Understanding A ‘Business for Sale’ Advertisement

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What is A Business Sale Advertisement?

Unlike typical advertisements for real estate on the MLS or other websites, advertisements for businesses are confidential and do not disclose the actual name or specific location of the business being advertised. They are commonly referred to as ‘blind ads‘ and a buyer must be qualified and sign a non-disclosure agreement before receiving the confidential listing information.  Let’s analyze the content of the typical business listing advertisement so potential buyers viewing these ‘blind ads’ can make the best informed decision as to whether or not the listing is right for them.

Where are Business Listings Advertised?

Various websites contain the current businesses being advertised for sale in Florida.  It is free to view such ads and one not need to be a broker of any kind in order to do so.  Potential buyers may narrow down their search to businesses for sale in Palm Beach County or in any other specific geographic region. For Palm Beach County, a couple hundred or so ‘blind ads’ will show a range of businesses for sale from $25,000 or so up to $10M or more in asking price. Additionally, one may find businesses for sale being listed by individual business brokers on their own websites.  The best way to being a search for business listings is simply to go online and use a reputable website such as bizbuysell.com in order to view the available businesses for sale in one’s particular search area.

Advertised Financials In Business Sale Listing

  • Once a business listing of interest is located, the most important items that appear will be the asking price, the gross revenue, and the cash flow.
  • The websites in which the business sale advertisements appear mandate that these items be inputted and must appear in the ad.
  • If the revenue or cash flow items are blank, it means that the business is a start-up or an ‘asset sale’ with no advertised profits.
  • The gross revenue simply refers to the total sales (not the profits) that the business made in the last twelve months.
  • The cash flow simply refers to the net profits of the business in the last twelve months.
  • A professional business broker ensures that the cash flow reflects the true ‘owner benefit‘ of the business.
  • The owner benefit is defined as the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) plus any other adjusted benefits (such as owner’s salary or personal expenses paid for by the business).
  • Importantly, if the advertised gross revenue and cash flow are round numbers (such as $500K of gross revenue and $100K of cash flow) then it is certain that the advertised financials consists of estimated guesswork by the seller or by the seller’s broker.
  • This is fairly common and does not mean that the business is not worth purchasing, but a buyer should recognize that a comprehensive set of financials (such as tax returns or profit and loss statements) will probably not be available.
  • In any event, a buyer should pay close attention to the advertised asking price, gross revenue, and cash flow in order to initially determine if the business listing is worth pursuing.

Content of Business Description In Business Sale Advertisements

The business description is the main body of the advertisement where the broker describes the business and reveals as much pertinent information as possible (without disclosing the identity or specific location of the business) so that the reader truly understands what is being sold. The description should describe what product or service the business offers, the competitive advantages of the business, how a buyer can improve and grow the business, and how involved the seller is in the business. If the advertisement is so vague and unclear that the buyer can not get the simplest of questions answered, then typically the business will not be very attractive or the advertisement is simply not up to date or not current. A serious buyer will take the time and closely read the content of the business description.

Physical Assets Disclosed in Business Sale Advertisements

Below the business description, a business sale advertisement will disclose the inventory and the ‘FF&E’ or furniture, fixtures, and equipment. These items will also be disclosed as being included or not included in the asking price. Inventory consists of items that can be resold for value. When viewing any business for sale in the retail category, it is especially critical to view the inventory column and determine whether or not it is included in the asking price. The FF&E refers to non-inventory physical assets such as equipment and leasehold improvements. The advertised equipment value should be its depreciated value. Often, the business description will identify and elaborate on the inventory or equipment and their condition.

Reason For Sale Disclosed in Business Sale Advertisements

Also below the business description, the business sale advertisement will disclose the reason for sale. For many buyers, it is crucial that the seller is selling the business for the right reasons. Buyers much prefer to buy a business when the seller is seeking retirement after a long and successful ownership period. Conversely, buyers tend to steer clear of business sellers who seem to be selling because the business is just not doing well. A professional business broker should give a coherent reason as to why the business is for sale. If the business is in a ‘turnaround’ situation necessitating new management, then some buyers may actually embrace such a situation and will appreciate the seller’s honesty.

Buying a business can be a lengthy process, but by using the above guide, buyers will be able to more clearly and efficiently view business sale advertisements. After all, a journey of a thousand miles begins with a single step!

Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.

 

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