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Business Brokering
Newsletters Courtesy
of
Broker Service
Network Inc. II
Index
Understand how
the business brokers price
their businesses for sale.
GUESS WHAT: "It's what the
owner wants" IS NOT a viable
explanation from business
brokers to how their
businesses for sale are
priced. Ask the business
broker for a detailed
explanation of how it was
priced. If business brokers
decline your request on their
businesses for sale THEN GET
AWAY! Too many business
brokers do not do ANY due
diligence in pricing their
businesses for sale and most
sellers do not have any
concept on pricing a business
to sell. IN ADDITION, "my
accountant told me" is also
not a valid reason because an
accountant places a hard value
on a business NOT a market
value as is needed when
selling a business.
There are many
models used by business
brokers in placing a market
value on businesses for sale.
In some form of the analysis,
a cash flow (true profit) and
true gross sales figure needs
to be determined. If real
estate is involved, it should
be added in as a separate
figure
The following
independent pricing models are
widely used by business
brokers and accepted
throughout the industry - it
is also easily verified (not
including real estate)...
-
Cash Flow x
Industry Multiplier usually
2 - 4 ( cash flow is the
bottom line + all
unnecessary expenses added
back into the bottom line)
depending on industry and
growth.
-
Cash Flow x
1.5 - 3 + all equipment and
inventory (depends on
industry & growth)
-
70-80% of
gross sales for retail or
manufacturing related
businesses (depends on cash
flow)
-
60-80% of
gross sales for food related
businesses (depends on cash
flow)
-
50-60% of
gross sales for service
related businesses (depends
on cash flow)
If you
encounter a detailed and
confusing market value formula
from business brokers then we
suggest stepping back because
an old ploy by some business
brokers is to complicate a
formula to where a buyer gives
up and trusts the business
broker or seller. If a
business broker can't give you
the cash flow and gross sales
values then move on AND DO NOT
tell them how they should
price their business (s)
because you could be held
liable without a valid
business broker contract in
place.
NOW, if you are
given a cash flow figure - ASK
the business brokers to show
you how the cash flow was
determined. Basically take the
net profit/loss from financial
statements then add to this
figure various discretionary
expenses. Here is a basic
guideline to use...
-
Take the net
profit/loss
-
Add
depreciation, amortization
and interest
-
Add owner's
compensation and/or salary
-
Add any
expenses that were personal
in nature (ask them)
-
Add any
expenses that are not
necessary to do business
(ask them)
Lastly,
ask the business broker or
seller for comps on an average
of what other similar type of
businesses are selling for -
including the source where
he/she is getting this
average. While a seller might
not have this, a business
broker most certainly should.
Knowing the comps will allow
you to determine your own
basic market value of a
certain business or industry.
BSN has certified all business
brokers in our network
Talk to your broker about
this newsletter
ALL BSN business brokers
have completed our
comprehensive 3-day training
seminar and are active
members in our ongoing
training and vast support
network.
We train and support
business brokers throughout
North America with the most
comprehensive network in any
industry. BSN Brokers
complete a 3 day
comprehensive training
certification program then
find his or herself
supported and backed by toll
free support, the world's
largest interactive broker
network and/or any other
help they need to succeed.
Brought to you by certified
brokers of
Broker
Service Network Inc.
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Businesses For Sale Newsletters by Broker Service Network Inc.
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