Invest in/Buy established business?

[Jorge]

So I have this doubt, what information would you look at if you were to invest or buy an established business?

Income, Profit, Employess...What else?? :coffee:

Thanks in advance!

 

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[EasyMoney_in_NC]

Consider the business type, and attempt to forecast what future growth may be and where it may come from. Is there a market for what you are buying into. Why is the business for sale? owner retiring, business not doing well, health issues......etc.

Like those that have suggested in my questions as to whether or not to sell my business......do you like the business? could you see yourself getting up every day to go and run it, would you have a passion for it?

justa few quick points that come to mind

 

[Jorge]

Thanks for the input!

My question is more about the numbers though.

ATM Im not looking to invest in any business but I would like to know this just in case.

For example:

Would I buy / invest a business that:

Has X cashflow
X profit
X employees
X market share

And so on...kind of spreadsheet approach

I hope I'm being clear since my english is not very good :smxE:

 

[EasyMoney_in_NC]

First, your English is great and your question is plenty clear! What you're asking is tough to answer. What numbers you should look at and what values they should be would be based on the type of business. As well, just like buying stocks, past performance is no indication of future performance. You should be assessing how the current #'s stack up to similar businesses, can it grow further etc and my other previous posted comments. You need to look at the entire package, not just the #'s.

GL with whatever you decide.

 

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[Hoop]

Jorge - as the other folks have suggested, this is a tough question. And, like most things financial, it all starts with what you are looking for....cashflow or appreciation.

If cashflow, you would be looking for how efficiently the business generates its revenue. A basic measure of this is EBITDA (earnings before interest, taxes, depreciation and amortation). It accounts for revenue, cost of goods sold, and the big black hole of general and administrative expenses. If you wanted to add back in all of the taxes, interest, etc., Net Income is all you need.

Of course, then the question is if the company is paying dividends..if not, no cash flow for you.

If appreciation is the goal, well it depends on the industry the business is in. If that segment is valued by cashflow (multiple of EBITDA), then the above remains front and center, but your analyis is how the business will improve its EBITDA. Some businesses will appreciate soley on revenue, so how will the business increase sales. I am sure there are additional metrics that others could list for you.

All of this gets us back to some basics:

The Business: does it make sense?
The Team: who is running the business and what is their experience?
The Revenue: there is no profit without the "potential" for profit, ie. Revenue/Gross Margin
The Analysis: P/L, Cashflow Analysis, and Balance Sheet
The Investment: What is the deal.."Is my investment being used to keep the lights on or to open new distribution channels? New and efficient manufacturing processes? What is the exit plan, etc.

 

[yveskleinsky]

Great feedback hoop! ++rep!

 

[Jorge]

I think there's not much to ask...

Thanks for the input, it was really helpful! :thankyousign:

 

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