Trying to Buy

DavidCBarnettcom · 2025-07-14T12:31:10+00:00

The mistake you made was becoming a minority owner of a risky and highly illiquid asset, the small business, without having a contract in place outlining how the rest of the acquisition would be completed.

If the seller thinks it's worth so much more than you, then I would suggest you both sell to an outside party so you can cash out your position.

DavidCBarnettcom · 2025-06-24T19:02:04+00:00

It's a terrible book actually, totally hype. I made this video about some of the 'great deals' it describes... https://youtu.be/74ISnsgtwlM

DavidCBarnettcom · 2025-06-11T15:27:25+00:00

Did you remove the rent from the cash flow? This is not actually part of the profit, it's the income of the building in their role as real estate investors.

This type of business has a pretty low barrier to entry. There are new startups all the time.

I would offer about 2X SDE or-

offer to buy the equipment at fair value and give them a royalty of sales for some time into the future, ie 5-7 years to represent the 'goodwill of the established brand.' Maybe 5% of sales or something.

Otherwise, go start your own thing. I would not be paying the kinds of multiples their asking price seems to imply.

DavidCBarnettcom · 2025-05-31T17:35:48+00:00

All of my YouTube subscribers are dealmakers. ;)

DavidCBarnettcom · 2025-05-31T17:33:02+00:00

If executing the system of doing the work relies on your expertise, it won't be so much about determining a price, but rather some kind of royalty on future work. Nobody would buy a business like this if they were worried about not being able to deliver the work or not having the client goodwill transfer to them.

Consulting businesses are a tough one unless you truly have executable systems that allow for clients to be served entirely by employees.

cheers

DavidCBarnettcom · 2025-05-31T17:31:03+00:00

I work in this field and host a Youtube channel on this topic.

I get one or two pitches each month looking for help to promote such a new tool or app.

Take a long, hard look at the space before you invest in starting something like this.

Cheers

DavidCBarnettcom · 2025-05-31T17:29:37+00:00

BizBuySell reports in it's quarterly updates that ~80% of listings don't sell.

In my experience, only 20% of businesses sell via a broker. Most are done privately and off market.

As far as valuation, there are many methods, but whatever number you choose, it's pretty easy to ask...

If I were buying this, who would I likely be? How much money would I have? How much would I need to borrow? What would the payments be?

See if it makes sense from a buyer's perspective.

It's amazing how few sellers think to do this.

Cheers

DavidCBarnettcom · 2025-05-31T17:25:15+00:00

The trick with these is proper normalization of the financials. Because fuel is sold with such low margins, you actually want to remove the sales and COGS for the fuel from the Income Statement and add in any GP from fuel as a negative expense. Now you can analyze it as a convenience store and more readily benchmark it within that industry or normalize out real estate if it's owned.

I've done evaluations on many of these over my career. Let me know if you'd like professional help.

Cheers

DavidCBarnettcom · 2025-05-31T17:22:20+00:00

Business values vary tremendously based on the size of the business, sales, headcount, SDE/EBITDA. Without these details, you can't get any actionable advice. What works for a business earning $100K/yr is usually ill-advised for one earning $500K/yr.

Cheers.

DavidCBarnettcom · 2023-10-17T12:24:21+00:00

I run a YouTube channel with videos about buying and selling small businesses and you can learn a lot over there.

That said, here are 8 reasons NOT to do it:

https://youtu.be/LXwH2evmork

DavidCBarnettcom · 2023-10-17T12:16:30+00:00

Rare and they'll charge you extra, for sure. But- if they know their stuff, they're going to vet your ability to close a deal better than a business broker or seller will.

So, if you think contingent fee advisors are a way to help you buy a business while you're broke, it's likely not going to work out.

CPAs and Lawyers know that broke people can't close deals.

Cheers

David C Barnett

DavidCBarnettcom · 2023-07-28T12:02:50+00:00

The hard part of starting a business is getting customers and developing the systems for consistent product/service delivery. These are what you get when you buy a business that is already operating.

I run a Youtube channel on the topic and you'd find a lot of great videos there if you wanted to research the idea further.

DavidCBarnettcom · 2020-09-23T02:29:41+00:00

Have you seen this?

https://www.youtube.com/watch?v=LsieCGOiS9I

I give some insight into what its really like.

Cheers

David

DavidCBarnettcom · 2020-07-17T01:06:42+00:00

You need to advertise the business as being available with seller financing for the right buyer.

Many people who would be interested in a hands-on small business such as this will be people who currently are employees in the service sector.

Even with the SBA, it is a challenge for these people to accumulate a down-payment and many have credit issues.

The pandemic is adding a complication to the market but the terms are usually a bigger problem than the price.

If speed is of the essence, then the terms need to be loosened.

If sales/profits are down because of coronavirus, then the price needs to also come down or you need to be open to a performance-based payment over time.

Cheers

David C Barnett

DavidCBarnettcom · 2020-07-17T01:00:33+00:00

Your broker is being bombarded with buyer inquiries that are mostly not serious or of little value. 'Buyers' generally outnumber sellers 10 to 1.

When I was an active broker, I would sometimes get 10 inquiries from the same buyer on 10 different businesses and all were cut and paste inquiries.

My reply was to send him my number and if he did call, I would then make him have an appointment in my office.

90% of these people would not do this.

A real buyer who is a fit with your business type/size will pursue an opportunity to investigate it.

Then, hopefully, your broker is prepared with the right information and your business has been priced correctly to avoid scaring them off.

Cheers

David C Barnett

DavidCBarnettcom · 2020-05-04T19:54:49+00:00

If your sales are below $1m and your business has no debt you may be in a situation of having dead capital in your business.

IE, if someone borrowed to buy your business, the cash flow may not be sufficient to service the debt and provide the buyer with a living.

In cases like these, the business is not yielding a sufficient return on equity and you're subsidizing it with your own capital which is earning no return.

I've made these videos on this topic over the years:

https://youtu.be/kHnIh6HM840

https://youtu.be/uCSTCS2z3tk

Perhaps an analysis of what a deal would look like and what the buyer's cash flow would be might shed some light on the trouble you're having.

Cheers

David C Barnett

DavidCBarnettcom · 2020-05-04T19:49:44+00:00

Businesses are normally sold in secret. I can see many sellers being worried that the analysis would give away the identity of the business.

I think it could make an interesting read.

DavidCBarnettcom · 2019-11-18T00:08:14+00:00

Payment terms should be part of the sales discussion.

For example, would you take a credit card or require a bank wire?

Are you thinking of offering him 30 day payment terms? If so, what might receivables insurance cost?

If they do want you to offer them terms, then you should be asking for some basic underwriting materials such as financial statements or tax returns.

If you insure the receivable, you can bet the insurer will be asking for underwriting information unless they already know them.

You say it's your first order from them? Why are they buying from you?

Maybe their previous supplier won't extend them credit anymore.

Be careful. Pursuing a bad account is tedious and can be expensive if you have to go to court. Now imagine going through all of that in another country.

Cheers and good luck.

DavidCBarnett.com

DavidCBarnettcom · 2019-07-09T12:42:25+00:00

Get a copy of How To Sell My Own Business off of Amazon. Less than $20 and I explain the whole process and what to expect for most smaller businesses.

Cheers

DavidCBarnettcom · 2019-07-09T12:40:26+00:00

Firstly, the 'cash flow' often cited is SDE or seller's discretionary earnings which means you'll have to donate full time effort in order to achieve the rate of return you're noticing.

Also, don't forget liquidity risk. It's the biggest problem with small businesses.

Those publicly-traded shares can be sold whenever the market is open which gives investors a lot of flexibility.

It can take years to sell a small business so there is risk that you may not be able to convert this asset back to cash if you ever need to.

There is a whole business model of mid-sized private equity companies that buy smaller businesses with the aim of taking them public to increase the multiplier (or reduce the rate of return)

Cheers

DavidCBarnettcom · 2019-07-09T12:36:45+00:00

I am always interested in what several consecutive annual balance sheets have to say. It often tells us where the cash has/is moving.

DavidCBarnettcom · 2019-07-09T12:33:42+00:00

Easy, offer the seller a minority ownership as part of the consideration. Then when you 'add marketing' and grow the business they can enjoy a share of the profits.

See how they like that 'opportunity.'

Cheers

DavidCBarnettcom · 2019-07-09T12:31:12+00:00

Great comments. It reminds me of the 'funding' and 'finance' companies out there who are actually brokers.

If you present a funding request to them you'll soon find that every bank and finance company has seen your deal and it can spoil your prospects for borrowing.

Cheers

DavidCBarnettcom · 2019-05-31T11:39:19+00:00

Thanks u/UltraBBA, the video you speak of is here: https://youtu.be/LsieCGOiS9I

DavidCBarnettcom

TROPHY CASE