The Future Seems Bright
In a conversation today with an owner of a nice new (2 years in operation) retail store, the value opinion that we recommended was short of the owners expectation. When we him asked how he arrived at his number, the conversation turned immediatly to his vision of the future and how the that should add a premium to his selling price.
No risk, no reward
Unfortunatly, it is not practicle for a buyer to consider paying any sort of premuim for “potential”. In order to achieve that potential, the buyer must take the risk with his own capital and his own personal energy to make it happen.
Furthermore, a business must have potential upside earnings for a buyer to even consider the acquisition. A buyer pays “now” for what the business is currently producing (revenue and earnings) and what it has produced in the past. The more history, the better.
In some cases, it requires a rosy future to get a deal done, especially on a small retail operation.