Going From Shutting Doors to a $600K Sale | Was This a Good Business Sale?
In this video, Matt reacts to this person’s story about a business sale she had heard about from her mentor. This story seems a little odd but watch to see what Matt thinks.
There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!
Video Transcript:
Business Advice Video:
My mentor just bought a business and my mind is blown of his return on investment. This restaurant had been in business for over 20 years, the seller was ready to retire and he didn’t even realize that he could sell his business and was about to close the doors. My mentor started evaluating the numbers and realized that they weren’t necessarily clean because the CPA made some mistakes on the tax return, and that presented a huge opportunity. They agreed on a purchase price of $600,000. My mentor went through the SBA to get a loan, put 10% down just over 60,000 after closing costs. And his first month in business he did 30,000 in net profit. That means he’ll make his money back in just over two months. The restaurant has a really strong management in place and his first year he’s gonna bring in probably over $300,000. There are opportunities to be had out there people. Business owners are retiring and want you to buy their business.
Matt’s Review:
Okay, interesting. First I like I keep saying “Mentor my mentor mentor”, that somehow rubs me the wrong way. It’s great that she has somebody helping her out but “my mentor” sounds a little weird. But that has nothing to do with anything.
So I find it interesting that somebody who was going to just close the doors didn’t know his business was even worth anything. Was suddenly able to come up with a 600,000 dollar price to sell it. Cause if you decide something’s worth $600,000 but the day before you were willing to just close the doors and walk away, I don’t know something seems a little off about that. But let’s assume, okay that is correct, the business is worth $600,000. Yes, you can definitely get an SBA loan with 10% down. If you’ve seen any of my you know “Would I Buy This Business” segments, I talk about that a lot. How you can finance and get into these businesses. So $600,000 selling price. Yeah, $60,000 down. You do need some money for working capital, to make payroll, and buy food and everything first off. But let’s just say yeah $60,000 down gets you into it. The first month they had $30,000 of profit. Well, he didn’t get to take all that home, because he had to make his payment on his SBA loan. So it’s gonna take more than 2 months to really make his money back. But yes, if you’re looking at your investment as just your down payment, which is fair, and the rest of that loan is gonna be paid by the business. Then if you can find a good business to buy and you can swing the down payment and you can take that business and run with it and grow it and do well, it can absolutely be a good way to get into entrepreneurship, build your personal financial standing and down the road, you know, sell that business if you want, move into something else, buy something else.
So I think it is a valid lesson. I think there are people there who have viable businesses that aren’t thinking about selling them or don’t know how much they’re worth and you can, you know, potentially get a good deal. She mentioned that part of the reason they got that price was the CPA made some mistakes on the tax return. Again doesn’t really hold together. If there are mistakes made that doesn’t change what the value is. You just figure out what the business is really worth and buy it for that, not count on CPA tax return mistakes. But at the end of the day, the ideas is valid. If you can find a good business, buy it with a loan, use the cash flow of the business to pay the loan back. You’re not gonna get the whole $30,000 of profit but you’re still gonna do well. Just make sure the business you buy is one that you can grow and run successfully and you’re not buying something that somebody else was just trying to get out of a problem from. Cause a lot of businesses for sale it’s really just somebody with a big problem hoping to unload it on the next sucker who takes it over for them and gets them out of it. And now it becomes their problem. So you don’t wanna be that sucker, you wanna know what you’re buying and buy smart.
