Determining a fair price to pay for a business is a matter of opinion, not a matter of science. Most people are familiar with the purchase of a house and know that the fair price for a house is not an exact amount but a range depending on particular circumstances, and different people will be prepared to pay different prices. So it is with the purchase of a business.

Ask three experienced accountants the value of a particular business and you will get three different answers. What you will probably find though is that the difference between the answers will not be greater than about 10 per cent.

Continuing with the house analogy, most people who have paid a little more for a house than it was probably worth would say in the long run that it makes little difference. And this is true with the purchase of a business – paying a little more than its fair value is probably of no great consequence. Read full article.