Buy it low and sell it high…
easier said than done!
You need to first find something interesting enough to actually buy and potentially have to work at each and every day. Without first accomplishing that, none of the following is going to matter in the least. Passion is a necessity if you are going to make a business work out long term; it takes real “unique” individual to find success while feeling absolutely nothing about what they are doing. So, find something that you can at least sink your teeth into a little bit, something that has at least a moderate level of appeal to it.
Now, lets put a price on that feeling
Hopefully you have either hired such an amazing business broker, or have spent enough time tirelessly hunting and researching, that this part has been taken care of already. Either way, you will unfortunately find that most business owners are simply asking to much money. They feel their company is worth, but when asked to substantiate those claims they can not articulate any good reasons beyond these emotions. Feelings are important in certain areas of life, but when analyzing financials that will drastic impact on your future well being you want to be as cool, calm, and detached as possible.
Valuation is a true artform
Some may consider it more of a science, but the fact of the matter is that there are just too many variables to be considered so. Each business is going to be unique, like some beautiful money making snow flake, and although there are some basic principles to heed, there is no clear cut formula that works across the board. If you are interested in expanding your skill set, you should check out this great training course; learning these skills will put you in a whole different league.
Tips for buying a business without hitting the books
Ask yourself if it is profitable business as it stands and if you are capable of at least maintaining the same level of operations. You do not want to buy a business assuming that you can drastically increase revenues, unless you are buying it at an extreme discount and you are very familiar with the industry. If the business is earning enough money to support you, your family, and and any other financial obligations that you may have, go ahead and take the next step by verifying the claimed income. Some people will report all of their income on their taxes, while others may not choose to do so for various reasons. If the latter situation ends up being the case, you need to find a reliable way to ensure that you are not being lied to or taken advantage of. Sit at the store for a month if that’s what it takes; whatever you need to do stay committed to seeing it through all the way.
Done and done. Now when do I get the great deal?
Now is the time to start your negotiations as you finally possess the information needed to make an educated decision, and potentially to use as leverage. Do not offend the seller by making a ridiculously low offer at first; you most likely have been making them jump through hoops for quite some time now and they may be just a little touchy. If you have a rough idea of what they are really looking for, bottom line, start by offering a good 30% below that. You will be surprised at how many times they just take the deal without even flinching. No, that does not mean that you left money on the table, as you have already taken our previous advice and know what that business is truly worth. But, if you just have no idea how low they are willing to go, they are just all star poker players that you are stuck dealing with, take a general stab at it and be ready to defend your position with some verifiable data. It is hard that mad, at least for too long, when faced with the raw numbers. There is no ambiguity when the data is analyzed properly. At this point in the relationship, you should also have a good idea of why the seller really wants to get out of the business; whether they told you upfront or you ended up piecing it together on your own. Use this too your advantage, but do so without crossing the proverbial line, as ultimately you are both seeking the same thing in the end, just at different valuations of course.