I'm looking to buy a business

[Aspen1]

Looking to buy a business in the Austin area. Maximum price of $150k and minimum annual profit of $100k.

 

[MizzouSnives]

who would sell you this business? if they're bringing in at least $100k a year, your $150k offer is chump change.

 

[Aspen1]

Three potential sellers if you really want to know, chump.

 

[tpatt34]

Im with Mizzou on this one. No need to call him a chump, I think we just want to understand. The numbers dont quite add up. Maybe I am missing something here but why would ANYBODY sell you a business for 150k when it brings in a profit of 100k a year minimum? Please enlighten us.

 

[StuckInMemphis]

Small businesses typically sell for 1-3x net profit.

That comes as a surprise when you are used to seeing large businesses selling for 10x profit.

Why would their owners sell? Usually they're just tired of running the business and want to do something new/different or they've got enough money to retire.

 

[ladan]

General question, but where to you go about finding a business to buy? Is there a listing database of businesses for sale and exactly how do you value the price of a business? Is it similar to using a cap rate for a real estate transaction? Also, are banks financing these types of transactions right now or are they cash purchases?

Just wondering, me and a buddy had a conversation about this a week ago because we saw two businesses for sale and if you valued them using a cap rate, one was selling on a 12 cap and the other on a 60 cap. Why such a gap?

 

[hookem2003]

Ladan,

You don't use cap rates, but you have the right line of thought in that companies are valued as a series of future cash flows.

There are any number of websites that list companies for sale just like homes or anything else. There are also business brokers. The guys I know that do this frequently tend to find out about them through attorneys and accountants.

As for values, those can vary for any number of reasons. While most companies are valued off of an EBITDA multiple, you have to take other factors into account: what if the company owns prime real estate, what if the company has a pending lawsuit, etc.

 

[jonhorn]

Ladan,

To value companies, you can do it in one of three ways:
DCF method: discount the CF that a company will bring in using the discount rate that is acceptable in that industry.
Multiples: Look at the same financial indicators of similar companies to create a multiple that makes sense in a certain industry.There are many different multiples you can look at (EV/EBITDA, EV/EBIT). However, these are often hard to find for small businesses who don't have to make their financial statements public.
Comparables: look at what similar companies were sold for recently. here, however you have to take into account that no two business are the same and also the environment and market in which they were acquired. Was the market good? Was it a friendly or hostile takeover? etc.

There is a lot of info out there on these three methods using our little friend google. Hope this helps

 

[tropheus]

I've bought 3 businesses, sold 1 and I'm a corporate attorney as well. feel free to shoot me a PM and I'll be glad to share my stories and experiences.