jdcpa
Contributor
Yes, I think the internet is impacting the sales of the LDS.
I would do two things.
Ask the owner why they are selling and see if that answer actually makes sesne.
Second, get a copy of the financial statements or tax returns for the last five years and analyze the gross sales trends. My best guess to the answer is they are declining. That should be some proof of internet sales issue. It will also tell you if the shop has customer service issues.
Finally (okay three things) look at the location. As with most any store, there are three factors to consider. Location, location and location. How hard is to get there, how hard is it to see, was a new road built that diverted traffic away from the location, was an overpass built around it? Was a new larger LDS built close by. How far from the water?
To be honest with you, it is pretty easy to see if the deal makes sense or to tell you what you are in for. If I can explain it and make any sense, here goes.
Take the last three years tax returns and determine discretionary cash flow. (If the LDS owner says I take out $XXX in cash each week/month, you have a problem in that can you trust the numbers.) Discretionary cash flow is the cash flow of the business and adding back all benefits to the owner, salary, football tickets, personal dive gear, etc. Add back depreciation and loan principal and anything unnecessary, like the sons salary who is off at college.
Take this number and subtract from it a reasonable amount of salary you think you need. You are now left with a number from which you must finance the business purchase.
Take that number and divide it by 12. You now have monthly cash flow. Using 8% or 9% as an interest rate, figure out the loan principal you can afford with that monthly payment. Use five years and seven years as the loan term. Any amortization program can calculate this.
Now you know what you can afford.
Next take the price the current owner is asking for the business. Figure the monthly payment for that princiapl amount. Now you know how much short each month you are going to be assuming you do the same business as they did. That is the number you are going to have to make up to break even.
We all believe we can do a better job than the previous owner, why else would we be interested in buying the business.
Good luck.
If you have any specific questions on this, please pm me and I will do my best to anwser for you.
I would do two things.
Ask the owner why they are selling and see if that answer actually makes sesne.
Second, get a copy of the financial statements or tax returns for the last five years and analyze the gross sales trends. My best guess to the answer is they are declining. That should be some proof of internet sales issue. It will also tell you if the shop has customer service issues.
Finally (okay three things) look at the location. As with most any store, there are three factors to consider. Location, location and location. How hard is to get there, how hard is it to see, was a new road built that diverted traffic away from the location, was an overpass built around it? Was a new larger LDS built close by. How far from the water?
To be honest with you, it is pretty easy to see if the deal makes sense or to tell you what you are in for. If I can explain it and make any sense, here goes.
Take the last three years tax returns and determine discretionary cash flow. (If the LDS owner says I take out $XXX in cash each week/month, you have a problem in that can you trust the numbers.) Discretionary cash flow is the cash flow of the business and adding back all benefits to the owner, salary, football tickets, personal dive gear, etc. Add back depreciation and loan principal and anything unnecessary, like the sons salary who is off at college.
Take this number and subtract from it a reasonable amount of salary you think you need. You are now left with a number from which you must finance the business purchase.
Take that number and divide it by 12. You now have monthly cash flow. Using 8% or 9% as an interest rate, figure out the loan principal you can afford with that monthly payment. Use five years and seven years as the loan term. Any amortization program can calculate this.
Now you know what you can afford.
Next take the price the current owner is asking for the business. Figure the monthly payment for that princiapl amount. Now you know how much short each month you are going to be assuming you do the same business as they did. That is the number you are going to have to make up to break even.
We all believe we can do a better job than the previous owner, why else would we be interested in buying the business.
Good luck.
If you have any specific questions on this, please pm me and I will do my best to anwser for you.