The Benefits of Buying a Business with Seller Financing

So, you want to buy a business valued at around $1,000,000 but you only have about half that. How do you get the deal done? The answer is with seller financing. But why would a seller in effect lend you money to buy his or her business? This question is answered by Vested Business Brokers owner and CEO, Nathan Goldstein in the video below…

Buying a business with seller financing is not uncommon when referring to the sale of “small” business (those valued at around $1,000,000 or less).

Folks, listen to what I’m saying. The owner of the business, who doesn’t know you, but you have the down payment to buy his business, is going to lend you the money so you can complete the transaction. This is a great thing, because he also wants to get paid, right? It’s like having a build-in consultant in your deal. If you get jammed up, you don’t understand the vendor, you can’t collect with a client, you can always pick up the phone. He has a vested interest, and that’s not a pun, in helping you be successful.

Many times, you’ve seen on my videos that we have a buyer who bought a business and he talked so highly of this seller who helped him grow his business. It’s a great thing. If the representations of the seller are not right, you can always adjust the price. We’re in a fluid market, which means it’s what the buyer wants to pay for that underlying opportunity, and it’s an open market.

Don’t hesitate to throw bids out there that are a little bit below the upper market to get the deals done. You never know the situation of the seller. He might have already checked out, he might have bought the house in Florida, he wants to go play golf but he’s stuck going to work every single day, and you, you’re stuck at home and you want to get out there and go to work. This guy has location, a staff, a great lease, a great company. He just doesn’t want to be there anymore. That’s the perfect business.

We’re going to help you find that business. Our guys and gals are on the street every single day handing out thousands of pieces of literature to tell people we have the clients that are looking for that business, and we do. If you want to be one of those clients, don’t hesitate to call us today. We’re here to help you. Call us at (877) 735-5224 to speak with one of our experienced business brokers.

Avoid These 7 Critical Mistakes When Selling Your Business

If you want to sell your business quickly and for a decent profit then you absolutely need to avoid these 7 critical mistakes many business owners make when trying to sell their business…

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Call Vested Business Brokers at (877) 735-5224

Hi, my name is Nathan Goldstein with Vested Business Brokers. We help people buy and sell profitable privately held businesses. We’ve closed over a thousand of them. We probably do this business better than anybody else in the world. Today we’re going to discuss the seven mistakes that sellers make when they put their business up for sale.

Mistake #1: Not having the Proper Confidentiality Agreements in Place

It is crucial that you have the proper confidentiality agreement in place before you speak to a potential buyer about your business. Literally, 99.9% of the sellers who go out to sell their business on their own make this critical, very dangerous mistake of talking to people. You don’t know who you’re speaking to. It can be a competitor or the competitor’s brother. Now you’re excited, you have a buyer, and you’re now sharing the private information, your private business model with this person, and it’s like giving them the code to the safe. Please, do not try to sell your business without the proper confidentiality agreements in place.

Mistake #2: Putting the Name of Your Business in Your “For Sale” Ads

The second mistake that we’ve seen, and we see it all the time, is that the seller puts the name of their business in their ad. Now, folks, you don’t want to do that. It’s very bad because if you were a client of your business, and you knew that the business was up for sale, would you continue to do business with that client? So everybody gets nervous. So first of all, your business customer gets nervous, and then if somebody comes in and says, “Oh, I heard that your business was for sale”, and says it to one of your employees, now your employees start to get nervous. So you’re creating your own earthquake within your business, and walls start rattling and you start to get nervous, and it’s out there. And once it’s out there, you can’t take it back. So do not put the name of your business in your ads.

Mistake #3: Not Having a Process to Properly Value Your Business

Often business owners think they know what the business is worth, but they don’t properly value the business based on what’s called “owner’s discretionary cash flow”, the benefit to the owner, and what multiple that business should be sold at. So there are many different aspects to that, like if there’s a license, or the business has a specialized asset like a website that has value. It might demand a larger multiple, but if you don’t get all the multiples correct, you might improperly price your business. Very important to make sure that all your assets are priced correctly to the peer group.

Mistake #4: Giving Out Too Much Information Before You Have a Letter of Intent From the Potential Buyer

A letter of intent is a written agreement signed by a potential buyer which formally states the buyer’s intention to purchase a particular business.

Many times we see a seller give all of the information to a potential buyer and then they’ll never hear from that buyer again. The buyer has not had a formal process to buy the business. Do not give the buyer all the information until you have a letter of intent in place and you know what his intentions are.

Mistake #5: Not Believing That Your Business CAN Be Sold

Listen…if you have a PROFITABLE, privately held business,  the it is a business that CAN be sold. Said another way…if your business is in profit, then there will almost certainly be a buyer who wants to buy it.

Mistake #6: Thinking That Your Business is Worth More Than It Actually Is

Pricing the business above the peer group without the proper terms and conditions could really dramatically affect your sale. In fact, you might not sell your business. Now eighty percent of the businesses that come to market, come to market with the wrong price and the wrong terms and they don’t get sold. So it is critically important to price your business correctly.

What is the “moving market”?

Many times, I’m asked, what is the moving market. Well, you know, a company in New York might sell at a higher multiple than a company in Louisiana. So it depends on where you are, the location, how long the lease is, and what the market is, what the market bears, the local market bears for the multiple for your category. If you have a competent broker, he should be able to tell you where the moving market is at any given time. Here at Vested, we keep that data in every single category that we sell.

Mistake #7: Trying to Sell Without the Help of a Business Broker

A competent broker like the professionals at Vested Business Brokers will have a process to sell the business. The first process is you fill out a listing agreement. A valid listing agreement can be exclusive to the firm or non-exclusive to the firm. The second process is that we register and profile every single buyer. We get confidentiality agreements signed so the buyer can get the information on your listing. It’s very difficult for a seller to ask a potential buyer for a confidentiality agreement before they speak. They critically make that mistake all the time.

We’ll go over the processes with you, and we’ve sold over a thousand transactions. We know how to get the deals done. We’ll help you get the best price with the right terms, the right conditions, meeting them at the moving market and getting you the price that you’re looking for, for your business. Now it has to be fair and equitable for a buyer. If you price the business too high, you’re never going to sell it. If you price the business with no terms, it makes for a much more difficult deal than pricing with the proper terms and conditions. That’s where the broker will come in and help you. I wish you luck.

How to Determine Business Valuation When Buying a Business

How do you determine the value of a business that you are interested in buying? This is a critical question that you need to answer if you want to purchase a business for the right amount and you want to avoid paying too much.

In this video, Vested Business Brokers owner and CEO, Nathan Goldstein explains the concept of multiples as it applies to determining business valuation in the purchase and sale of a business.

The Basics of Business Valuation

Privately held businesses sell based on owner’s discretionary cash flow, which is the monetary benefit to the operating owner. Here’s an example of how to determine business valuation:

First, take all the income that the business makes, let’s say for instance the owner or manager of the business takes an officer’s salary of $150,000 a year and then after they pay payroll and all the expenses, let’s say there is another $50,000 there. Now, the value is $200,000.

Next, we need to account for any “add backs”.  Add backs are benefits that a seller would have over and above his salary. For instance, if he pays his car through the business we would need to take whatever amount that is and then include it to thee final number as an add back. Likewise, if the owner pays for anything, such as health insurance, life insurance, disability insurance…those are all add backs.

After accounting for the owner’s salary, as well as any and all add backs we would get to a particular number, let’s say that will all those add backs it adds another $25,000 for the year…a grand total $225,000.

The Concept of “Multiples” and Its Effect on Business Valuation

Every business trades at a different multiple. A “multiple” is an industry term which refers to the yearly business value (owner’s discretionary cash flow) and whether the market value of that particular business is worth 1x, 2x, 3x, or more of that yearly value.

What this means is that, for instance, certain types of businesses, for example those that are absentee owned, will trade at a higher multiple than a company that has to be run by an operator or the owner.

Why is this so? Think about it…if you have a business that is an absentee run business, it will always trade at a higher multiple because the person who is buying the business will have the ability to keep his regular job which would mean that the new income derived from the absentee business would be added income instead of his whole income. Does that make some sense to you? I hope it does.

If you have any questions about this you can always call Vested’s main office at (877) 735-5224. We would be delighted to answer any questions that you might have.

Now, those multiples are generated by what we call here at Vested, “a moving market”. A moving market value is generated by how many listings we have in a particular market, what geographical area the business is selling in and then we pay it in a live moving market. We could tell you at Vested what the average cost of goods is, what the average payroll is, what the average expenses are, what the benefits to the owners are, and then we come to what is called the multiple.

Essentially, we take whatever the benefit is and we times it by the multiple and that is typically how we come to the price. This system really works.. This way you are not over paying for the business because you are paying exactly what everybody else would be paying in the moving market.

When I first started this business 11 years ago car washes were trading in high, five to six time multiples. Today, because we peg it to the moving market, they are trading in the four time multiple because most of them are run absentee. We could tell you the statistics, we could show you the statistics, or we could bring you on our back end and show it to you so you could get comfortable with it. We want you to be able to do all your due diligence and take your time which is the most important part of any deal we are going to have with you. We want to make sure that you understand how the revenue is generated, you could prove where the generated revenue is and you feel comfortable with the numbers.

We strongly suggest that you get a competent accountant to help you unwind all the financial information that a seller has given us. These are their representations, not Vested’s and we want to make sure that you are comfortable with those numbers.

Call us at (877) 735-5224 for help with the purchase of a business for sale.

Why Do Entrepreneurs Like Buying Absentee Based Businesses?

Absentee Based businesses offer certain advantages that owner-operated business do not. In this video, Vested Business Brokers owner and CEO, Nathan Goldstein discusses some of the advantages of the absentee based business and why these advantages appeal to the entrepreneurial business buyer…

This is Nathan Goldstein of Vested Business Brokers, we help people buy and sell privately held businesses. Today I’m going to explain why an absentee based business would trade at a higher multiple than a non absentee based business.

Well, if you are an entrepreneur who wants to own multiple business and you find an absentee based business, you could continue to operate your other businesses. Most of our clients are owner operators where they will come in, run the business and they will scale the business themselves. But from time to time, here at Vested, we do get absentee owned businesses.

There are some specific categories of businesses that are easier to run absentee than others. Gas stations, car washes, Laundromats, sometimes liquor stores depending on the size of the liquor store, can easily be run on an absentee based business. Those businesses will trade at a higher multiple.

Think of this when you think about absentee based businesses, think of the pleasure of sitting down in a lounge chair on a sunny beach somewhere. Maybe not if you are in the Northeast but if you are in Florida. Then at the end of the week there is money deposited into your bank account. You go to the deposit and you are able to get your paycheck because your absentee based business covered it. That is an unbelievable feeling. I hope you experience that feeling, have a cold tropical drink on me.

Are you an entrepreneur who is interested in owning an absentee based business? If you are then call us today at (877) 735-5224 to see what kind absentee businesses for sale we have in our huge and growing database.

One of our experienced business brokers will work with you personally to help you find a great absentee business which will put profits in your pocket while you sit on the beach, play golf, travel the world, etc.

How to Buy a Business – What is a Letter of Intent?

When buying a business you should always sign a letter of intent. So, what is a letter of intent…or LOI, for short? A letter of intent is a written offer which underscores your interest in a particular business.  The benefits of having a letter of intent are explained in this video…

A letter of intent typicaly includes what is called a No Shop Clause which prevents the seller from “shopping” the business for a two week period while you, the buyer, are doing your due diligence.

So, the letter of intent provides you with the security that you can conduct your due diligence thoroughly and that the business will not be sold out from under your nose during that period of time.

A letter of intent also acts as a guideline that both the seller and the buyer use to structure the deal. Letters of intent are really great because you hand them off to your lawyers and the lawyers know exactly what the deal is. There is no guess work.

Years ago buyers and sellers didn’t have a formal process in the letter of intent process. We would send the seller off to his lawyer and we’d send the buyer off to his lawyer and when they both came back with the deal, it was completely different in terms and price than what they had all agreed on.

Therefore, the letter of intent acts like the “pre contract” of what everybody agrees on what the deal should be. Then everybody has time to take a deep breath, do their due diligence, look under the covers, figure out what the business is, and make sure that the seller can prove all his representations to you. But he can’t sell the business out from underneath you to somebody else because he has a No Shop Clause in the letter of intent.

Typically we take a five thousand dollar good faith deposit, Vested will hold that deposit for you and if, for any reason, you are uncomfortable with that particular deal you will get refunded that money.

Do you have any questions about letter of intent or how to buy a business? If you do then call Vested Business Brokers today at (877) 735-5224 to get all your questions answered by an experienced business broker.