What is a fair price for a business?
Like any other product, a business is worth whatever a willing buyer will pay
a seller in a free market. However, the value of most businesses is determined
by what someone can afford to pay for it. Typically this price will be 2
to 3 times the annual cash flow of the business after recasting, with a 25
to 50 percent down payment and a note paid off over 5 to 10 years. If the
business can earn the income you want and make the note payments, then it
is worth the price.
What is Goodwill?
Goodwill is the difference between the total value of a business and the value
of inventory, equipment and other "hard" assets. Every business
has goodwill unless it is closed down or failing badly. The amount to pay
for goodwill depends on the cash flow of the business and its general attractiveness.
If buyers did not pay for goodwill, sellers might as well sell off their
equipment and close down rather than sell as an on-going business.
What is Discretionary Earnings?
Discretionary earnings are usually defined as profit before income tax, depreciation,
interest and owner's compensation and other owner benefits. This is the amount
of money the owner has available to pay himself, to invest in additional
equipment, to make the note payments on the business and pay taxes.
Are there tax benefits in buying a business?
Usually you can take a tax deduction for depreciation on the fair market value
of all furniture, fixtures, and equipment at a much faster rate than real
estate. The Covenant Not To Compete and the value of training are tax deductible,
frequently at high levels. Finally, most businesses have deductible expenses
that add to the owner's cash flow. Always discuss tax issues with a qualified
tax professional.
Why not just start my own business?
Government surveys show that over 80% of new businesses fail in the first 3
years, for reasons such as poor location, low product quality, under capitalization,
and lack of management skills. This risk can be eliminated by purchasing
a quality business with a proven cash flow.
Why use a Professional Intermediary to help purchase a business?
Presenting opportunities for your review allows you to consider situations
that you would have an interest and match your own personal acquisition criteria.
Using an Intermediary also allows for confidentiality during the initial
stages of the buying process. Allowing a professional to lead you through
the steps to buying a business will ultimately give you the peace of mind
that your interests were protected and your investment well directed. Choosing
an individual who is professionally trained, has made a full-time commitment
to their career, has access to the largest data base on comparable business
sales in the world, and can be trusted to work for your best interest, means
you have chosen a VR Business Intermediary to work with you.
Phone: 818-483-4777 Each VR Franchise office is independently owned - more info copyright 2005, all rights reserved |
Association of Business Brokers and the Better Business Bureau of the Tri Counties and The Chamber of Commerce |
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