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Old July 30, 2021, 12:34 AM
Dien Rice Dien Rice is offline
Onwards and upwards!
 
Join Date: Aug 2006
Posts: 2,910
Default I think the time is definitely ripe!

Hi Gordon.

We must be in a golden age for acquiring a business and paying for the cow with its own milk!

Though it definitely sounds like an area where good due diligence is required!

Otherwise, a person might find they have a non-milky cow...

How do you find these businesses, which are good prospects for this kind of deal?

Do you find them by going to business brokers?

Or how else would you do it?

Maybe a person could ask around the industry they're interested in somehow... A business's competitors may know the situation, but you'd have to be a little discreet I think, so the other businesses don't know what you want (as you'll end up being their competitor)...

Apart from the income, there must be other things you'd have to look for... What would those be?

Great topic for discussion!

Now is probably the right time to find such businesses, as many people are looking to retire and wanting to sell their businesses... Their kids often don't want to take it over...

Best wishes!

Dien

P.S. Sorry for my slow responses lately... My missus has been a little under the weather, which means more baby-sitting duties for moi...

Quote:
Originally Posted by GordonJ View Post
Maybe you know I have a Real Estate background, actually went to college to study it. Got my GRI designation (Graduate Realtor Institute), worked in the field, specialized in commercial and business.

Hated it.

Quit. Made more money singing off key telegrams.

Anyhow, I've been consulting with some local businesses who are selling, and a few of them are considering doing their own financing. It has pros and cons.

Biggest pro is, the owner can often get more overall for the business than if a cash transaction (loans).

Also, tax and estate benefits.

Downside, mainly, the new owner runs the biz into the ground, POOF, there goes everything.

Normally, it is done when a buyer either can't get a traditional loan or doesn't have a big enough down payment.

Anyhow, it is a pretty standard way of selling and buying a business and it is estimated that as many as 20% of businesses are bought and sold this way.

Enter the SDE, which stands for Seller's Discretionary Earnings, or in very vague, rough layman terms, the Net Profit or take home.

Several ways to do business evaluations, but the SDE is a quick glance way to see if the business has the potential and profits one is seeking.

It is a figure which allows an ABSENTEE owner to add an asset, which creates more leverage, or gives a cash flow. Another type of evaluation is the EBITDA, has more detail, but basically spits out Gross Profit, it differs mainly because a small momma/poppa biz builds in benefits, for example, maybe a car/van allowance, where a corporation would have those as expenses.

This NOT intended to be a lesson, just an overview...to the point>>>>

Spend a few minutes a day shopping for businesses for sale in your region, see if they post up SDE/EBITDA or simply say CASH FLOW, which is not a good way to do a valuation, but the de facto term used by brokers. Cash flow seldom means anything, it has to be listed with all income, expenses and can get very deceptive.

A biz with an SDE of around 180 to 220k, could be a great take over opportunity. Most of these are small family types of locale biz, like an Independent gas station/convenient store. You will often find quality managers, whom you can offer a much higher salary to, and let it run on auto-pilot (sort of).

The bigger the business, and over 3 to 5 Million, a broker, or owner may offer a FINDER'S FEE. Which is why I suggest you get to know your local area.

Many small mfgr and supply companies can be owned from afar with a good management team in place. A sale of a 5 million dollar business, could get you a 10 to 25k FINDER'S FEE.

It has always existed, just hard to find real life information about how to do it. But since we're talking about above the fray thinking here, consider getting a business and paying for it with the profits while building up assets and worth.

Gordon

P.S. Since I'm in the mood, if you have any real estate, biz buying/takeover or finder's fee questions, now would be a good time to post them up, I am known as a moody kind of guy, so may not be so willing to share in the future, fair enough?
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