Many individuals trying to evaluate a business either on their own or with a Broker Consultant actually miss the common-sense items that should be considered because they are so focused on the cash flow.
Cash flow is important but there are other common sense items that must be considered. Regardless of the bottom line if a business requires very skilled labor to acquire that bottom line you may want to reconsider your bid for the business. You might say labor is already in place and all I need to do is step into the current owner shoes, that may be a good valid point, however, I could say consider what would happen if just one or two of your skilled labor force exited after your acquisition, could you survive? Always ask the question, “if I lost a couple of my key people could I survive until I find replacements?” If the answer is no, find a reasonable solution or reconsider your acquisition.
Cash flow is very important when evaluating a business but always consider how skilled the labor force is. How easy is it to find this skilled labor? How much my time will be devoted to the business? What is my gross income distribution across all clients? What is the learning curve of the business a business?
A small or short learning curve can be more attractive to an individual searching for a business and more valuable to this individual than a business with a large learning curve and enormous time requirements. We all want to set the world on fire, just remember a great fire can start with a simple spark.
Find something that fits your current level of skill and keeps growing. There’s no end to what you can accomplish if you start with the right business and with the right clients. In addition, the gross distribution across all clients is another important factor when searching for a business. If most or all of your income is derived from one, two, or a few clients you must be aware of the potential loss. There are ways to mitigate this loss and you must take advantage of every single opportunity should you decide to purchase a business with this type of distribution.
Regardless of your situation keep a cool head look for the common sense attributes and faults of a business, this is usually where the money is lost or earned.
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