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INTRODUCTION Hello. My name is Eric Gall. I am a business
intermediary with Florida Business Exchange in Southwest Florida. If you are looking to
sell your business, you likely have quite a few questions about the process. This video
short is one of 18 I have created in a series to answer your most frequently asked questions.
I AM STRUGGLING, CAN YOU FIND A BUYER? The fourth question I am sometimes asked comes
from business owners who are in the start-up phase or the decline phase of the business
life cycle. They are struggling to make ends meet. Their question is less about how much
the business is worth and more about, would anybody buy their business. To answer the
question, “I am struggling, can you find a buyer?”, we use what we call the acid
test. The acid test simply takes a look at the business
from a third-party investor perspective. First, an investor would hire a manager; therefore,
you would subtract a fair salary for managing the business from the owner benefit. Second,
an investor would have to service the debt incurred when buying the business; therefore,
the you would subtract the interest from the owner benefit. This leaves what we'll call
the return. The return divided by the down payment on the business computes a percent
return on investment. Usually, buyers like to see a 15 to 20% return on their initial
investment to feel comfortable acquiring the business.
If a business passes the acid test, it has a high probability of selling. If not, it
has a low probability of selling for anything more than the value of its assets.
CONCLUSION Thank you for listening. If you have any questions
about this topic, or any other topic, please do not hesitate to contact me at 239-738-6227
or eric@buysellflbiz.com. I'm here to help you prepare your business for your eventual
exit.