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Buy a Business with Rational Goals

March 11, 2013

Recently, we was that a fellow searching for a business to purchase, had posted on a bulletin board:  “Can invest $50k-$100k, potentially more. I need to get into something that will generate $20k a month salary.”

Let’s think about this…  He has a maximum of $100,000 to invest.  We did some fast figuring and determined that he is probably looking for a minimum of about a 40% Capitalization Rate (Cash Flow divided by Price).

With $100,000, he is probably looking to purchase a business that Nets a minimum Cash Flow about of $325,000, or more.  With that kind of money, he would get his $20,000 per month, plus Debt Service on what would probably mean a Price of about $825,000.

Tough business to find, with that Cap Rate requirement!  And how do you get an $825,000 business with $100,000 down? $100,000 is just over 12% down, for a purchase of $825,000.  It is possible, but not easy.

Did that guy know what he was doing, or was he just lucky in setting goals that were high, but not completely out of the park?  Who knows?  But the key here is that YOU need to do those kinds of calculations for yourself; YOU need to know what you are asking and whether you are being reasonable, if you want others to take you seriously and if you want to succeed.

Another person on the same blog wants someone to work with him on purchasing an aggregation of resort properties, totaling in the BILLIONS of Dollars, with no money of his own to be invested.  Obviously, he has no money of his own to invest.  Moreover, he apparently has no industry experience!  So, how many people are going to ante up and offer this individual several BILLIONS of Dollars, on that basis?  (Don’t everyone raise your hands at the same time…)

Moreover, when we offered a criticism of his effort, suggesting that he was simply wasting everyone’s time, he wrote a long dissertation about how skilled he was in communications and how he possessed an excellent eye for detail.  His comments were long and rambling, contained no capital letters and little to no punctuation.  Exactly where that eye for detail was when he wrote that, is not completely understood.  The total lack of professionalism was however, extremely apparent!   (See our blog entitled, Do You Come Off Like an Amateur:  https://combrokerbusiness.wordpress.com/2012/04/18/do-you-come-off-like-an-amateur/)

Knowing your financial abilities and whether your interests are in line with your experience and personal capabilities, are vital to working with Brokers, Sellers and Bankers.   Lenders have become much more critical of a lack of experience, when they consider a loan application.  If you do not have Food experience, unless you are buying a Franchise that will teach and support you technically, it may be extremely difficult to get a loan to purchase a Restaurant.

Be reasonable; do not set yourself up for frustration, heartache and possible failure!

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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