**New Video Alert!
In this video, I break down a TRUE story of two buyers who almost made a decision that would have trapped them in years of debt — all because they didn’t understand valuation, cash flow, and how deals actually work.
If you're serious about business ownership, this could save you from a costly mistake.
Watch the video here: https://youtu.be/DoosmTaVlXE
Cheers
See you over on YouTube
David C Barnett
Big ROI numbers sell dreams.
And in the world of business buying, those dreams are often packaged with just enough math to feel credible—but not enough to be accurate.
In this post, we’re breaking down how ROI gets inflated and misrepresented, using a real example from a popular entrepreneurial book. By the end, you’ll know exactly how to spot the difference between a great deal… and a great sales pitch.
Watch the breakdown here:
https://youtu.be/74ISnsgtwlM
Let’s start with the example presented in the book:
Now here’s the hook:
The author claims this deal produces a 229% annual ROI.
Sounds incredible, right?
That’s exactly the point.
Here’s where things start to fall apart.
That 229% figure isn’t actually ROI (Return on Investment)—it’s ROE (Return on Equity).
In plain terms:
By focusing only on the $94,120 down payment, the calculation conveniently ignores the $847,000 in debt.
When you calculate ROI properly—using the full $941,000—the return drops dramatically to around 12%.
Still decent.
But nowhere near 229%.
It gets worse.
The example treats SDE as if it’s pure profit.
But SDE includes the owner’s salary.
So part of that “return” is actually just pay for your time and effort.
Let’s normalize it:
Now layer in reality:
That means:
👉 The business is now operating at a loss
And that’s before:
This isn’t passive income. It’s a tightrope.
This deal highlights several classic traps:
1. Overpaying
A 3.2x multiple plus inventory and working capital pushes the total price beyond what many industries justify.
2. No Margin for Error
Even a small dip in revenue could make debt payments unmanageable.
3. No Safety Net
Without reserves, any surprise expense—equipment failure, staffing issues, economic shifts—can derail everything.
This is what overleverage looks like in real life:
high pressure, low flexibility, and very little room to recover.
Because it works.
These kinds of examples are designed to appeal to newer buyers:
But running a business isn’t a spreadsheet exercise.
It requires:
And none of that shows up in a hyped ROI calculation.
If you’re thinking about buying a business, here’s how to stay grounded:
Understand the Numbers
Don’t stop at SDE. Focus on normalized EBITDA and actual cash flow after debt.
Question Big Claims
Extraordinary returns deserve scrutiny. Always ask: what’s being left out?
Invest in Your Education
Learn how financing, valuation, and cash flow actually work—or work with someone who does.
Keep Cash Reserves
A good deal should survive bad months. If it can’t, it’s not a good deal.
Conclusion
Buying a business can be a powerful path to financial independence—but only if you approach it with clear eyes.
Flashy ROI figures are often more about marketing than math.
The real winners in business acquisition aren’t chasing hype—they’re making disciplined, informed decisions based on reality.
If you can do that, you’re already ahead of most buyers.Check out my book:
21 Stupid Things People Do When Trying to Buy a Business
Join my email list here:
https://www.DavidCBarnettList.com
Cheers,
Dave
**New Video Alert!
A lot of people who lose a job start wondering if buying a business could be the answer.
But that can be a dangerous way to think.
In this episode, I explain when buying a business after job loss might make sense, when it does not, and why desperation, shrinking savings, and the wrong kind of deal can create a much bigger problem.
If you are thinking about buying a business because you need income, this is an important conversation.
Watch the video here: https://youtu.be/qFLnXCsXxPQ
Cheers
See you over on YouTube
David C Barnett
Strong inventory management is critical for small business success—but many owners carry too much stock without realizing the cost.
Excess inventory may feel like a safety net, but it actually:
Ties up cash flow
Increases overhead
Lowers business value
As a business broker, I’ve seen how fixing inventory issues can quickly improve profitability.
👉 Watch more here: https://youtu.be/vZSkM6aNgpQ
Why Businesses End Up With Too Much Inventory
Many businesses shift from just-in-time (JIT) inventory to bulk buying as they grow.
One stove business I worked with had over $150,000 in excess parts sitting unused. Bulk ordering reduced hassle—but locked up capital that could have been used elsewhere.
The Hidden Costs of Excess Inventory
Money tied up in stock can’t be used for marketing, hiring, or growth.
Storage, utilities, and handling all eat into profits.
Inventory can become outdated, damaged, or unsellable.
Buyers care about cash flow—not excess stock. Too much inventory signals inefficiency.
One seller I worked with cleared $100,000 in inventory before selling—keeping the cash without hurting valuation.
Order smaller amounts more frequently to free up capital and reduce risk.
Use bundles, discounts, and staff training to move older inventory faster.
Buyers can use excess inventory to negotiate better deal terms
Sellers who clean up inventory improve cash flow and attract stronger offers
Excess inventory is a hidden drain on your business. By adopting lean inventory strategies, you can improve cash flow, boost profitability, and increase business value.
Be sure to join my email list if you’re not on it already at https://www.DavidCBarnettList.com and receive 7 FREE gifts.
Cheers!
David C Barnett
Tech to help searchers
New Livestream guest- Liz MacRae
I’m happy to have Liz join me on a live broadcast.
Liz used to be a business broker and now she’s a tech startup entrepreneur trying to use SaaS systems to make search easier to manage.
Tune in and we'll be discussing her company’s Deal Studio platform.
This is a ‘must see event’ for searchers who want help to stay organized.
Be sure to join live so that you can ask questions, replay will be available.
Set yourself a reminder on YouTube here: https://youtube.com/live/-hjmKjMtZ24
We’ll be going live Thursday March 19 at 3PM Atlantic Time and 2 PM Eastern Time
See you there!
David C Barnett
**New Video Alert!
Today I’m sharing two special opportunities for people in my audience.
If you are thinking about buying a business, I’m hosting a Business Buyer Boardroom Mastermind session in Cincinnati on May 16th.
And if you already own a business and are thinking about selling, I’ve created a special seller bundle program designed to help you sell your business yourself without paying broker commissions.
Both opportunities are limited, so watch the video to learn the details.
Watch the video here: https://youtu.be/grz9nhJR9p0
Cheers
See you over on YouTube
David C Barnett
