One of the brokers’ websites that I visit on a daily basis is http://www.BizBuySell.com – a terrific marketplace owned by the Wall Street Journal for the purchase and sale of businesses. A lot of great questions and answers that may provide valuable information reside there, along with my occassional contributions.
I’m happy to say that the majority of the business brokers who participate are knowledgeable and professional so I’ve decided to begin publishing some of the more ’spot on’ advice on this page. Stay tuned!
Will Buying a Business Improve My Quality of Life?
Call it a midlife crisis, but at 50 I’m thinking seriously about leaving the big city, corporate rat race and buying a business in my rural home state. I would like to be closer to my family, be in charge of my own destiny and have a better work life balance in a rural setting. On the flip side, I earn a very good salary, have a stable job and could continue earning like this for another 5-10 years. It would mean rededicating myself to it and putting up with the long hours and lots of travel and staying in the city. So, for those who have made the switch from corporate to small business owner, was it worth it? What advice would you give? FYI, I am a CPA, MBA with significant business experience, although not small business. Any advice or comments welcomed!
Susan R – In General – Aug 8, 2009
Hi Susan,
Your question is akin to: “Will marriage improve my quality of life of should I remain single?” It all depends on the candidate for marriage or business. If you love and enjoy either, it’s certainly worth it to try but you might need to go through a few before you find the right one. Or perhaps you feel it’s worth it to invest a lot of time and effort to improve your first choice..
I know that this is hackneyed advice but you should invest in a business that you’ll love and the money will follow. Rarely does it work in the reverse.
I’ve owned many businesses – some have failed and some have succeeded. However, I enjoy the independence and find that I make better decisions if I don’t need to constantly defend them to an employer or worry that I’ll make the wrong recommendation. To tell you the truth – I’m the nicest and most rational employer I’ve ever had!
Buying an existing business is also an advantage – in most cases, the problems you might encounter as a startup have already been resolved.
Please feel free to visit my blog: www.AustinBusinessesForSaleBlog.com for advice on buying a business – I hope it answers some of your questions.
Good Luck!
Julie A. Barnes
I am looking to detemine the industry standard for selling a trash collection business. Is it normally a factor of gross sales (i.e. 1 times, 2 times)?
Sam Sauca, CPA – In Selling a Business – 44 minutes ago
Accounting Strategies Group, LLC(1)
Hi Sam,
You may be able to find some comparables in this industry – depending upon the size of the business. However, I would caution you NOT to put much credence in formulae. Multiples of gross sales is a burr under my saddle – sales may be phenomenal but that doesn’t necessarily guarantee profitability. If I were to use multiples of any kind – it would be net income or cash flow.
I cordially invite you to visit my blog: http://www.AustinBusinessesForSaleBlog.com where I talk about the valuation of Small to Medium Sized Enterprises.
Help sale price.
What would be a proper sale price ratio to cash flow for an established franchise sign company?
S Hackett – In General – 20 hours ago
Answers (2)
Hello S Hackett,
Don’s advice is absolutely spot on (see below). Small to medium sized enterprises (SME’s) are especially difficult to price. Ratios may give you a ball park figure but, as Don mentioned, you also need to pay close attention to trending. Are net profits and cash flows increasing/decreasing?
I don’t know if you’re a buyer or seller but a key question is “Why is the owner selling?” If the answer is retirement or transferring, for example, you might place a bit more confidence in the future of the company. If, in fact, the business is trending downward in terms of financials, that’s a huge consideration – you must then decide if the buyer is capable of reversing that trend.
It’s a bit ironic that – in my opinion – SME’s are more difficult to price than large companies – who have audited reports and a higher likelihood of using comparatives in the industry. Exact formulae for valuating an SME should NEVER be used except as a directional tool.Web reference: www.SmallBusinessExchange.net
Please visit my blog: http://www.AustinBusinessesForSaleBlog.com for free advice on how to reach a sales price for an SME. Feel free to post any questions you might have.
Good Luck!
Julie A. Barnes,
President, SBX Inc.
Don Barrick
The BAF Group LLC
MD
There is no way for a responsible person to answer a question that is that vague, in my opinion. Pricing a business is not like flipping a coin. Not only can ratios can be extremely misleading, but looking at the history of the business, seeing the growth (or erosion) of the Cash Flow history, determining the kind of sales history that is present – all of that goes into exactly which ratio to use to begin with. Then, it may be okay to use a ratio for a rough estimate, but looking at Cash Flow in more detail is something that should always be done, in order to verify and refine the rough estimate.
Web reference: www.bafgroup.com
What would be a proper sale price ratio to cash flow for an established franchise sign company?
S Hackett – In General – Nov 3, 2009
Don Barrick
The BAF Group LLC
MD
Julie is sooooooo correct. This, in part, is what I hate about the “quick and dirty” rules of thumb. Regardless of whether you use a rule of thumb or a cash flow ratio, you ALWAYS have to double-check the price you come up with by doing exactly what she says: Do a Debt Service estimate and back that out from your pro forma P&L or the Seller’s historical Financials, to see where you would come out, as a Buyer.
Web reference: www.bafgroup.com
Nov 6, 2009
Julie A. Barnes
Small Business Exchange, Inc.
Travis County, TX
Hello S Hackett,
You’re going to hate this: It all depends. I believe the most commonsensical way to price a business is to put yourself in the buyer’s shoes. Most likely, a buyer will be borrowing some, if not all of the funds. What you want to do is to work backwards. That is, if a buyer takes out an SBA loan, for example, how much cash flow can he/she expect after servicing that loan? Will that amount be sufficient for working capital and a decent salary?
I encourage to visit my website: http:// www.AustinBusinessesForSaleBlog.com for some other free advice on how to valuate a business. Please feel free to contact me or to post any questions on my blog.
Thanks!
Julie A. Barnes
President, SBX Inc.
512.577.8003
Web reference: www.SmallBusinessExchange.net
Small investment Co. looking to buy or invest in businesses
NJ Small Business Exchange, Inc.
Travis County, TX
Hello Walter,
For a long time, I’ve been advocating the advantages of investing in small business – given the aappropriate portfolio, the ROI beats the heck out the stock market. The only problem(s) as I see them is:
1) Inordinate transaction friction. I.E., because investments in small businesses are not fungible, it can be a bit sticky to get in and out of them.
2) Finding small businesses that maintain organized, clean books can be problematic.
I’m attempting to remedy this situation – I have excellent clients who want to buy into my more successful listings but simply fail to meet the lending requirements of the SBA OR (more likely), simply don’t have the knowledge, skills, patience, or time to devote to the bureaucratic hassles.
As an accountant, I reconcile all of my listings’ book to tax (never known anyone to overstate income on their taxes), as well as a thorough analyses of their financials – including a disproportionate amount of sales from certain customers, higher than expected COGS, etc. (basically, what I’ve done as an auditor in public accounting). I also personally visit all of them to ascertain:
1) The physical environment of the business and a typical day.
2) The general morale and attitude of employees.
3) Potential management problems.
In a nutshell, I do my due diligence as if I would be investing in a company. I’d love to discuss the possibilities of setting up funding for those buyers who have what it takes to succeed but need a little help to get going. Please feel free to contact me with any questions at all.
Thanks So Much
Julie A. Barnes, President
http://www.SmallBusinessExchange.net
http://www.AustinBusinessesForSaleBlog.
Web reference: www.SmallBusinessExchange.net