1. Welcome to the Business Broker Services, Inc. Blog.  March – 2012

Feel free to send your Questions to marcia@businessbrokerservicesinc.com (then look for the answers)

Question from Tom P. about the pricing of a busines that he is looking at:

If the discretionary cash flow of the business is only $125,000 – do (I) you think that it is overpriced because I (Tom) do?

I asked Tom to send over the spec sheet on the business (reminding him that he signed a non-disclosure and I DO NOT want the name of the business-just the spec sheet)

Without doing an actual Certified Business Evaluation on the business – the first item that jumped out at me was the inclusion in the asking price of $300,000 worth of invetory.  So if the business was priced at $500,000 including $300,000 of inventory then the business is priced at $200,000.00.  The ad might have been rewritten to read $200,000 (selling price) with $125,000 profit – then somewhere in the depth of the add the buyer would find the need to purchase the $300,000 worth of inventory that brings in the cash flow of the business.  OR, perhaps the buyer could negotiate with the seller to buy “last in” inventory and purchase the remainder on consignment .  Hope this answer has helped Tom with his decision to make an offer on the business.

However, Tom should find out if any of the inventory is outdated – what is the actual amount of inventory sold to continue the $1,000,000 of gross sales -

When seeking the financing for the business the lender will want to know the turnover value of the inventory.  I suspect some of the inventory might be lethargic (just my opinion as I have not inventoried the inventory)!

I welcome your questions!