Small business valuation — financial and management implications for new industry entrants

This paper examines the characteristics of purchasers of hospitality businesses and the financial implications of three differing methods of financing such purchases. It finds that whilst the 50% debt-equity combination achieved the highest rate of return, the all equity alternative provided the least cash flow difficulty. Comparing income from the investment with income forgone, the purchaser is worse off during the first year of investment. It is therefore submitted that the purchase is undertaken in the belief that the business can be improved and generate a capital return over time.