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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 Cash Flow?
We analyze the cash flow of each business to put it on an even
footing with every business, no matter how the owner takes the
profits out of the business. We usually define cash flow 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.
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?
Evaluating opportunities on behalf of our clients, allow them to
consider situations that they would have an interest and match
their 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.
To learn more about purchasing a business, complete our
Request Information form and a VR representative will
contact you shortly.
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