1. What is a fair price for a business? Like any other product, a business is worth whatever a willing buyer will pay a willing seller in a free market. However, the value of most businesses is determined by what someone can afford to pay for it. Typically, this price will be two to three times that annual cash flow of the business, with 35-45% down payment and a note to the seller paid off over 5 to 7 years. If the business can earn you the income you want and make the note payments, then it's worth the price.

2. What is Goodwill and what should I pay for it? Goodwill is the difference between the total value of a business and the value of inventory, equipment and the other "hard" assets. Every business has good-will, unless it is closed down or failing badly. The amount you pay for goodwill will depend on the cash flow of the business and its general attractiveness. If buyers didn't pay for goodwill, sellers might as well sell off their equipment and close down rather than sell as an on-going business.

3. What is Cash Flow? We analyze the cash flow of each business to put it on an even footing with every other business, no matter how the owner takes the profits out of the business. We usually define cash flow as profit before income tax, depreciation, interest and owners compensation and benefits. This is the amount of money the owner has available to pay himself, to invest in additional equipment and to make the note payments on the business and pay taxes.

4. Are there Tax benefits in buying a business? Usually you can take a tax deduction for depreciation on the fair market value of all the furniture, fixtures, and equipment at a much faster rate than real estate. The Covenant Not to Compete and the value of training are tax deductible, frequently at high levels. Finally, most businesses have deductible expenses that add to the owner's cash flow.