Here is a video that shows how real estate investments compare to businesses investments and how they are measured. One can see the big difference in typical market valuations by looking at the capitalization rates, or cap...
Read MoreI love talking about profits. The abbreviations above are all well known calculation methods for profits. Or cash flow depending on what you are looking for. I refer back to Pablo’s theorem of the difference between the two: “net profit is an opinion, cash flow is a fact”. This is to say that net profit is a number generally tainted with accounting principles, and subject to debate, while cash flow either exists or it doesn’t. Semantics. In this case the opinion is just as useful as the fact unless of course any numbers are substantially misrepresented.
Read MoreUnfortunately most businesses have some kind of debt on the statement. Buyers don’t always know what to do when they see it. When I say statement I mean financial statement and by that I mean balance sheet. Most companies have some sort of loans, liabilities, or other types of contingencies on the balance sheet. It comes with the territory. This is what happens when you own a business. You are almost certainly going to have some liabilities on the balance sheet. But what effect do those liabilities have in a sale of the business? In fact the effect is dramatic and may well interfere with or even break up the deal. So how to buy a business what has debt or what to do when you encounter one?
Read MoreThis blog deals mostly with buying offline businesses, or as they call them nowadays, bricks and mortar businesses. Buying an offline business is the traditional approach with its own strategies and metrics. I teach a segment of that in the bigger markets(LBOs) but also we tackle smaller traditional deals as well. Yet I simply cannot exist in this business world without running into plenty of online businesses to buy. It is a fact of life. So I will now provide an in depth comparison between buying an online business versus buying an offline business.
Read MoreLet’s say we want to examine earnings of a company in a pitifully simple way. Here is the important question. Do we want to examine the earnings before or after we pay somebody to run the company? The difference is very significant when valuing the company.
Read MoreDid doing sophisticated valuations ever lead to anything like an agreement, signed or otherwise, on price? Never. Why? Well, for one thing it usually just served to inflate the value of the business and made the seller ever more difficult to deal with.
Read MoreI am always amused when people who do not buy businesses for a living deal with the subject of valuations. Here is the questions posed by one website with biz listings: Can an Accountant Value a Business for Sale? Short Answer: Yes.
Read MoreYou cannot put out an offer unless you have enough info to do your valuation. Generally this means at least two years of accountant prepared financials plus an interim in-house statement. Financials mean balance sheet and P&L plus reconstructed profit as estimated by the seller/broker.
Read MoreA couple of posts ago I ran off at the mouth about valuations. I promised to say more about it. Valuations are really the most important thing a business buyer can learn early on. Not understanding valuations can handcuff you...
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