SELLER SAYS: “It’s time to sell. I’ve got an established location and great clientele. I want to move on with my life.”
BUYER SAYS: “I want to buy a business. Can you find me a turnkey situation in great location with limited local competition and a motivated seller?
SELLER SAYS: “Here are my financial statements, leases and contracts. I’ve been waiting for an update of my financials since June from my CPA”.
BUYER SAYS: “I’ve never been in the industry, but because of my vast corporate experience, I know that by bringing my marketing and accounting experience, I can increase the sales, profitability and value of any business I buy.”
SELLER SAYS: “My financials need to be tweaked to show a net profit. I put a lot of personal expenses through the business and not all of the sales are showing on the financials (wink-wink). I want the asking price of the business to be based on what I claim the collections and business expenses to be, not what is shown on the financial statements and tax returns.”
BUYER SAYS: “How did you come up with the value? I’d like a business that has growing income, and is profitable. I don’t want to pay anything for the business value, only asset value. “
BROKER SAYS: “Most medical practices are valued at 2x Adjusted Net Income and 65% of Gross Revenue. Most spa businesses are valued at 4x Adjusted Net Income and 45% of Gross Revenue.
SELLER SAYS: “A buyer can make a lot more money that I did if they raise prices, change the therapist’s compensation program, bring in a med-spa partner and negotiate a new lease.”
BROKER SAYS (TO SELLER): “You are selling what you have today; revenue, cash flow, assets and liabilities. You are not selling blue sky or business based on changes the buyer could make. Be aware of the importance of the Curb Appeal of your business. The financial, operational and physical presentation of the business should look the way you would want it to see it if you were going to buy it yourself”.
BROKER SAYS (TO BUYER): “You are buying the business as it exists today; Assets, liabilities and cash flow. When you negotiate a price, there should be adequate cash flow to service the debt. The lease on the premises should be of adequate length to service the debt.”
BUYER SAYS: “Why should I pay for business value? I can build a facility from scratch in that new retail development downtown and save some money.”
BROKER SAYS (TO BUYER): “You are purchasing a known commodity and your investment carries less risk. You are banking on your ability to maintain and grow from and established base of business. You are not starting from ground zero. Some of the benefits of buying an existing business are (1) established sales. profit and cash flow (2) working equipment that is installed, functioning and licensed, (3) a lease that is in place and probably lower than today’s market rate (4) training and transition by the seller and the benefit of the Seller’s experience, (5) established business procedures and systems (6) established trade name and location that clientele identifies with this type of business (7) existing clientele that can be marketed to and build on and (8) the ability to walk in and operate a going business.”
Some other thoughts that help the deal get done. A successful transactions should remain completely confidential until it closes. An asking price is a starting point. The actual purchase price is finalized as negotiations progress. When one side tries to “win” or dominate the transaction, it’s unlikely that the deal will be completed. When Buyer and Seller respect each other’s perspective and enter negotiations with an attitude of cooperation, it is more than likely that a transaction will close to everyone’s benefit.