WHAT’S A FAIR PRICE FOR A BUSINESS?
Your average buyer would have no way of knowing whether the business is priced fairly. How then does a buyer determine if the business has been priced fairly?
I CAN HELP YOU DETERMINE THE FAIR PRICE OF A BUSINESS
It’s easy when buying personal items to search the internet for the best price.
Not many buyers would walk into an Automobile Dealership and pay the full sticker price for the car. With proper research, a buyer can usually determine what is a fair price for just about anything they might buy.
The exception is when you are buying a business – not all businesses are priced fairly. To determine the price of a business, usually, a Business Valuation is done. This determines the true cash flow of the business.
Businesses are priced according to multiples of cash flow.
Due Diligence is the process where a buyer whose offer has been accepted may examine all financials. Unfortunately, unless the buyer has some accounting or bookkeeping experience – it’s almost impossible to determine true cash flow without a business valuation
However, there is GOOD NEWS
Businesses that are LENDER PRE-QUALIFIED have had their 3 years’ financials thoroughly examined by an SBA lender (bank). The bank focuses on whether there is enough cash flow for a buyer to make payments. Confirming there is sufficient cash flow for payments on a business loan, the SBA bank will loan the full asking price with only a 15% down payment.
Because the bank has reviewed the financials – much like a buyer would do themselves during due diligence, they will generally loan 3x cashflow for the purchase of the business.
For example – a business creating $200k cashflow would be priced at $600k with only $90k down.
BUYING A LENDER PRE-QUALIFIED BUSINESS ELIMINATES PROVING CASHFLOW DURING DUE
ADVANTAGES OF BUYING A LENDER PRE-QUALIFIED BUSINESS:
- Financials have been reviewed and approved by the SBA lender(bank)
- SBA requires on 15% down payment
- Lender Pre-Qualified purchase simplifies Due Diligence – SBA lender has already determined cashflow and has approved a fair selling price based on cash flow created by the business https://imabusinessbroker.com/business-valuation/