'Just put in more money' - The truth about increasing equity when buying a business - David C Barnett

The seller's accountant Says, ‘You just need to put more money in.’ 

I have a client who is negotiating for a business which is overpriced. 

He’s demonstrated that the business will not cash flow for him after servicing debt and taking a reasonable salary for the value of his work.

The seller’s accountant has said, ‘the buyer just needs to put in more of his own money.’

I made this video to show how that doesn’t make sense at all: https://youtu.be/vTsIwe_If88

It’s got a little math, but it’s not too difficult.

The point of the matter is that equity (a business owner or buyer’s cash) actually demands a higher rate of return than debt.

This is because it’s riskier.  Lenders get paid first in the event of a liquidation.

If you put in more of your own money, you actually need an EVEN HIGHER rate of return.

Watch the video.

For a full education and help on buying a business, visit www.BusinessBuyerAdvantage.com

To learn how I can help you sell your business yourself, visit www.HowToSellMyOwnBusiness.com

If you’d like to learn how to create high returns by making local private lending and lease deals, check out http://www.LocalInvestingCourse.com The Local Investing Academy enrollment is from September 26 to October 10 only. 

For a quick introduction, read Invest Local.  It’s available from Amazon stores worldwide or as a .pdf here: https://gum.co/quoB

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly before anyone else, you can sign yourself up at www.DavidCBarnett.com  If you need my help with your project, give me a call at (506) 381-8416.

Do you live in the Maritimes?  I’ve got workshops coming up on buying and selling businesses in the fall.  Book now http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time. 

What I see in the Market for Small Businesses - Buy a Business - Sell a Business

Well, spoiler alert, there is no market for small businesses.

I made this video to explain why. https://youtu.be/aOFhyYjFoYc

You see for a ‘market’ to exist, you need many buyers, sellers and a product or commodity.  For example, there is a market for 4-door used cars and a market for 3-bedroom homes in each town and city, but small businesses are very individual.  They’re unique.

Therefore, they each have their own market!

In the video I give an example of the process engineer who will never buy the highly profitable flower shop.  I used to see it all the time when I owned my business brokerage.

As far as pricing goes, it doesn’t change much over time except if certain industries are perceived to be more or less risky.  Business are valued on their cash flow and what the buyer is willing to pay is based on their perception of the risk that the cash will continue to flow into the future.

There is one exception though.  It’s an old story about market manipulation.

I’ve seen first-hand that government programs meant to encourage immigrant investors are causing price bubbles in certain categories.  Convenience stores, franchise food locations, Laundromats, gas stations.

Anywhere someone with limited English can run a simple business and quickly learn enough words to make change and serve customers.

I recently worked on a case where a newcomer was willing to overpay by 40%... because he was up against a time-limit and if he didn’t buy a business he would lose a $75,000 deposit that he had made to get into the country.

Welcome to Canada, let us into your wallet.  I bet he feels all warm and fuzzy about igloos, beavers and maple syrup.

Just like in any market where politicians and civil servants decide to meddle, an artificial urgency has been created and business sellers are taking full advantage of these victims created by government policy.

For a full education and help on buying a business, visit www.BusinessBuyerAdvantage.com

To learn how I can help you sell your business yourself, visit www.HowToSellMyOwnBusiness.com

If you’d like to learn how to create high returns by making local private lending and lease deals, check out http://www.LocalInvestingCourse.com The Local Investing Academy starts in September.  For a quick introduction, read Invest Local.  It’s available from Amazon stores worldwide or as a .pdf here: https://gum.co/quoB

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly before anyone else, you can sign yourself up at www.DavidCBarnett.com  If you need my help with your project, give me a call at (506) 381-8416.

Do you live in the Maritimes?  I’ve got workshops coming up on buying and selling businesses in the fall.  Book now http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time. 

Ed asks: What would David look for in a new franchise opportunity? How to Buy a Business - How to buy a franchise

Ed recently downloaded a copy of my 2015 Best-seller, Franchise Warnings from www.franchisewarnings.com

He wrote me an e-mail saying that he was looking at franchises and enjoyed the book.  He thought that the central theme of the book was ‘do your homework.’

It’s not.  The book’s purpose was to dispel the myth that buying a franchise is less risky than starting a business from scratch.  Watch the video here: https://youtu.be/JUItDU5cn-E

Ed also asks what I would look for if I were buying a new franchise.  Interesting question.

My first idea is that I would want a fee based franchise over a royalty based one.  It allows you to grow the business and keep more of the gravy for yourself.

Secondly, I would need to ensure that the business systems were actually provided and worked well.  I know of a two franchises who provide no operating manual and one where the systems are very poor. (I’m sure they’re not alone.)

For my third item, watch the video ;)

To learn more about buying a business, visit www.BusinessBuyerAdvantage.com

If you’d like to learn how to create high returns by making local private lending and lease deals, check out http://www.LocalInvestingCourse.com The Local Investing Academy starts at the end of September.  For a quick introduction, read Invest Local.  It’s available from Amazon stores worldwide or as a .pdf here: https://gum.co/quoB

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly before anyone else, you can sign yourself up at www.DavidCBarnett.com 

Do you live in Toronto or the Maritimes?  I’ve got workshops coming up for Toronto in September on buying and selling businesses and in October-December in the Maritimes.  Book now http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time.