Should You Knowingly Overpay For A Small Business Purchase?
I remember growing up hearing from sellers the following sales pitch for why I should pay them top dollar. "You can get fresh oats for a fair price or you can get oats that have gone through the cow for a lot cheaper." The other one I heard was "Quality remains long after price is forgotten."
After 20 years of being a business broker, I have heard every justification in the world for why this owner's business is special and deserve a price at top market.
The difficulty for a buyer is two fold. The asking prices are presupposing that the report sales and profit are applicable for this time frame, not the civil war. Ninety percent of the time the profit is a lie, which makes the asking price unimportant. For the remaining ten percent, where the profit and sales figures are accurate and based on the current month's numbers, the profit level becomes critical.
If it is a small profit, and only affords the owner a low wage, it is stupid to pay too much just for a job. If the profit is substantial and more then the buyer needs, it might actually make sense to pay top dollar or even more. .
The reason is that in this economic climate, the numbers of businesses making a desirable profit are so small that if you can find one of those "keepers" it is worth paying a premium to get it. If you over pay at least the business profit can support the extra cost and when all the loans are paid off the price will be forgotten.
Of course, if you are lied to about the numbers, then any price you pay is too much. The reason the sellers lie is because they know that if they told you the truth you would not buy the business at any price or at a price so low the seller figures he might as well just keep it.
So first make sure you have the business reviewed in and out and upside down. Put it through the audit from hell, and if it still looks after that, you may have found a diamond. In those rare cases, consider paying what you must, in order to not let that good one, get away.
About The Author: Willard Michlin, CPA (106752) offers business buyers Due Diligence Services (Second Opinion, Offer Assistance, Final Due Diligence) when they are thinking of making an offer on a business or in the process of investigating a business purchase. Serving all of Southern California. He has written numerous articles on the due diligence process and can be reached direct at 805-428-2063 for more information and an appointment.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|William F. Ziprick, Attorney: Legal Services For Buyers And Sellers
Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.
|Helen Yoo, New Century Escrow - Escrow Services In Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Shalonda Chappel: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Mike Hurrell, Broker: Laundry Specialist - Southern California
Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209.
|Chris Seaman, Business Broker: Southern California
Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.
|Peter Siegel MBA, BizBen Founder, ProBuy, ProSell, ProIntermediary Programs
Founder Of BizBen.com (since 1994). I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I consult daily with buyers, sellers, and brokers daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.
|Steve Erlinger: Laundry Broker, Consultant - Southern California
I specialize in the laundry industry broker and consultant in Southern California. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat. Call 949-500-5893.
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