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Thread: Buying an existing business.

  1. #1

    Default Buying an existing business.

    I've been interested in buying an existing business, and have had a number of questions rumbling around my mind unanswered. I'd like to know answers to the following questions, and have a better idea of how businesses being sold are treated and analyzed before they're sold.


    1. When buying an existing business, what paperwork should you require you see before attempting to do so?
    2. How can it be verified? Who do you need to obtain it?
    3. Do you need a private accountant? an attorney? Both?
    4. Should you review them with any of those professionals? Just review them yourself? It depends?
    5. How can you verify the business owners owner's discretionary cash flow?
    6. Revenues? Assets? Furniture, fixtures, and equipment? Book value of the business?
    7. When buying a business, should you bid to buy it based on it's book value, asking price, market value or something else?
    8. When business owners are selling their businesses -- are they selling them based off their book value? Selling them for exactly their book value? Their "owner's equity" located on their balance sheet?

  2. #2
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    I've done this so I'll try to answer some of these:

    1. Anything and everything. If there is a possibility of paperwork, get it. This will range from financials to maintenance records to employee records and everything in between.

    2. Financials, unless there is unreported income/expenses, should be self verifying.

    3. Yes. A 2nd set of eyes from someone who deals with these matters on a daily basis will see things you won't. Just make sure they are experienced with business financials and law.

    4. Yes. Yet it also depends on how much you're paying for the business and what your experience, as well as comfort level, is.

    5. Learn how to recast the financials. Do not include off the books cash and/or expenses!!!!!

    6. Not sure what you're asking here.

    7. None of these will ever be the same. You need to determine what the value of the income stream (above your personal wage/salary) of the business is to you and base your offer off of that. Just go on the assumption that the seller will have to finance your purchase over a term no longer than 5 years (with no balloon payment), use a fair interest rate (6-12% annually), and make sure that the recasted free cash flow can cover the payment.

    8. If it were me, it depends on who's buying.
    Brad Miedema
    Fulcrum Saw & Tool

  3. #3
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    Bobby B and 91 Elephants
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    lookup dan Pena. QLA. he has a program. and it doesnt have to be his program. theres other people out there.

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    Quote Originally Posted by Bobby B View Post
    lookup dan Pena. QLA. he has a program. and it doesnt have to be his program. theres other people out there.
    Don't spend your money on this.

    With that said, I just had a very interesting opportunity show up. It is a business purchase that is an almost perfect fit for my shop. I'll for the sake of the OP, and anyone else thinking of buying a business, I'll document the process here.

    For the moment, I'm going to keep prices and details to myself for the moment and will just list the steps I am going to take.

    First step, contact the seller. Here's my, almost, exact message (names omitted)
    I am interested in your business and would like to speak with you sometime tomorrow (Apr 1). I have a similar shop in Woodstock, with almost 17 years experience in both tooling and saws, and I believe that your business may be a good fit.
    When would be a good time for me to call?
    Stay tuned for more.
    Brad Miedema
    Fulcrum Saw & Tool

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    Update # 1

    I spoke with the seller on Apr 1 shortly before lunch. Based on that chat, I learned the following:
    1) Sellers are semi-retired (about 1 year) going to full retired
    2) They have stopped taking on new customers nor have they sent out a delivery truck for the past year
    3) Covid-19 is the reason for the final closure a few weeks ago, even though they may be classed essential (depends on customer list)

    With those above details, this changes how I will proceed. This is no longer an active business to be bought out but rather more of an asset/machine sale. Their existing customer type doesn't fit my business well, however their former customer list (I know it's a year old) and remaining industrial customers are what is keeping me interested. We setup a meeting for Apr 13; however, I think it may need to be postponed due to the increasing lock downs.

    More updates to come.
    Brad Miedema
    Fulcrum Saw & Tool

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