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Why is the multiplier so high?

We were asked this question recently and this was our response.

All businesses are sold based on the level of profit and risk associated to the business. Essentially, for a given level of profit a business which is seen as the less riskier should be sold for a higher multiple. It is no different with LPOs.

There are many reasons why an LPO sells for higher multiple, the 2 main reasons are:-

1. It is a stable business

To determine how stable a LPO business really is, you ultimately need to do your due diligence on the industry. When buying a business you personally need to be convinced it is a stable business. Don’t rely on what the vendor or the agent tells you. Get professional advice and do your research – it is you not the vendor who will be investing your hard earned money (or mortgaging your family home) to buy the business. As the old saying goes, knowledge is power.

2. There is a large demand for the business

LPOs in QLD sell for larger multiples compared to the rest of the state / Australia because there is a large demand of people wanting to move to QLD to live.

I hope this answers your question.

The LPO Advisor

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