The buyer has an opportunity to make business growth decisions with tax deductible investments in their future while they build the value of their business. Upon purchasing a business, business goodwill/personal goodwill, fixed assets, and building purchases will provide depreciation benefits while the buyer builds their new company.
We always recommend that buyers seek the professional guidance of a Certified Public Accountant (CPA) – NOT a “certified tax expert.” That is not an actual credential.
We take many elements into account when determining the price of a business. We review historical financials, cash flow, asset and equipment values, condition of the premises and lease terms, location of the business, competitors and the economy before deciding on the sell price. We also consider recent transactions of similar companies – both ones we have represented and transactions outside of our brokerage through paid data sources.
Absolutely! As a mergers & acquisitions firm, we are well connected with the representation you will need as a buyer. We have a wide referral system throughout the Southeast and can assist you in finding the right attorney, CPA, and any other representation you may need.
Absolutely! Backed by the Small Business Administration, SBA loans are offered on 10-year terms which is very attractive when compared to a real estate loan, which is usually around 30 years. SBA loans also provide reasonable down payments of 10-20% and come with fixed interest rates for the entire ten year term. SBA loans can help just about any buyer finance a new business venture while maintaining financial flexibility.
Goodwill is the difference between the total value of a business and the value of other “hard” assets, inventory, and equipment. All prospering businesses have goodwill, and the price of goodwill is calculated on how engaging the business is and the financial aspects of the business, such as cash flow. When you hear discussion of “multipliers” involved in business valuations, usually the multiplier is for the goodwill and is based on cash flow, net income, or in some more rare cases, on revenue.
Put another way, goodwill is essentially everything that is left once you strip away the physical “stuff” like equipment, inventory, real estate, etc. The most common examples of goodwill elements are the value associated with repeat/recurring revenue, the company’s brand, the value of the existing employees, marketing lists, website or internet assets, proprietary software, and most any “intangible” assets.
This can be tricky because we’ve learned over the years that everyone’s definition of each of these terms can vary just a bit. Generally speaking, the profit (or net income) of a business is the amount of money left over after all expenses are accounted for.
Cash flow is the total amount of money being transferred into and out of a business. Cash flow considers not just a business’s profit, but also typically factors in other owner benefits, interest paid or received, depreciation, amortization, etc. This number shows how much cash the business is producing (which could be different than its profit from normal operations).
Discretionary earnings are owner benefits, EBITDA, and all expenses that are not applicable to the new owner. For instance, the current owner may currently have a more expensive office than you plan to have, or they may be leasing a vehicle you do not plan to use, or any other expenses that will not apply to you if you buy the business. Remember though, this definition can vary from one person to another.
At Viking, we make it a standard practice to re-cast the financial statements when a buyer is first reviewing a listing in order to give buyers an “apples to apples” comparison and to minimize the potential for misunderstandings in the post-offer due diligence phase.
This varies with each seller. Some sellers are willing to finance a portion, but most sellers are reluctant to finance much of the sale price. The terms or length of the financing period also vary. This said, most transactions below $5mm will involve an SBA-backed loan to assist in the purchase of a business. This is a loan that is government backed and offered at competitive rates. Think of it like a mortgage when buying a house – most people make a down payment and then mortgage the majority of the total cost.
Due to the confidentiality of selling a business and the sensitivity of having tax returns and financials sent out to all “prospective” buyers, we provide a summary of the financials and a profile on the business to all qualified buyers at the onset of the process or at the time a buyer wishes to meet with a seller. After that initial visit, we make this information available to the buyer for viewing prior to making an offer. Once an offer is accepted, the process enters the due diligence phase where the buyer is given complete, detailed copies of all necessary, requested financial statements.
Many small businesses fail within the first year or two after starting up. By purchasing a business that is already up and running, you eliminate many of the risks associated with a failing business. An established business has a proven track record, a proven/vetted business model, a customer base, trained and experienced employees, and most importantly, positive cash flow for the new owner. Along with lower risk, often the business’s growth accelerates when a new owner brings fresh ideas and new energy to the existing fundamentals. In addition, you start off with positive cash flow and the ability to draw an income. Conversely, most new businesses take a while to build up enough business to generate a substantial income for the owner.
For more information, see our article on Buying a Business vs Starting a Business (Pros & Cons).