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#100: Tactical Tuesday: The Art, Science and Math of Buying a Small Business

Overview:

Jason A. Duprat, Entrepreneur, Healthcare Practitioner and Host of the Healthcare Entrepreneur Academy Podcast, celebrates his 100th episode. He opens the show thanking the devoted listeners who have supported the podcast by listening and sharing with friends, family and colleagues. In this milestone episode, Jason provides insight on how to purchase a small business, including what to think about and where to look for buying options.   

 

Episode Highlights:

  • Jason records his 100th episode during his third week in New York City as a member of the Navy support team assisting COVID-19 patients. 

  • Unfortunately, because of COVID-19, there will be more opportunities to buy small businesses because they won’t be able to stay open. This will apply to brick and mortar and non-essential healthcare companies,among others. 

  • The stimulus package is encouraging a lot of investors and business people to invest.   

  • We’re currently in a buyer’s market, which means as a buyer, you’ll have the leverage for negotiating.

  • The net profit of a business and the owner’s salary make up the business valuation. 

  • The multiple of earnings and the percentage of gross sales are two factors of the evaluation.   

  • Jason delves into the differences between horizontal integrations and vertical integrations.   

  • If a company has been operating for more than 10 years, they’re doing something right. This tips in your favor as a small business buyer so do your due diligence in this area. A company should be open for at least 3-5 years. 

  • Ask the owner why he/she is selling the business. Also ask if he/she will provide training for new employees. 

  • Don’t wholly rely on the tax returns of a business because they may be substantially less than the owner is taking home.  

  • Focus on buying a business’ assets and not its liabilities.  

  • Be sure to hire a broker, as well as a CPA and attorney.    

  • Be prepared to sign a non-disclosure agreement when you gather information about businesses on broker sites.  

  • Jason shares several websites for purchasing small businesses including BizBuySell, BizQuest, Flippa and Empire Flippers. (See Resource section for links).

  • Let your network know you’re interested in buying a business for off-market deal options.  

 

3 Key Points:

  1. When looking at the valuation of a large business as a buyer, you’re typically looking at the EBITDA (earnings before interest, tax, depreciation and amortization). When evaluating small businesses as a buyer, you’re looking at the seller’s discretionary earnings or owner’s benefits.

  2. When buying a business, you need to know the valuation, how long the business has been operating and why the owner is selling. You should have the financials looked over by an independent auditor, including 3-5 years of tax returns. You should also know  about the industry’s non-compete clause and if the owner is willing to sign one, along with the liabilities that may be involved.

  3. Ask if the business owner is willing to offer seller financing because lending is tough for small business purchases.       

 

Tweetable Quotes:

  • “As businesses are forced to shut down because they’ve run out of capital, they don’t have enough cash flow to pay their bills or their employees or themselves, then you’re  going to start to see a lot of businesses go under or go for sale.” – Jason A. Duprat

  • “Sellers, if they’re trying to get top dollar and they’ve had to shut down their business for any period of time, or they are still shut down, they’re not going to be able to ask for top dollar.” – Jason A. Duprat

  • “Horizontal integration is buying another business operating in the same industry you’re in and at the same level of the supply chain. Vertical integration is buying a business or firm that operates within a different industry and at a different level of the supply chain.” – Jason A. Duprat

 

Resources Mentioned:

#HealthcareEntrepreneurAcademy #HealthcareBoss #healthcare #entrepreneur #entrepreneurship #smallbiz #smallbusinesspurchase #businessowner #COVID-19 #coronavirus

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