Where's the value?   If you are just beginning your investigation into finding a business, there is a lot more to consider than ROI. (return on investment) Not to mention ROOPM. (return on other people's money) Every broker and seller has their own formula that they use to arrive at a asking/selling price. Every buyer and buyer's consultant has their formula. Rarely, will everyone's formula agree… Cash flow is cash flow. Are you willing to pay one times or five times? Do you want 100% return or is 20% reasonable? In addition to cash flow, what else are you purchasing? Unless you have started a business from zero, you won't understand the intrinsic values associated with an ongoing or failing business. Yes, even a failing business might be worth more than the face value of it's assets. But, only to an educated buyer. Customer list. If there is an up to date customer list, what is the value? Do you know where to sell it? I met with a closed down mailing company that wanted to sell the assets. I only wanted to sell the customers. Seven million customers that had purchased over the last five years… to me, I knew buyers who would pay more for that than a warehouse full of assets. The seller could not be bothered and did not believe someone would pay for old customer names, addresses and purchase records… Yellow Page listing. If you can get a business (open or closed) and take over the phone number and yellow page contract, that is worth a small fortune. If you can't, you need to figure out how you will get customers for the next 12-18 months until you can get into the next directory. Accounts payables. If you are buying a business that buys merchandise at wholesale, then sells at retail, or assembles and resells, are they on a net 30, 60 or 90? Do you understand the value of someone fronting you merchandise and letting you sell it and earn a profit before you have even paid for it? (ROOPM) If you do not have those accounts, your shipments come in COD (bank check), or pre-paid on a credit card, or you give money in advance to your supplier and they send you merchandise until your deposit is used up. This can go on for 6-24 months until they 'try' you at net 10-30. Procedure manuals. A business plan, operations manual, employee manual and independent contractors agreements all add value to a business. They all have a cost associated with them. And each good business has one. Supplier list. Arriving at a good supplier list is trial and error. Profit and loss. Spend a few days price shopping with the telephone for whatever item you want to sell or service and see if you can see a value to having someone hand you years of research… Grandfather clauses. call the building department of the city/county where you are thinking of opening/buying your business. Ask for a list of all the permits, inspections, zoning ordinances, allowed use, licenses, engineering requirements, architectural requirements, ADA requirements, sign ordinances... well, you get the idea. A savvy business buyer will buy a business with grandfathered use codes in order to not have to comply with today's more stringent codes. For example a new business may only be allowed to have four square feet of signage per 1,000 square feet of occupied building space. A business that was established ten years ago may be unlimited and using that billboard for the last ten years. Which one is more valuable? Equipment. Most any equipment older than 5-8 years is worth little if anything. Or is it? Equipment built today, is built to 'throw away' when you are done. Equipment built twenty years ago was built to last 100 years. They were built with bearings instead of bushings. (If you don't know, you won't understand or believe it!) When South Florida changed the building codes after Hurricane Andrew, it was more expensive to re-tool the newer equipment than the older equipment! Who on earth would spend eight hundred thousand dollars to re-tool equipment that was valued at $300,000 tops? The same person that saw sales jump from $3 million to $8 million while his competitors scrambled or closed their doors. You can agree or disagree. Just define the formula you wish to use, and let your broker know. That way neither of you will waste the other's time. Business Buyer Resource Center - "Learn 100s of tips, strategies and techniques to help you find and buy the right business".   Bizology - the study of business for sale Bizology.com email to : info [at] bizology [dot] com Chambersburg, PA 17201-1712     * SELLING * FOR SALE * CONTRACTS - FORMS * FINANCIAL * REFERENCE * * TAX - LEGAL * * BUYING * | you are in buying index now |   business checklist | business information sheet | buyers ask questions | buyers cash requirements | buyer disclosure | buyer information | buyer memorandum | buyer resources |due diligence checklist | confidential buyer profile | escrow deposit | food service | how to evaluate a business | let's see the books | pre-paids | ratios | thank you | terms of the trade | what happened to seller financing | where's the value | what to look for | valuation program | HOME main index