Comments on: My Boss Wants to Sell Me The Business http://upandrunning.bplans.com/2008/07/02/my-boss-wants-to-sell-me-the-business/ Start, Run, and Grow Your Business Fri, 17 Feb 2012 18:41:05 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Frank D. Thomas, CPA, CVA http://upandrunning.bplans.com/2008/07/02/my-boss-wants-to-sell-me-the-business/#comment-222 Frank D. Thomas, CPA, CVA Fri, 04 Jul 2008 03:52:07 +0000 http://upandrunning.entrepreneur.com/?p=299#comment-222 I agree with Ken that you should start with the financials and tax returns. The value of a business is usually based on a combination of the following: 1. The value of the assets purchased (such as accounts receivable or inventory) less any liabilities assumed (such as accounts payable, payroll liabilities or loans). Intangible assets, such as goodwill, which may not be recorded on the balance sheet can also be a factor. 2. The amount that comparable companies have sold for. For many small businesses, truly comparable data may be difficult to find. Pratts Statts is a good source of this data. 3. The cash flow stream that the business can produce for the owner over and above a reasonable salary. For a small business, this is a very meaningful measure. If you are not able to make investment income in addition to your salary for your services, you are buying a job. The investment income must be enough to justify the purchase price. Not all lawyers and accountants are experts in the valuation of a business. You should consider hiring a business valuation professional or an accountant who has experience valuing businesses. Frank D. Thomas, CPA, CVA www.BusinessValuationConsultants.com www.AECG.biz I agree with Ken that you should start with the financials and tax returns.

The value of a business is usually based on a combination of the following:

1. The value of the assets purchased (such as accounts receivable or inventory) less any liabilities assumed (such as accounts payable, payroll liabilities or loans). Intangible assets, such as goodwill, which may not be recorded on the balance sheet can also be a factor.

2. The amount that comparable companies have sold for. For many small businesses, truly comparable data may be difficult to find. Pratts Statts is a good source of this data.

3. The cash flow stream that the business can produce for the owner over and above a reasonable salary. For a small business, this is a very meaningful measure. If you are not able to make investment income in addition to your salary for your services, you are buying a job. The investment income must be enough to justify the purchase price.

Not all lawyers and accountants are experts in the valuation of a business. You should consider hiring a business valuation professional or an accountant who has experience valuing businesses.

Frank D. Thomas, CPA, CVA
http://www.BusinessValuationConsultants.com
http://www.AECG.biz

]]> By: Ken Pirok http://upandrunning.bplans.com/2008/07/02/my-boss-wants-to-sell-me-the-business/#comment-221 Ken Pirok Wed, 02 Jul 2008 18:53:36 +0000 http://upandrunning.entrepreneur.com/?p=299#comment-221 Start with the financials. You should expect the owner to provide you with full statements, tax returns, and possibly even a budget if he's been on the ball. These will help you and your accountant or consultant figure whether it's really worth $500,000. Then, negotiate. If he's motivated to sell, and he trusts you, then he will probably willing to help finance the sale. This will help you, because you'll need less outside financing and because the seller will remain an interested party. He'll be motivated to help you out when you need it. Start with the financials. You should expect the owner to provide you with full statements, tax returns, and possibly even a budget if he’s been on the ball. These will help you and your accountant or consultant figure whether it’s really worth $500,000.

Then, negotiate. If he’s motivated to sell, and he trusts you, then he will probably willing to help finance the sale. This will help you, because you’ll need less outside financing and because the seller will remain an interested party. He’ll be motivated to help you out when you need it.

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