Help: I want to buy a business

[kobe_bryant]

I have a question for you guys.


I want to buy a business off a friend. The business is 20 years old, has been constant, and will be steady for another 20 years. I am having a hard time coming up with a number to offer him.

He has told me that I will gross $10,000 per month. This business isn't sales driven so it wont dip or go up, like I said, constant.

How do I determine a value on it? Do I pay X months worth? 2 years worth? Is there anything I should base my offer on?

Any info would be great.

[NASpurs]

Dude, you're Kobe Bryant. I'm sure money has no value for you.

[Kori Ellis]

He has told me that I will gross $10,000 per month.

How much will you NET?

[mikejones99]

you should be having a party now that the lakers are sure to go to the finals

[NASpurs]

Find out how much the company has in assets that are short-term and long-term as well as the liabilities because you don't want to buy a bussiness that may make a gross of 10,000 but be in the hole 20,000 (it's possible) which is why I'm sure Kori asked you how much you'll net.

[kobe_bryant]

I am left with 40 percent, so I will have 4 grand each month.

Basically I am buying all his contracts that he has. He has had some contracts for over 20 years. A contact is basically open-ended, the client can opt out any month, so technically there is no guarantee that client will stay. We go month to month.

Zero liabilities, his assets are his contacts (10, 000 per month)

[kobe_bryant]

yes, i am happy we got gasol.

[exstatic]

Also, write a non-compete agreement into any sale. He or she should not be able to open a business, of whatever type you are buying, in town for a period of time, usually a year or two, but it could be longer depending on the type of business.

Don't do this over a cracker barrel. Get legal help, and draw up a contract.

[tlongII]

Determine what the net is. Then calculate what the present value of a 20 year annuity of that amount is (you a reasonable interest rate). That should get you fairly close.

[2centsworth]

Determine what the net is. Then calculate what the present value of a 20 year annuity of that amount is (you a reasonable interest rate). That should get you fairly close.
and totally overpay. 1 x sales or 2 x net income is a good rule of thumb. Using your calculation the poor dude will go broke.

my advice, hire a professional to help you do the analysis.

[L.I.T]

and totally overpay. 1 x sales or 2 x net income is a good rule of thumb. Using your calculation the poor dude will go broke.

my advice, hire a professional to help you do the analysis.


I agree, take a look at what his yearly revenues are. Based on the business and consistency of income generation, you'll probably be looking at paying 1.5 to 3x that yearly number.

Take a hard look at what the assets are you're acquiring though; if you're buying existing contracts with guaranteed income or just the names and contact list.

Along with a lawyer, talk to an accountant as well; they'll be able to let you know the actual value of the corporation.

[Ed Helicopter Jones]

and totally overpay. 1 x sales or 2 x net income is a good rule of thumb. Using your calculation the poor dude will go broke.

my advice, hire a professional to help you do the analysis.

You rang???




Seriously, 2cents advice is very true. A full fledged business valuation can run a client anywhere from $5K to $20K+ depending on how much time is involved. A lot of people balk at paying that kind of money, but a formal valuation study by a CVA or AVA could let you know a reasonable value of the business and also inform you if you're about to throw money down the crapper. Make sure you deal with a certified specialist if you get a valuation performed. There are a lot of wannabe valuation analysts out there.

A formal valuation can save you a lot of headache down the road, and in my opinion it's always money well spent.

[TDMVPDPOY]

i was going to contribute but everyone has summed it up for you already....

caculate net worth of business,

do a budget cashflow analyst for the coming future how much you will earn, see if its operateable in the future under ur control,

goodwill is deductible over a number of years if you are going to overpay for his share in the business

write up a contract his not to operate a same business like this within period of years or in teh radius kms of ur business, cant steal customers to his new business....

ps. you do know his going to get pwn when you overpay for his share of the business, since he has to pay tax on that crap hahahahahaha

[Wild Cobra]

Just a general thought from me is that I have in my life, only seen two good businesses sold. People do not sell good businesses unless they want to move, retire, etc.

Keep that in mind.

Yes... the no competitive contract issue... I know you said he's a friend, but what would keep him otherwise from starting a new business, and taking back all the business?


I am left with 40 percent, so I will have 4 grand each month.
Is that your net after taxes too, or your personal gross before taxes? That's really not much for the headache of a business. I make more than that with a regular hassle free job! Benifits too! What about your own cares for retirement, health care, etc? Surely none of that is part of the $4,000 monthly.

It still may be net after tax, what? Chapter S business?

Keep this in mind. That $10k per month is $120k annual. The democrats want to raise the tax rates, or at least not reauthorize the soon to expire tax cuts. This would affect personal businesses like this. That 40% could easily drop dramatically if we get a democrat, or even McCain as president!

Make sure you get tax advice on possible tax code changes too.

Oh, another thing...

Is that $4,000 before or after paying both ends of the payroll tax of 15.3%?