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Concord, Ontario, Canada

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How do you value a business?

We take multiple important elements into account when determining the price of a business. We fully review historical financials, cash flow, asset and equipment values, condition of the premises and lease terms, location of the business, competitors and the economy before finalizing the sell price. We also take into consideration the recent transactions of similar companies – both ones we have represented and transactions outside of our brokerage through paid data sources.

Why buy a business when I can start my own?

Many small businesses fail within the first year or two after starting up. By purchasing a business that is already up and running, you are eliminating many of the risks associated with a failing business. An established business has a proven track record, a proven/vetted business model, a customer base, trained and experienced employees, and most importantly, positive cash flow for the new owner. The risk is lower, and often times the growth is accelerated with these fundamentals already in place and with a new owner coming in with fresh ideas and new energy. Plus you’ll start off in month 1 with a positive cash flow and able to draw an income, whereas most new businesses take a while to build up enough business to generate a substantial income for the owner.

What portion of the sale will the seller refinance?

This varies with each seller. Some are willing to finance a portion but most sellers are reluctant to finance much of the sale price. The terms or length of the financing period also vary.

This said, most transactions below $5.0mm will generally apply for an SBL-backed loan to assist in the purchase of a business. This is a loan that is government backed and offered at competitive rates. 

What is the difference between Profit (Net Income), Cash Flow and Discretionary Earnings?

This can be tricky because we’ve learned over the years that everyone’s definition of each of these terms can vary just a bit.  Generally speaking, the profit of a business is the amount of money that is left over after all expenses are accounted for. The Cash Flow is the total amount of money being transferred into and out of a business.  Cash flow considers not just a businesses profit, but also typically factors in other owners benefits, interest payments or interest received, depreciation, amortization, etc.  It shows how much cash the business is producing which could be different than it’s profit from normal operations.  Discretionary Earnings are owner benefits, EBITDA and all expenses that are not applicable to the new owner.  For instance, the owner may currently have a more expensive office than you plan to have, or may be leasing a vehicle that you do not plan to use, or other expenses that are not applicable to you should you buy the business.  Again, this definition can vary from one person to another.