“If I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.” – Albert Einstein Ask Seller Prepared Questions When purchasing … Read more
What Is A Purchase Agreement? A purchase agreement in the context of business sales is the governing contract between the buyer and seller as it relates to the buyer’s purchase of the seller’s business. The deal terms, contingencies, included assets being sold, closing date, and the disposition of the deposit are all covered in the … Read more
What is Return on Equity? Return on Equity (ROE) is a financial performance metric that measures a company’s return on its net assets. The formula for calculating the ROE of a business is the net income of a business divided by its net assets (or shareholder equity). A high ROE for a business as measured … Read more
Business Valuations The value of a business is generally a multiple of its profits (or adjusted owner benefit) generated by the current owner of the business. The mean valuation multiple for businesses is about 2.5x its annual adjusted owner benefit but varies significantly by industry and by the specific attributes of the business. An accurate … Read more
Representations and Warranties Impact Business Sales The term ‘representations and warranties’ (also known as reps and warranties) refers to facts and assurances given to a buyer by the seller of a business as a part of the purchase agreement. Reps are statements of facts about the present and past condition of a business. An example … Read more
Roll Over for Business Start-Ups (ROBS) Some buyers of businesses obtain funding by tapping into their retirement savings from an eligible account (such as a 401K) without incurring taxes or early withdraw penalties. This strategy is called ‘Roll Over for Business Start-Ups’ (ROBS) and is recognized by the Internal Revenue Service (IRS) as an “arrangement … Read more
What is Return on Investment? Return on Investment (ROI) is a performance measure used to assess the profitability of an investment. In the context of business sales, ROI is a useful metric which gauges the percentage return that a buyer of a business expects to receive on the annual profits of a business compared to … Read more
Serious Buyers Have Realistic Expectations When purchasing a business, a serious buyer should have a well thought out set of realistic expectations. The expectations should be based on the buyer’s financial qualifications, knowledge of a specific industry or willingness to learn about a specific industry, and to what extent they are able and willing to … Read more
Training Period Common in Business Sales As a part of the vast majority of small business sales, the seller will agree to train the buyer (for free) after the closing for a set period of time. The seller may train the buyer on any and all aspects of a business including the management of employees, … Read more
Business Valuations Not Static Business values are not static and change over time based on financial performance, risk, and market conditions. The value of privately owned businesses are generally illiquid, or not easily converted into cash. This contrasts with the value of other asset classes such as publicly traded stocks or bonds which are liquid … Read more