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Buisness Question

Dan Gurdeep
Posts: 2
10/01/2008 20:42:09
Hi

I've noticed that there seems to be a lot of "good" businesses, that you can purchase for less than what that business would make in net profit in a year (after wages, runnin costs etc)

I was just wondering if this seems normal, for a business that makes a net profit of say 100,000 per year to be sold at 80,000?

Many Thanks

Dan

5 Replies
Jordan Davies
Posts: 1
05/03/2008 14:23:44
No that would be a ripoff. Three times cash flow would be a good deal.ie business has 100k left after expenses and is selling for 300k
Jim Erickson
Posts: 3
06/03/2008 14:53:14
It really depends on what the 'true' discretionary earnings are for owner(s). For example, I was looking at financials for this one business which had a reported profit of $1,000 in 2007. Turns out they had major equipment purchases that would not be incurred for the next decade. Also, owner salaries were on the expense side of the income statement but owner distributions were not figured into the profit equation. By recasting the statements, the business value was over $1 million. One needs to be careful using rules of thumbs on reported profit.
Sandy Dodson
Posts: 3
04/07/2008 21:20:47
All three of you have given good reasons for using a business broker. A business selling for less than SDE has something wrong. Three times SDE is not always the right price for a business. Sometimes that is too high. Anyone who would advertise a business at reported profits rather than SDE is cheating themselves and is not using a qualified business broker.
paul hoge
Posts: 3
05/07/2008 18:07:46
Hi Sandy.....sounds like you know a good business broker......??????
William Day
Posts: 1
13/09/2008 22:24:44
Your answers only raise more questions. If 3 times SDE is right what about AR, Cash and AP? Does 3 times SDE and all of the above stay with the business or do they go with the seller? Also do not forget any notes payable.

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