How much should you pay for a business?
January 18, 2024
by a lender from Montclair State University - School of Business in Odenton, MD, USA
Hot Topic: How much should you pay for a business? This topic is always a difficult one for me because the answer is always it depends. The seller has a number stuck in their head because a broker overpromises and the buyer cannot get financing for an overpriced business.
As SBA lenders, our role is to assess the financial health and creditworthiness of a business.
In the small to medium-sized business space, there are very good businesses however, most businesses in this space have poor bookkeeping. Your role as the buyer should be to assess the weaknesses and see if your skillset would be able to enhance the business in its current state.
One of the benefits of using an SBA loan to buy a business is that the bank can help you assess the risk of default. The bank serves as another layer of eyes on the deal. The bank tends to ask questions that the buyer may not have thought to ask. Good SBA lenders use financial metrics, along with other financial indicators to gauge the financial stability of the business.
It's important to note that SBA lenders are more concerned with the financial viability and repayment ability of the business rather than what the business is listed for.
from University of San Diego in Frederick, MD, USA
see if company is priced properly to even begin engagement. 15k/million financed/month. So a 5M company with an 80/10/10 structure is looking at a an annual debt service of around 720k on 500k +/- investment. If EBITDA is 1.25M (25% Net Income) you are looking at making 500k/year on your investment of 500k. Seems like a good investment.
from Ben in Pittsburgh, PA, USA