lifestyle change” are obvious examples. The quantifiable assessments of the prices and of the structure of the deal are independent of the location and the type of business.

To avoid being overburdened by debt, the price paid for a business, regardless of location, must be responsible. As some seller financing is increasingly involved in the structure of the sale, the seller needs assurance that the historic business operating under a new owner will generate sufficient cash to meet all the debt needs, both bank and seller.

To be viable, the cash flow generated by the business under new management must be able to service the new total debt with a sufficient cushion to allow for unexpected business downturns. It should

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