Is it better to buy an existing business or start a new one from scratch? This is a question entrepreneurs ask all time. In this video, Vested Business Brokers owner and CEO, Nathan Goldsteiin offers his opinion…
Buying a Business Vs. Starting a New One
The truth is that most businesses fail due to the following reasons:
They’re under-capitalized
They’re over-utilized
The owners/managers don’t have the requisite knowledge base
The wrong location is chosen
When you start a new business you have no idea if it will be a success or a failure. There are just too many unknown variables in play to know for sure if your new venture will be a success.
In contrast, when you buy an existing business, you have the opportunity to “take a look under the hood” BEFORE buying. You can see whether or not the business you’re considering is a profitable one
When you start a new business you can’t do that – you just don’t have that luxury.
For this reason alone we at Vested Business Brokers strongly suggest that the smartest move is to buy an existing, profitable business.
Take Your Time When Buying a Business…
We encourage our buyer clients to take their time and do their due diligence before buying. Have your attorney and accountant analyze what you’re thinking of buying.
Letter of Intent…
Once you have done your due diligence and the business you’re looking at passes muster you need to move quickly. Lock up the business by doing a Letter of Intent (LOI). A Letter of Intent is a non binding document that will lock in the price and the terms of sale for your purchase of the business.
We want you to know that you don’t have to go through the business buying process on your own. We are experts in buying and selling businesses. It’s what we do…and have done more than 1000 times since 2001.
We wish you all the best and if you need help give us a call at (877) 735-5224.
“What type of business is the best one to buy?” This is a great question, and it’s one we get asked quite often a Vested Business Brokers. In this video, Vested’s owner and CEO, Nathan Goldstein reveals his process for deciding what kind of business to buy…
First of all you should always make sure the business you’re looking to buy is a PROFITABLE one. Next, you might want to consider buying a business that fits your personality, especially if you’re planning on using your specific skill-set in order to grow the business.
The “SWOT” Analysis
Before buying a business for sale you should always do what’s called a SWOT Analysis, which stands for:
Strengths
Weaknesses
Opportunities
Threats
By understanding and analyzing a potential business to this degree you will be in a better position to make the right decision when buying a business for sale.
At Vested Business Brokers we help business buyers do their SWOT Analysis. If you’re looking to buy a business give us a call at (877) 735-5224 today to speak with one of our experienced business brokers.
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.
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.
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.
