|
|||
|
|
|
|
|
|
 |
|
|
|
Questions & Answers about buying a business 1. What is a fair price for a business? Supply and demand determine the price of as business much as it does other products. If a business is especially desirable and there are few on the market, the price will be much higher, so it depends on how badly the buyer wants that particular business. A good rule of thumb is 2 to 3 times the owner's benefit, with a 30% to 40% down payment and a note to the seller using the assets of the business as collateral. If the business can pay you the income you need and make the payments to the seller, then it's worth the price. If the cash flow won't do this, then the deal needs to be restructured so that it will. 2. What is Cash Flow? We calculate cash flow or owner's benefit, as profit before income tax, one time expenses, depreciation, interest and owner's compensation & benefits. This is the amount of money the owner has available to pay himself, buy additional equipment, make note payments on the business and pay taxes. 3. What is Goodwill and what should I pay for it? Goodwill is calculated by subtracting the total hard asset value of the business (inventory, equipment, furniture, fixtures, patents, franchises, real estate etc.) from the total value of the business. The amount of goodwill you pay depends on what the cash flow is and how desirable the business is. If buyers didn't buy goodwill sellers would just as soon sell off their assets and close the business down. 4. Are there tax benefits in buying a business? We are not tax experts and you should ask your accountant, however it is our understanding that generally speaking tax deductions may be taken for depreciation on the fair market value of all the furniture, fixtures and equipment. The Covenant Not to Compete and the Training Agreement are frequently tax deductible at high levels.
Buying a business |
|