Why Should Inventory and Accounts Receivable be Part of the Purchase Price?

Why should Inventory and Accounts Receivable be Part of the Purchase Price?

The standard procedure when a broker takes a listing, on a small main street business, can be with or without the inventory being included in the listing price. Including it actually presents a more honest picture, to the buyer, of what is required to buy and run the business. The reason it gives a better picture, with the inventory included, to a buyer, is because when the buyer looks at the net cash flow figure (SDE) and then compares it with the asking price, the buyer sees that it a high multiple. Let’s take an example. Net cash flow is $100,000. The price without inventory is $200,000 and with inventory is $300,000. The price is 2 x without inventory but 3 x with inventory. This might make the asking price look too high but in fact that is the real multiple.

Read the full article to find out why this is so important.

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Business Valuation Pitfalls: What is the True Worth of a Business?

I am often asked how can we determine the true worth of a business.

The first step to this process requires determining the actual profit of a business in the current market conditions.  The second step is to create a value for the current income stream assuming it continues into the future or you may want to look at the profit potential of a business not based on the current business activities.

What is Seller’s Discretionary Income?

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Business Buying Pitfalls: Should You Sign a Personal Guarantee on a Lease?

When you buy a business it usually comes with a lease already in place.

If the lease is not coming due shortly the seller tells you to assume and qualify for the lease. They think this gets them off the hook, but it doesn’t. The seller then becomes a guarantor of the lease in case the buyer defaults. Only if a new lease is written is the seller fully off the hook and the buyer can negotiate new terms and conditions with the landlord.

It is in the buyer’s best interest to negotiate a new lease with terms and conditions acceptable to the buyer.

Read more to find out more about leases and buying a business. Read more

How to start your own business & be successful

Do you want to start a business and be successful?

In the movie and play South Pacific there is a song called “Talking.” The words to that song go something like this (feel free to sing along if you know the tune):

“Talking, talking, talking, talking, talk. Talk about things you’d like to do. You have to have a dream. If you don’t have a dream, how you going to have a dream come true?”

Surveys of successful people have shown that the love of the work has been more important than the money.

Interestingly, that usually equates into success in the work of love, which is then followed by financial success.  To find out more on how to succeed.  Read more

Protect Yourself From A Bad Purchase Agreement

It is important to protect yourself from forfeiting your deposit when you sign a purchase contract. This would seem to be a very obvious statement. Except, what is not obvious is that so few people know how to do that. The result of inexperience is that too many people lose their purchase deposit. The deposit checks vary from $5,000 to $50,000 or even more. Read more

5 Ways to Protect your Purchase Deposit from Theft

Whenever you make an offer for a business and put down a deposit you are putting yourself at risk that it could be forfeited to the broker and/or seller. Here are a few things you can do to make sure that does not happen:

Business purchase deposit protection

  1.  Write LOI (Letter of Intent).  This is not a binding document, and no deposit is necessary. Then after you have agreed with the seller on the price and major terms, a formal offer can be written. At this point you can afford to pay to have the purchase contract reviewed by your attorney, or due diligence CPA, before being signed.  Read more

Get Rich While Going Green and Saving Your Dollars

Going Green helps the earth and saves you money.

So how do we do that? This is a very interesting subject. The “Green Environmentalists” are designing and building low energy use buildings. They are also recycling water and reducing energy use.

Congress passed a law subsidizing solar generated electricity.

You can also buy electricity from independent utility companies who are selling electricity at a discount. Let us not forget solar water heaters.

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Business Buying Horror Story: Dog Kennel – He Never Got His Questions Answered

Pet Business Due Diligence

“Bill” and his family were looking for a dog kennel and went on to the internet and started looking at various “Businesses for Sale” web sites. He located a dog kennel for sale with real estate in another state. Bill and his family had experience with boarding animals so it seemed the perfect business.  Read more

Business Evaluation Pitfalls: How to Evaluate the True Worth of a Business: Sanity Check-Buying A Business

Getting the True Value of a Business.

In the business broker community there is a review process that helps a buyer determine if a business purchase makes sense or not. This check can be done by a Fortune 500 company where everything is figured down to the penny and takes 1000 hours of research or it can be done by a small main street shop buyer who figures it out in one hour. Each item in this review process requires a decision. Read more

Expert Business Advice: On Avoiding Worker’s Compensation Insurance

The underground economy is the illegal way to avoid paying payroll taxes and workers compensation insurance.

Of course when and if you get caught, the penalties are quite high.  If you do the bulk of your work yourself and only hire low paid staff that has low payroll expenses, you can compete with the underground economy.

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