Navigating the Hunt for Profitable Businesses

People are looking to sell their businesses all the time, and while approximately 80% of businesses that get listed will never sell, finding them isn’t as straightforward as a generic Google search. If you went through the “What To Acquire Worksheet” I previously shared and are ready for the next step, here’s a quick and easy way to get some practice finding profitable businesses and some factors I would consider.

Use BizBuySell.com

BizBuySell is the internet’s largest business-for-sale marketplace. This is a great place to practice looking through the different types of businesses you’d want to acquire and specific listing details. In the example below, I searched for established businesses. There are three main requirements I look for:

1. I wanted a service business because I find them to be the easiest to do these kinds of deals with.

2. I wanted it to be located in San Diego, CA.

3. I wanted it to have cash on hand, and earn more than $200,000 a year.

Listing Example: Pest Control

Here’s a listing that intrigued me from a pest control business. At first glance, we can see that it's doing $1.85M a year in revenue. It’s in San Diego, and they also offer seller financing.

We can also see that the multiple is 3.1, which doesn’t seem to be either extremely high or a great deal, but we really don’t know until we dig into the details. We do know they're talking about cash flow, but we don't know if that's SDE or EBITDA or something else that they just made up. But, according to the listing, it's cash flowing about $600,000.

A good question to ask here is how are they acquiring customers? It's important to consider if this is a word-of-mouth-based business and whether the owner has personally been servicing all the accounts. If so, then the next question is…

When the owner leaves, how does this impact the relationship between the customers and the business?

Is four weeks or six months enough time to transfer the goodwill that this person has built up over their years in business? 

In many cases, it's probably not, and my prediction is that it could cause the businesses to drop by 50% within a year or two of buying it.

Okay, let's dive deeper into some of the highlighted listing details below.

The business was started in 1999, which is a good sign because it’s been around for a long time.

For this example, we’re using an older listing, but sales are up from the previous year. Is this good? We really don’t know. What I do know is that when it comes to financial representation, the numbers can always be adjusted to support the presentation. This is where you want to be careful and ensure you have a due diligence process.

Now, you can also see that it’s been pre-approved for an SBA loan by a broker of Sunbelt. What does that mean? Absolutely nothing! That basically means that a business broker has looked at it and determined it might be a good candidate for an SBA loan, but this comes with no power or authority or anything else. Additionally, if you follow the EPIC Investing strategies, we’d prefer to finance this without using our personal credit or taking on unnecessary liability.

The listing outlines, “No Experience Required and the owner will train.” This could be a positive if you’re passionate about working in this business, but for me, I would be concerned about acquiring a job. So, with that in mind, we would likely need to hire to fill some operational gaps.

Now, this is where I feel brokers get in the way, “Buyer requirements $1.2M net worth, $400K liquidity and a good credit score.” Should you have to have a $1.2M net worth to purchase this business? No formula supports this requirement. Someone could potentially have a $1M net worth, qualify for the 75% SBA loan, and easily acquire the business. This is a bad move on the broker’s side and belongs in the “Sales Prevention Department.”

Real Estate is leased. I’m guessing this business doesn’t own any real estate, which is another thing to consider.

Now, I do like that this business has 10 employees because there is an existing staff that is running at least some of the operations.

The competition section states, “there are few competitors in the marketplace.” - I would take this with a grain of salt and do your own analysis. I imagine a major city like San Diego, CA, might come with a few competitors.

The listing information says they would carry back $200K, which is great and can be further negotiated.

The reason for selling is “personal”. While this is not a deal-breaker, knowing a seller’s motivation is crucial. I would have more confidence with an actual reason provided here. This is something we’ll have to ask as we move further along in the process.

Those are just some of my thoughts when analyzing a listing like this. I hope you find this insightful and gives you more to consider when practicing or reviewing a business listed for sale.

Of course, there are lots of other factors that we couldn’t cover here, but if you’re ready to take a deep dive into acquiring businesses with $0 out-of-pocket? Join Us For The FREE EPIC Challenge Starting This Week