Frequently Asked Questions (FAQ)

How much is a business worth?
Why not just start my own business?
What is an Entrepreneur?
What are the tax benefits of buying a business?
What is Goodwill?
Do I need a Business Plan?
Should I use a Business Broker to buy a business?
What type of insurance do I need to protect my business?
How do I protect my business from being stolen?

How much is a business worth?
Your business's value is dictated by what a willing buyer will pay a seller in a free market. However, the value of most businesses is determined by what someone can afford to pay for it. This price is usually 2 to 3 times the annual cash flow of the business, with a 25 to 50 percent down payment and a note paid off over 5 to 10 years. If the business can clear the income level you desire after making the note payments, then it is worth the price.

Why not just start my own business?
Government surveys show that over 80% of new businesses fail in the first 3 years, for reasons such as poor location, low product quality, under capitalization, and lack of management skills. This risk can be eliminated by purchasing a quality business with a proven cash flow.

What is an Entrepreneur?
An entrepreneur is a person who organizes and manages a business undertaking, assuming the risk for the sake of profit. An entrepreneur: Sees an opportunity. Makes a plan. Starts the business. Manages the business. Receives the profits.

What are the tax benefits of buying a business?
Typically you can take a tax deduction for depreciation on the fair market value of all furniture, fixtures, and equipment at a much faster rate than real estate. The Covenant Not To Compete and the value of training are tax deductible, frequently at high levels. Finally, most businesses have deductible expenses that add to the owner's cash flow. Always discuss tax issues with a qualified tax professional.

What is Goodwill?
Goodwill is the built up branded reputation of the business. It is total value of a business minus the value of inventory, equipment and other "hard" assets. Every business has goodwill unless it is closed down or failing badly. The amount to pay for goodwill depends on the cash flow of the business and its general attractiveness. Without goodwill, the sellers would do just as well to sell off their equipment and close down rather than sell as an on-going business.

Do I need a Business Plan?
A business plan precisely defines your business, identifies your goals and serves as your firm's resume. Its basic components include a current and pro forma balance sheet, an income statement and a cash flow analysis. A business plan can help you allocate resources properly, handle unforeseen complications, and make solid decisions.

Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. It can also tell your sales personnel, suppliers and others about your operations and goals.

Should I use a Business Broker to buy a business?
Using a Business Broker allows you to better identify dangerous situations and match your own personal acquisition criteria. Choosing a Business Broker Intermediary who is professionally trained and has access to comparable business sales can help protect your interests and get the best value on your investment. Allowing a Business Broker to lead you through the steps of buying a business will ultimately give you the peace of mind that your interests were protected and your investment is well directed.

What type of insurance do I need to protect my business?
The following types of insurance are to be considered when starting your business:

1. Business Interruption
2. Liability
3. Product Liability
4. Fire

How do I protect my business from being stolen?
There are several ways to protect your business. They include:

Patents - a property right granted by the government to the inventor to make, use and sell the invention for a given period of time.

Copyrights - protects your literary or artistic work, allows you to sell, give away or show your work, and copyrights must be tangible and physical.

Trademarks - name, mark, symbol or motto, legally restricted to the use of the owner or manufacturer, that identifies your company and/or its product.

Trade Secrets - information that you do not want known by your competition because your business would lose significant advantages.

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