A £2.1m Asking Price. But What Was the Business Really Worth?

A business turning over £2.5 million a year, generating £250,000 in profit and available to acquire.

On the face of it, an interesting opportunity. But with an asking price of £2.1 million, was it really worth pursuing?

It's not the first time we've seen a deal look this attractive at the outset. At OnPoint, we regularly work with buyers to look beyond the headline figures and understand whether an acquisition really makes commercial sense.

In this case, the opportunity had come to one of our clients, the owner of an established care business who was looking to grow through acquisition.

They already knew the industry. They had a clear ambition to build a group of care businesses and were actively exploring opportunities. But they also knew that agreeing to the wrong purchase price could put those plans at risk.

Before taking the conversation any further, they wanted a second opinion.

So they arranged a call with Johann at OnPoint Accounting.

The asking price was only the beginning

The asking price was around eight times profit.

Based on the initial financial information the client shared, Johann estimated that the business might be worth somewhere between £750,000 and £1 million.

That was a significant difference, and it was only an initial estimate. No detailed review of the accounts had taken place.

As the conversation developed, however, something else came to light.

The business had just a handful of customers.

A handful of customers generating £2.5 million in annual turnover.

Now, having a small number of substantial contracts isn't necessarily unusual in care. But from an acquisition perspective, it introduces a considerable risk.

What happens if one of those clients leaves? What if a contract isn't renewed? How much of that £250,000 profit would remain?

Suddenly, the asking price wasn't the only concern.

Johann explained that the composition of those contracts mattered too. A predominantly private client base could potentially support a higher valuation, but the concentration of revenue across so few customers made this a much more complicated proposition.

With that additional risk in mind, Johann's preliminary estimate moved closer to £700,000–£750,000.

A profitable business isn't necessarily a strong acquisition

There was another figure worth exploring.

The business was generating approximately £250,000 in profit from £2.5 million in turnover. That's a net profit margin of around 10%.

Not disastrous, particularly in care, but hardly exceptional either.

Johann explained that some of the strongest businesses Johann sees in the sector achieve margins of 15–20%.

The difference can come down to several factors, including efficient operations, better use of technology, staffing costs and additional sources of income.

For a buyer, the question isn't simply whether a business is profitable today.

It's whether that profit is sustainable, what could affect it after acquisition and whether there's a realistic opportunity to improve performance.

In this case, the limited client base made those questions particularly important.

Could the right deal structure make it work?

An asking price and a business valuation are two different things. But even when they don't align, there can sometimes be a way to structure a deal that works for both parties.

Rather than dismissing the opportunity, Johann explored what that might look like.

The client explained that the business had a healthy cash balance.

If further investigation confirmed how much of that cash was needed to support ongoing operations, there might be scope to use the rest towards an initial payment.

The balance of an agreed purchase price could potentially be paid over four or five years, using the business's future cash flow, with an additional share of profits for the seller.

It was one possible approach, rather than a proposed or agreed deal.

But it opened up an important conversation about how an acquisition could be funded without placing unnecessary pressure on the business.

They also discussed linking future payments to performance.

From the buyer's perspective, this could offer additional protection. If the business failed to generate the expected profits, payments could be delayed.

For the seller, however, that same arrangement could create unfavourable tax consequences.

As Johann explained:

"There's a balancing act between getting the best deal for you, but also getting the best deal for them."

It's an important consideration. A deal needs to be affordable and commercially sensible for the buyer, but it also needs to be attractive enough for the seller to accept.

Not every opportunity needs to become a deal

At the end of the conversation, one obstacle remained.

The seller still wanted £2.1 million.

With such a significant gap between that expectation and the preliminary estimates, Johann was clear that the client was unlikely to make progress at this stage.

Johann's advice? Keep the relationship open, but don't rush to spend money on further analysis until there's a realistic prospect of an agreement.

It's something we're mindful of at OnPoint. There are times when a detailed valuation or financial due diligence is absolutely the right next step. There are also times when an initial conversation can help establish whether that investment is worthwhile.

The client hadn't bought a business, and they hadn't commissioned a formal valuation.

What they had gained was a clearer understanding of the opportunity in front of them. They could see where the financial risks sat, why the asking price was difficult to justify and what a more realistic deal might look like.

If the seller becomes open to further negotiations, there's a foundation to build on.

If not, they can direct their time and resources towards the next opportunity.

After all, the objective isn't simply to buy another business. It's to acquire one that makes commercial sense.

The financial figures, valuation ranges and potential deal structures discussed here were preliminary observations based on information shared during an initial consultation. No formal valuation or detailed financial due diligence had been undertaken.