Buying a small business

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
manatee2005
Posts: 2136
Joined: Wed Dec 18, 2019 8:17 pm

Buying a small business

Post by manatee2005 »

I’m interested in buying a small business. On their website I saw they are a subsidiary of another similar named business. When I Google that business I see the name and contact of the principal person on dnb.com. They also model revenue for it around 50k.
Are there any good websites (paid or free) where I can find more financial information about this small business?
User avatar
Sandtrap
Posts: 19591
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Buying a small business

Post by Sandtrap »

manatee2005 wrote: Sun Oct 17, 2021 3:31 pm I’m interested in buying a small business. On their website I saw they are a subsidiary of another similar named business. When I Google that business I see the name and contact of the principal person on dnb.com. They also model revenue for it around 50k.
Are there any good websites (paid or free) where I can find more financial information about this small business?
Can you drive to the "small business for sale" and look at it during business hours?

j :D
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
Fortune
Posts: 195
Joined: Sun Dec 07, 2014 1:36 pm

Re: Buying a small business

Post by Fortune »

Any reason why they are selling.
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: Buying a small business

Post by smitcat »

Sandtrap wrote: Sun Oct 17, 2021 3:35 pm
manatee2005 wrote: Sun Oct 17, 2021 3:31 pm I’m interested in buying a small business. On their website I saw they are a subsidiary of another similar named business. When I Google that business I see the name and contact of the principal person on dnb.com. They also model revenue for it around 50k.
Are there any good websites (paid or free) where I can find more financial information about this small business?
Can you drive to the "small business for sale" and look at it during business hours?

j :D
Agreed- ask the owner directly.
User avatar
8foot7
Posts: 4427
Joined: Mon Jan 05, 2015 6:29 pm

Re: Buying a small business

Post by 8foot7 »

Gotta ask to see the books on this kind of thing. 3-5x profit, 1-2x revenue, depending on age of business, sustainability, debt, barriers of competitive entry, ease of integration into your existing business, expansion and scaling capabilities, reliance on third parties (commissions) etc. Be sure to understand how current owner is comped -- does the P&L reflect him working full time in the business? Or is he passive and the business maintained by other FTEs? Is there any money left in the kitty after everyone is paid to reflect the true risk of owning the business? Sadly for many small businesses the answer is no, and what they've done is build a job. Granted, one they can't be laid off from, but it's a job.

The smaller the revenue, the smaller the multiple. I would stay away from purchasing a business with debt (other than a real estate lease) or a business that isn't profitable.
soitgoes2
Posts: 31
Joined: Fri Dec 08, 2017 9:17 am

Re: Buying a small business

Post by soitgoes2 »

All good advice above. Often the best businesses are not sold through a broker and if they are sold are sold to family, friends, or employees. Good businesses can be had through a broker but they often are not sold through brokers.
Topic Author
manatee2005
Posts: 2136
Joined: Wed Dec 18, 2019 8:17 pm

Re: Buying a small business

Post by manatee2005 »

Fortune wrote: Mon Oct 18, 2021 6:11 am Any reason why they are selling.
I don’t think I said in my post that they were selling. It’s a business I want to buy. I was asking if there are some websites where you can see financial filings etc for small businesses.
Topic Author
manatee2005
Posts: 2136
Joined: Wed Dec 18, 2019 8:17 pm

Re: Buying a small business

Post by manatee2005 »

Sandtrap wrote: Sun Oct 17, 2021 3:35 pm
manatee2005 wrote: Sun Oct 17, 2021 3:31 pm I’m interested in buying a small business. On their website I saw they are a subsidiary of another similar named business. When I Google that business I see the name and contact of the principal person on dnb.com. They also model revenue for it around 50k.
Are there any good websites (paid or free) where I can find more financial information about this small business?
Can you drive to the "small business for sale" and look at it during business hours?

j :D
I was in the business already and that’s why I want to buy it, but they just had one employee in the store, going back won’t help me.
Retired Bill
Posts: 105
Joined: Sun Sep 12, 2021 5:18 pm

Re: Buying a small business

Post by Retired Bill »

At $50,000 revenue (I assume that's annual), I'm not for sure that is a business, more like a hobby.

If inclined to look at further, ask for most 3 recent year's of financial statements, and last 3 years of income tax returns. Trust the tax returns more than the financial statements if different and owner cannot reconcile the differences. First step is to normalize the profits. By that I mean to adjust the financial information (pro forma) for what the financials would look like after you purchased the business. Some items to consider are (1 how much time the owner really spends on the business at a wage you would be happy with for your actual time spent, (2) additional debt service if you borrowing money to buy the business, (3) working capital needed, (4) fixtures and equipment additions/replacement, etc. Someone has to manage the employee and hire the replacement when they quit, and that's the owner for very small businesses. The idea is to include fair compensation for the owner's involvement with the business so you can get to net profit after income taxes. When divide the net after taxes by the capital investment (equity) to determine your return on investment. If under 20% annually, the business isn't worth much of anything. Small business are very high risk, so need a high rate of return if you want to avoid just buying a job at low pay. Run the purchase decision by trusted financial professionals with small business experience before ever making an offer. Remember that most small business are not around after 7 years.
User avatar
AerialWombat
Posts: 3107
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Buying a small business

Post by AerialWombat »

deleted
Last edited by AerialWombat on Sat Feb 05, 2022 3:02 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Topic Author
manatee2005
Posts: 2136
Joined: Wed Dec 18, 2019 8:17 pm

Re: Buying a small business

Post by manatee2005 »

AerialWombat wrote: Mon Oct 18, 2021 9:57 am
manatee2005 wrote: Mon Oct 18, 2021 9:06 am
Fortune wrote: Mon Oct 18, 2021 6:11 am Any reason why they are selling.
I don’t think I said in my post that they were selling. It’s a business I want to buy. I was asking if there are some websites where you can see financial filings etc for small businesses.
The short answer is “no”. Small business financial records are private, not public information. There are websites that will aggregate public data, such as what’s on record with your Secretary of State and county/city business license data, but any financial info you see is either a total guess or self-reported by the business when they created a public profile.

Tax filings in particular are absolutely private and cannot be obtained online or from state/federal tax authorities.

The only way to get financial records is directly from the business being sold. If they’re not actually for sale, they’re going to tell you to pound sand when you ask.
Ok, I was wondering if there was like a Bloomberg for small businesses. I found the owner is 64 so he might be willing to sell.
adamthesmythe
Posts: 5774
Joined: Mon Sep 22, 2014 4:47 pm

Re: Buying a small business

Post by adamthesmythe »

manatee2005 wrote: Mon Oct 18, 2021 11:07 am I found the owner is 64 so he might be willing to sell.
So network. Join the same country club. Go to his bar. Make friends and after a few months let slip that you're looking for a business opportunity.
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: Buying a small business

Post by dukeblue219 »

If the owner has expressed no interest in selling be prepared for the cold shoulder or simply being ignored. There's always someone trying to "buy your small business" just like those "we buy ugly houses" or "we buy any car" guys. They cast a huge net and see who is desperate enough to take pennies on the dollar, so your unsolicited offer may get the same treatment unless you can make it personal.
Topic Author
manatee2005
Posts: 2136
Joined: Wed Dec 18, 2019 8:17 pm

Re: Buying a small business

Post by manatee2005 »

adamthesmythe wrote: Mon Oct 18, 2021 12:14 pm
manatee2005 wrote: Mon Oct 18, 2021 11:07 am I found the owner is 64 so he might be willing to sell.
So network. Join the same country club. Go to his bar. Make friends and after a few months let slip that you're looking for a business opportunity.
I appreciate the advice, it’s really good if you really want the business, but I’m not that desperate to buy it 😀
Post Reply