A successful buyer actually buys "cash flow." Regardless of the attractiveness of a particular industry or individual product, when you buy a business, you are simply buying a capability to produce cash flow. This cash flow is the discretionary money you have at your disposal once the operational costs of the business are met. This is the money that you as an owner have available to pay yourself a salary, provide yourself benefits or perks, invest as capital to grow your company, or perhaps use to start or acquire additional companies or assets. The following actual listing illustrates how to identify cash flow worth buying:
Category : Residential Construction SIC : 1521
Detail : Custom Homes/Remodeling Price : $840,000 Sales : $1,200,000
Down: $ 290,000 Cash Flow : $332,000
County : Harris
State : Texas Country : USA
Work 25 hrs a week. Generate $330,000 in cash flow!
Oh, and for a modest amount, the seller will stay for up to a year to teach you the business if needed.
This residential custom builder and remodeling company has sales of $1.3M, margins that have been increasing to unheard of levels (40% on some remodelings), an unparalleled reputation that has built a local customer base that is a "referral machine", and dominates their market in NW Houston. In 24 years of business they have not had a single complaint with the Better Business Bureau - a feat almost unheard of in the construction industry! This is a business built on a solid foundation, producing great return for the owner, and limited only by the number of hours the owner was willing to work. All the numbers are moving in the right direction, and after 21 years the Seller is retiring "at the top of his game." This is a fantastic opportunity, with pricing based on a third-party valuation, and the Seller willing to provide up to 25% financing. This business merits strong consideration for any serious buyer. The current year is already setting records with sales projected to top $2,000,000!
You can see that even with a $290K down payment, you would pay yourself back in one year - and then have the same $290,000 to invest somewhere else, while also having $230,000 a year coming into your pocket after you pay the loans to the bank & seller. That amount climbs significantly after those debts are paid off - and we're assuming that you do nothing to grow the business!
Each of the Businesses for Sale listings are actual opportunities that produce cash flow that are available for purchase. It's important to note that the purchase price has a direct effect on how soon you, the buyer, will make back your original investment (i.e., down payment). Good, quality businesses should have a "valuation" by an independent organization that establishes this purchase price. This valuation gives all parties involved confidence that a company has verifiable cash flow, and has a value that is set by experienced specialists analyzing both the business and the marketplace, not just the estimates of the seller, buyer, or broker. It is simply folklore that a "rule of thumb" multiple of sales, etc., provides an adequate valuation. It does not. This affects you as the buyer because a poor valuation, or no valuation, may mean you pay too much, don't break even soon enough, or produce insufficient cash flow from the investment you make. You would never purchase a home without an appraisal; you should not purchase a business (that is worth many times your home value) without a valuation. When you have identified a business opportunity you're interested in, contact us and we'll discuss with the seller whether a valuation has been conducted, or they can contract for one with us if it has not. We strongly encourage all our sellers to obtain a valuation - it always helps when a buyer requires it also.
In addition to determining the cash flow you are purchasing and getting a proper valuation, the third part of making money is in the contract terms of the purchase. The terms will determine how much down payment you will make, the assets you will or will not purchase as part of the company, and how you will finance the balance of the purchase with the owner, your angel investor, or the bank. Every purchase is different, but the terms must be structured in a manner that is a "win" for both the buyer and the seller. It is easy for you the buyer to specify terms that make your postion simple with little risk. Unfortunately, that typically makes the seller's position more complicated or with high risk. That's the same lesson for the seller. You must think of the impact on the other party's position in order to reach terms that will result in a successful purchase.
In all of this you can see clearly how we can assist you. We find, qualify, and present to you only businesses that provide excellent cash flow. We assist sellers in collecting the necessary information and providing a valuation service. And lastly, we work with you and the seller in structuring the terms to ensure that you both walk away with a "win." Browse our Businesses For Sale, and Contact Us know the ones that meet your requirements, or let us know your general requirements so that we can find a business that meets your specifications.