When you're buying a part of a business, the numbers you get—financials, revenues, expenses—reflect the entire operation, not just the segment you're interested in. https://youtu.be/zrKQWzxN58w
So:
You don’t have clean, ready-made financials for the slice you're buying.
You need to reconstruct what that slice would look like if it stood on its own.
Steps to Evaluate a Partial Acquisition
1. Start with Sales Pull out the revenue attributable to the part of the business you're considering buying.
2. Estimate Cost of Goods Sold (COGS) Determine whether you can get the same supplier discounts as the full business currently does. If the existing business got volume discounts, your COGS might actually be higher.
3. Forecast Overheads This is where synergies get lost. Admin costs like payroll, accounting, or purchasing may have been shared. Now you’ll need your own setup, so costs go up.
4. Build a New, Hypothetical Income Statement Using all the info above, you create a “what-if” income statement as if this were a standalone business.
5. Apply Valuation Techniques Once you've got projected net income or cash flow, you:
Use a capitalization rate (e.g. 3x earnings), or
Use discounted cash flow (DCF) by projecting future cash flows and discounting them.
Friction with the Seller
Here’s the kicker:
What it's worth to you may not match what the seller thinks it's worth.
Why? Because:
You may lose efficiency (higher overheads).
You might not be able to access the same discounts or resources.
You’re probably taking on more risk.
So your version of the business will likely be less profitable, which should lower its valuation from your point of view.
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New Livestream guest- Chris Papin (CPA & Attorney)
I’m happy to have Chris join me on a live broadcast.
Chris brings a unique perspective as both a CPA and a lawyer, helping small business owners navigate acquisitions, due diligence, and critical growth decisions.
Tune in as we discuss what buyers often miss, how deals really work, and why having the right advisors can make or break your next business move.
This is a ‘must see event’ for anyone thinking about buying a business, growing one, or preparing for a major transition.
Be sure to join live so that you can ask questions, replay will be available.
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.
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.
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.
