I have seen some business for sale on bizbuysell that have a list price almost half of cash flow. Why would the happen? Are there specific industries where business sell for less than annual cash flow?

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For those types of sites, the brokers generally strip all owner comp out of the equation which inflates cash flow. It's an unrealistic way to present the Financials, so take their number and burden it with your comp or that of a replacement cost if you'd be out of day to day.

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To add onto this, assume you will need to either retrain or rehire staff for the direction you might want the business to go. Take this cost into account as well.

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What sort of business? Whats the expenses. If the cash flow is 100 000 and thet selling for 50k but the expenses are 200k... there's a bit of problem. Look at the profit. Get a PnL

You have to ask yourself, why would someone sell a business for half the cash flow of 1 yr? The answer is they wouldn't which means the cash flow is likely inflated. To put it in perspective, the seller could just let the business run for 6 more months and let it close down and still make more money than selling it to you.

Ye, those businesses likely have debt

I'm a business broker, in average the aggregate of all small businesses sell for ~2.3X SDE. The value of the business grows as SDE (a proxy of cash flow) grows. There is an inversed correlation between the SDE or EBITDA multiple and risk. I have seen some those business listed in BizBuySell, my hunch is they are frachises that are not operational yet and the franchisor is presenting them as a better (cheaper) option to a established business. However, the risk of being successful is much higher.

I got into a franchise to get the training. You might want to consider going to the next IBBA conference which is in the Oct/Nov time frame. There you'll meet a bunch of brokers and you'll get other perspectives.

This business has a big failure rate as it can take a long time to sell your 1st business.

Having local relationships of Cpas, attorneys and Financial Planners is a big plus.

smart

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