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Buying a small business

Discussion in 'The Lounge' started by mountainexplorer, Feb 4, 2004.

  1. mountainexplorer

    mountainexplorer 1/2 ton status

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    Location:
    Spokane, Wa./Ione, Wa
    There's a local privately owned business called D&D Clutch and Brake that I usually buy all my clutches through. The guy has owned it for just over 30 years. He's in his 60's and is thinking about selling the business.

    For the business, all the inventory and tools and forklift in the shop, he wants $75,000.

    The Building itself is for sale but it's $425,000, with 4 other bays adjacent to the clutch shop and bay. These 4 bays are leased out to a Repair Shop.

    I'd love to own the business and the building, but $550,000 is a bit out of budget. Come to think of it, $500 is out of budget right now. But I could buy and start operating the business for $75,000.

    Anyone ever keep track of what small businesses go for?
     
  2. bad_bo_ti

    bad_bo_ti 1/2 ton status

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    you need to look and see what kind of profit he makes, yea a 550000 loan is out of budget for most of us but it your making a good profit that can pay the bills and employees go for it, first couple years might be a little rough but after the buisness is paid off its all profit then, just a couple thoughts of mine. good luck /forums/images/graemlins/waytogo.gif
     
  3. clubba68

    clubba68 1/2 ton status

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    Location:
    Eugene-Portland, Oregon
    There is no set rate for small businesses, but ask him to give you a copy of the company financial statements.

    Ideally, you would like the:
    -Net Cash provided by Operating Activites to be Positive
    If he owns all of the equipment he uses, and depending on how much money he puts back into the business, you would want the Net Cash from Investing Activities to be Positive, but that one can go either way.
    -Net Cash in Financing Activities to be positive, and check the Cash Flow From Financing Activities to make sure the company is out of Debt.
    -And most importantly, you want to make sure the there is a Positive Net Increase in Cash flow from year-to-year.

    Or, you could just take the financial statements to a CPA, and they could tell you what is going on with the company. Be sure to get multiple years worth of Financial Statements.

    /forums/images/graemlins/thumb.gif
     
  4. Can Can

    Can Can Pusher Man Staff Member Super Moderator

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    A rule of thumb I've heard about is that a small business is generally worth about half of one year's gross income plus assets if they don't own the space they occupy. If they DO own the the building then market value for the space is generally added to the sale price. There are lots of variables(inventory, remaining payments on leased equipment, etc...) that will be worked into the price as well.

    When I sold my moving company, the buyer paid me fair market value for my truck and equipment. He also paid me $2500 for "goodwill". Goodwill basically rewards the seller for all the work he put into building up the reputation of his company before he sold it. Apparently there is a formula to figure out what a company's goodwill is worth......

    Hope all my rambling helped. If you are really interested in starting/buying your own business there are loads of government programs out there to give you a hand both instructionally and financially.
     
  5. Fubeca

    Fubeca 1/2 ton status

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    Location:
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    Goodwill = [Purchase price] - [FMV of assets (net of liabilities)]
    Basically goodwill is the premium you are willing to pay above the value of the assets of the business for things you can't put a price on like loyal customers and employees.
    One of the best ways to value a business is to look at the numbers for the last few years. You might not even be making enough profit to cover the interest on the loan.
     
  6. CK5

    CK5 In my underwear Administrator Premium Member GMOTM Winner Author

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    Another "general rule" of thunb that I have seen is the sell price is around two years of adjusted gross income.

    example:
    200,000. per year gross sales
    -50,000. per year expenses
    --------
    150,000. adjusted gross income x 2 years would equal a 300,000. sales price.

    Of course many many more factors but that is usally in the ball park.
     

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