Why do Brokers who list retail companies for sale say “Asking Price + inventory?”

What is Discretionary Cash Flow?

Does Goodwill exist in small Businesses?

A Listing Broker said that his client pays some cash under the table to some of his employees as well as himself (the owner). What do I do with information like that?

I looked at one of the Discretionary cash flow add backs presented by the Seller’s Broker and was confused to see a manager’s salary of $25,000.00. The Broker told me that “if you restructure the company you won’t need this person”. What should I do with this number?

The Business I am interested in has little or no support and documentation of accounting transactions. I observed his business for three weeks not leaving his sight and feel comfortable with the numbers he is bringing in. Am I doing the right thing?

Should I hire an Accountant or Business Broker to do the Due Diligence on my Business Purchase?

Do you Pre-qualify me on what Price I can afford to pay for a Business and assist me with an outside Lender?

I’m looking to sell my service Business and Purchase another and don’t want to make the same mistake that I did when I first purchased it. I’m an Accountant and all the Historical Financial Information was accurate. After the Purchase, I started to lose accounts and could not for the life of me figure out why this was happening? Now that I’m selling, I want to know what really went wrong?

Q Why do Brokers who list retail companies for sale say “Asking Price + inventory?”
A It is our opinion that inventory should always be included in the Purchase price because it is no different than any other asset purchased that generates income. Although inventory is mobile in nature, it constantly turns over, you purchase and sell it. BUYER BEWARE

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Q What is Discretionary Cash Flow?
A Discretionary Cash Flow is comprised of adding or subtracting certain non cash items related to the Company’s Balance Sheet plus other direct expenses. These add back items are then added to the Company’s Net Operating Income or Loss. BUYER BEWARE

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Q Does Goodwill exist in small Businesses?
A Where an owner did nothing else than to buy a job, there is no goodwill. If an owner has packaged goodwill into the business product/service, location & employees, instead of him or herself directly , there may exist some goodwill. When repeat customers patronize the company’s ability to provide services/ product and they do not rely on the owners relationship, capabilities or presence, there exists Goodwill. BUYER BEWARE 

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Q A Listing Broker said that his client pays some cash under the table to some of his employees as well as himself (the owner). What do I do with information like that?
A Only two things come to mind when that happens, 1. Find another Business to Buy, if the Seller is willing to cheat the government, what makes you feel so comfortable that he won’t do the same to you? 2. Your liability exposure should one of these employees get hurt is dangerously high. 

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Q I looked at one of the Discretionary cash flow add backs presented by the Seller’s Broker and was confused to see a manager’s salary of $25,000.00. The Broker told me that “if you restructure the company you won’t need this person”. What should I do with this number?
A You need to Engage a Buyer’s Broker. BUYER BEWARE

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Q The Business I am interested in has little or no support and documentation of accounting transactions. I observed his business for three weeks not leaving his sight and feel comfortable with the numbers he is bringing in. Am I doing the right thing?
A No! Your observation of the Business is not adequate proof of its viability especially when comparative data is non-existent. Buyer Beware

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Q Should I hire an Accountant or Business Broker to do the Due Diligence on my Business Purchase?
A Most Business Brokers cannot perform Financial Due Diligence, those that can should have the same experience as your Accountant. A Buyer’s Broker would be the least expensive way to go only because if the deal falls through, you will still have to pay your Accountant, not the Buyer’s Broker.

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Q Do you Pre-qualify me on what Price I can afford to pay for a Business and assist me with an outside Lender?
A Yes, during our initial meeting with you, we ascertain a ball park number of what you can afford based upon your answers to our questions. Once an offer has been accepted and you are satisfied with Due Diligence, we assist you in completing the necessary paperwork the Lending Institution requires to process your loan application. We have many Lender contacts throughout the Triangle area. 

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Q I’m looking to sell my service Business and Purchase another and don’t want to make the same mistake that I did when I first purchased it. I’m an Accountant and all the Historical Financial Information was accurate. After the Purchase, I started to lose accounts and could not for the life of me figure out why this was happening? Now that I’m selling, I want to know what really went wrong?
A The original owner held all the goodwill for the company by developing client relationships. When you Purchased the Business you had no plan in place to transition the goodwill. The customers did not see both the Seller and you work together to reinforce the relationship. Secondly, you should have discounted the Purchase price as a contingency against the potential loss of income.

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