Due Diligence Case Study

Due Diligence Case Study: Poor Bookkeeping Leads to Confusion

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This is a true story of one of my due diligence assignments regarding a thief operating from within a tree trimming and landscaping company in Northern California.

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Finding Out the Seller’s Motivation

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What Motivates a Business Seller?

When working with buyers as a business broker and a CPA doing due diligence, the buyers universally ask one question. “Why is the seller getting out?

This is a good question but the question I ask is, “How do you know if the seller is telling you the truth?” Read more

Business Valuation Pitfalls: What is the True Worth of a Business?

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I am often asked how can we determine the true worth of a business.

The first step to this process requires determining the actual profit of a business in the current market conditions.  The second step is to create a value for the current income stream assuming it continues into the future or you may want to look at the profit potential of a business not based on the current business activities.

What is Seller’s Discretionary Income?

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Purchasing An E-Commerce Business – 4 things You Must Know

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Purchasing An E-Commerce Business – 4 things You Must Know

Today I received the Business Broker Press© release of the ten top selling businesses. At the top of the list was E-Commerce. E-Commerce refers to web based business that sells products online. This can be anything from cosmetics and clothing to automobiles and dating services to meet the future mother of your children.

Up until World War II middle America bought its products primarily from the small merchants in town. Then after the war the Big Box stores started. When the internet became popular the trend away from people making their retail purchases from “brick and mortar” store became more and more popular. Read more

The 6 Key Items Influencing a Company’s Value with Two Working Owners

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The key issues that influence a company’s value when there are two working owners:

1.    What is the profit level of the business after allowing for the second partner’s salary Sellers Discretionary Earnings (SDE)?

2.    Do a few customers dominate the sales?  I see some great companies where one customer is over 50% of the sales volume. In this case if the biggest single customer left, the company’s value would collapse? Read more

Business Due Diligence or a Seller Warranty? Which is Better…

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The seller told the buyer

“The books do not show all the money, but I guarantee you that this business will clear $10,000 a month after taxes.”

How often have you heard these words?

Wouldn’t it be great if you could actually get a guarantee from a seller when buying a business?  You can. But you have to ask for it, and you have to give the seller a good reason for them to give it to you. I assure you a seller can have a lot of good reasons for not wanting to give it — and some are totally legitimate.

So, when are you justified in asking?

There are several conditions to look for. To find out what conditions to look for  Read more

Business Buying Tips: Where do you find the right business to buy?

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The first step in locating a business to buy is to decide what type of work you are interested in and what you are definitely not interested in. This makes the first step, going out in the world and making very complete lists of possible kinds of businesses available to you. Do not put owning a scuba diving shop on the list if you do not swim.

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High Yield Trust Deed Investments — How do they work?

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Before we can talk about Investing in Trust Deeds the reader has to know the meaning of some of the key words.

Definitions

  • Hard Money Loan = An investor writes a check to fund the loan. It is real hard cash money that is lent to a real estate owner who is borrowing money.
  • Soft Money Loan = The seller of a piece of real estate carries back part of the purchase price as a First, Second or Third trust deed loan, on a property sold. No check is ever written to fund the loan. Therefore, there is no hard money used.
  • Loan to Value = A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real estate. Example $100,000 first mtg / $250,000 value = 40% loan to value

Is a Hard Money Loan Like a Bank Loan Made on the Residence you Live in?

It works the same as when you buy a home. The bank makes a First Trust Deed loan on 80% of the sale price or appraisal value -WHICHEVER IS LESS. Read more

Fast Food Business Ownership: Making a Fast Food Business So That It Virtually Prints Money

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  Fully half of all the businesses that are sold are retail food storefronts. This includes franchise, non-franchise, sandwich shops, bagel shops, coffee shops, as well as good old fashioned sit-down restaurants. Half!

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Business Sale Price Pitfalls: Should you knowingly overpay for a business?

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 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 deserves a price at top market. Read more