Going concern

Definition

A business sold whole and still trading, not broken up for its parts.

Why It Matters

It is the difference between buying a business and buying its equipment. A going concern arrives with its customers, its staff, its licenses where they transfer, and its trading history, and it is priced on the earnings that whole produces. Break the same company up and what is left is the auction value of the vans and the racking, which is almost always less. The phrase carries a second meaning in audited accounts: an auditor who doubts the business can keep trading for another year writes a going-concern note, and that note belongs in diligence long before it belongs in a negotiation.

In numbers: A machine shop earning $500,000 a year can trade at 3.5x as a going concern and return well under half of that figure if it is wound down and the equipment is auctioned.