Search Results

Buy A Business Worth At Least A Million Dollars And You’ll Never Have To Deal With Crooked Sellers

I am always railing on and on about why people should buy businesses worth at least a million dollars or more. That are big, with lots of cash flow and with a management team already in place who know what they are doing — so you can just sort of step in and let things go “as is” and not have to think about it.

However, besides all the financial reasons, there is another — very powerful — reason to only go after large businesses like this. A reason almost nobody ever talks about and yet, is probably a more important reason than any other.

And that reason is, quite simply, people who own large businesses, that have good numbers, and that can prove their business is what it is, are almost always straight-shooters and not crooks.

It’s true. I have been doing this for over 50 years and I can tell you right now, the chance of you running into a person that has a business making a million a year that doesn’t have a good word or isn’t a good person…is almost zero percent. There may be exceptions to this, but I have never, in all these years, run into one that wasn’t a man of his word and didn’t genuinely want the deal to go down fairly, squarely and exactly as we agreed to.

Does this mean they are all going to be your best friend?

No. In fact, I have run into one that I haven’t gotten along with. But at this level, where there’s a lot of money at stake, they’re basically all nice people. They’re easy to get along with. And keep in mind, one of the main reasons they are so nice and friendly is because they know you have cash. When you pay cash (using investor financing) you do all the talking. You’re the one who is really in control, and they know it.

Is a Dropship Business Worth It?

I’ve heard a lot of horror stories about dropshipping and it made me do more research about it. You see, the most common reason why people fail in this kind of business is that they fail to prepare on one of the important aspects of it. As with any business, preparation is critical and making sure that even those simple steps are taken cared of will mean the success of your business.

I visited a forum the other day and there was one guy who said his dropship business failed and he is not recommending the business model ever. He said it’s a bad business to get in to and you’ll lose money on it, no questions asked.

So I sent him a message asking him about what happened and how a supposedly good business model failed him. It turned out that he was partnered with a lousy dropshipper and he was not prepared enough to answer customer service questions. You see, with a dropship business, you still have to take care of your customers, it’s not a set and forget thing that will make you money even while you sleep.

Dropshipping is a real business with real customer interaction and real hands on experience. Of course, minus the inventory and physical stuff but all the other business aspects are still there.

During our conversation I was leading him to think about what happened and to re-assess everything and think who really is to blame about his failure. In the end, he said, you’re probably right, the business model was not the problem, I’ve always thought a dropship business would make rich, and it was me who screwed up. I’m not sure but after our conversation, I’m thinking he’s out there setting up a dropship business all over again.

So in my opinion, any business, be it a dropship business, an affiliate marketing business, or even a good old brick and mortar business is well worth it if you prepare well and you’re ready to take on the challenge. Go for it full blast, with all your heart and all your might and I’m sure everything will be perfect.

What’s My Business Worth?

Probably one of the most common questions business owners ask is “What is my business worth?”. Perhaps you want to do some retirement planning, succession planning, divorce planning, estate planning, etc.. This simple question has no simple answer, however. Valuations differ based on their purpose. For instance, the courts and accountants focus on a “Fair Market Value” without compulsion. For the sale of a business, brokers and valuation experts create a “Most Probable Selling Price” that takes the current market conditions into consideration. Let’s assume we’re looking to sell our business, and we want a valuation.

There are three main approaches to determining a most probable selling price:

1) Market Approach
2) Income Approach
3) Asset Approach

The market approach is based on the comparison of “similar” businesses that have sold when compared to ours, then projecting a value for your business. The principle of substitution would suggest that this is a reasonable way to come up with a valuation. There are several problems, such as comparing businesses in different parts of the country, or even state that might make this comparison inaccurate since local economic conditions vary. Also, comparing companies of significantly different sizes can skew the results since buyers typically pay higher multiples for larger companies.

The income approach looks at a view that presumes that a business is a cash generation machine, and you should compare your business to any other investment that generates cash. The big difference here is that small business is risky, so an accommodation for risk needs to be built in. A key part of the process is to identify the cash coming from the business through a process known as recasting. Recasting will take tax returns or financial reports and estimate the cash flow of the business that benefits the owner. This is often referred to as “Sellers Discretionary Cash Flow” (SDCF) or “Seller’s Discretionary Earnings” (SDE), or something similar. This cash flow number is then multiplied by industry specific ratios to estimate a value. Other variations on this method include a capitalization rate applied to the SDCF or looking forward and estimating the SDCF for several years and calculating the net present value of that cash flow (what the sum of future benefits is worth today).

Finally, the asset approach depends on the fair market value of the company’s assets. This is sometimes called the cost approach, since it deals with the physical assets of the business, and doesn’t provide much value for goodwill. In most businesses, goodwill is the majority of the value of the business. This approach is most useful for unprofitable businesses or businesses that have a significant investment in equipment or other assets.

Ultimately, the market determines the price of the business. Because every business is unique, expect negotiation on the price. Buyers buy the whole package, it’s not just price, but the perceived risk of the business, the prestige of owning that business, the volatility of earnings, strength of the industry, the local economy and a host of other factors not easily quantified. The opinion of value is the start of the discussion on what the business will actually sell for. You should get some help when its time to price your business.