tag:blogger.com,1999:blog-32639162.post6568495980684554733..comments2023-12-07T01:00:56.264-05:00Comments on My Wealth Builder: How Much to Pay for a BusinessSuper Saverhttp://www.blogger.com/profile/11172939501208456194noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-32639162.post-39220563884899666022009-09-14T11:40:11.938-04:002009-09-14T11:40:11.938-04:00@ In The Money,
Yes, I agree the industry can matt...@ In The Money,<br />Yes, I agree the industry can matter, since it can affect the certainty of the cash flow. <br /><br />@ Dan,<br />I am still leaning towards buying an existing business. For me, the challenge of starting from scratch is that the cash flow is only estimated. With an existing business, whether below or at potential, there is a known starting cash flow. <br /><br />@ Brad,<br />I think cash flow accounts for the cost of employees. Thus, one can increase cash flow by becoming an owner/employee, which eliminates the cost of one salary.Super Saverhttps://www.blogger.com/profile/11172939501208456194noreply@blogger.comtag:blogger.com,1999:blog-32639162.post-29298366810259750312009-09-07T21:14:30.543-04:002009-09-07T21:14:30.543-04:00Sorry I missed this earlier.
I think the big ques...Sorry I missed this earlier.<br /><br />I think the big question is whether the free cash flow included paying someone to manage the business for you.<br /><br />I used to believe that building a business yourself was the way to go since you're starting from scratch and, all else being equal, it probably costs less to start one than to acquire one that's already established.<br /><br />But really, 2-3 times cash flow is actually pretty cheap. And if you're able to be frugal with that cash flow and use it to acquire additional operations at 2-3 times cash flow, it won't take long before you're set.<br /><br />But you're right - it really comes down to whether you have to put in 40-60 hours a week running the show yourself.<br /><br />So maybe the question should be what kind of multiple would you pay for the cash flow of a business that allowed you to be an absent owner?Brad Castrohttp://www.great-option-trading-strategies.comnoreply@blogger.comtag:blogger.com,1999:blog-32639162.post-19810123827136234922009-09-07T15:04:03.694-04:002009-09-07T15:04:03.694-04:00Good post. I came across it via a google search.
...Good post. I came across it via a google search.<br />I've used similar multiples, and at least for now, come to the same conclusion as you. Since I have career skills that are valued at 90k-100k per year, I would likely have to pay $250-$300k to purchase a business that returns a cash flow of similar value. Then I would also have the cost of interest and/or the opportunity cost on my investment (even at 5% opportunity cost, it is $15k/yr). So for right now, it seems that the best bet is to either buy something that has much more potential that is currently being seen by the current owner or to start something on my own.Dan Griffinhttp://slowwealth.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-32639162.post-81960402799245102032009-09-03T09:27:51.306-04:002009-09-03T09:27:51.306-04:00I think the multiple that you use should depend on...I think the multiple that you use should depend on the industry you are looking into. Every industry is unique and to say 2-3 times CF for every type of business would be inaccurate. You could find out such a multiple my looking at comparable transaction.In the Moneyhttp://inthemoneyy.comnoreply@blogger.com