Buying a Business that is Operational with Inventory
Buying a business that is operational, especially with inventory, has several things to consider.
First off, if you are valuing the business with or without inventory, the price can change drastically on a deal. Specifically in the seller’s eyes, they want to cover their costs they paid for inventory.
There are two separate valuations you should mentally consider before piecing them together as one price.
First, is understanding the business in its current form and state has cash flow and has value.
Second, is understanding that machinery, equipment, inventory might be separate from the valuation above.
Obviously you can get a discount on these assets when buying the whole business, but expecting them to be included for the price you are valuing the business at just because that is all you can afford or you expect it to be included for free, will cause a rift with the seller.
Even though you are coming in with cash, you want the seller to trust you. You want the seller to want you to succeed. they can make your life a heck of a lot easier and many times will go above what they are legally bound to do to set you up. it’s a legacy play. On the same token, they will also feel like you are one of their biggest customers/clients, but they will have sour grapes if you are taking advantage of them.
When buying a business, the main goal is to sustain what is going on and grow it.
If not buying inventory or equipment will disrupt the business, that is something you want to avoid. if you are ok with a disruption or the seller is asking too much for the equipment, machinery, or inventory then you want to line some chips up to replace things. However, many buyers under-estimate what it takes to replace these things. If they are in hand and the seller will take a discount for what these things normally cost, it would be short-sighted to not take the seller up on it. You want to be fair, and you should get a discount if you are buying the whole enchilada, but both parties will assess what is fair.
There is a way to be strategic to incorporate a win-win for the seller and for you, and saving you money has to be looked at like making you money also.
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Jarbly is a leader in acquisitions with expertise in helping with listings, negotiations, LOI's, asset purchases, company purchases, and real estate purchases. JARBLY has access to high net worth individuals if you are on the sell-side and businesses that may be of interest to you if you are on the buy-side.