Buying a Business 20 The Art of the Deal, Buy Smart Not Fast

Speaker A: Imagine buying your kid a toy only to find the batteries aren't included. Or buying furniture but it's missing the tools to build it. Frustrating, right? Now, imagine that exact same feeling, but you're paying way more. That is what buying business software usually feels like. Fragmented, disconnected and incredibly expensive. Odoo, uh, completely changes that. Odoo is a complete, fully integrated business suite where all your apps actually talk to each other. We're talking automated lead routing for your sales team, seamless AI integration, and an intuitive point and click website builder. It's everything your business needs to scale, saving you time, headaches and money. Stop piecing your software together. Go to odoo.com that's o d o o.com to learn more.

Speaker B: A burst pipe? A ah, dead water heater. The AC calling it quits. Who do you call? HomeServe is an easy way to handle unexpected home repairs with plans covering stuff basic homeowners insurance usually won' Instead of scrambling for a contractor, you make one call to get the repair process started. Join the millions of customers who trust HomeServe right now. Go to HomeServe.com podcast for 50% less your first year. That's HomeServe.com podcast savings compared to renewal price void in Florida Are you a

Speaker C: parent looking for an independent, flexible and tuition free school in Oregon? Evergreen Virtual Academy offers a dynamic and tuition free public education with Oregon certified teachers for PK through 12th grade students. Your student gets a laptop, live class sessions and the ability to chart their own unique path. Plus in person events and social activities all year. When school has no walls, learning has no limits. Learn more and enroll now. Evergreen virtual academy evergreenvirtual.org hey y' all

Speaker D: and welcome to the show where information meets inspiration and practical know how come. Served with a smile. We're your hosts Krista and that's with a K and Greg, your favorite duo for making sense of the stuff that matters. Whether you're planning your next getaway, getting your hands dirty in the garden, tuning up your ride, or just looking for a smarter way to do life, you've landed in the right place. Around here, we believe information doesn't have to be boring. We pack our episodes with real world tips, expert insights and plenty of fun facts sprinkled with just the right amount of personality. No fluff, no filler, just the good stuff. Our goal to help you learn something new, laugh a little along the way and leave each episode better equipped than when you hit play. So whether you are on the road, in the backyard or by the water or Curled up with your favorite cup of coffee. Thanks for bringing us along. Let's dive into another episode that's got your back and your brain. Welcome everybody and thanks for joining me. Uh, we're in the middle of buying a business. That's what we're talking about. Uh, and we've gone through a lot of different things, uh, to help you buy a business. What's important, um, what you need to look at, numbers wise. So you need to look at with um, you know, certain professionals by your side, you know, helping you walk through some of these things. Because there's no way that we can be experts in every part of any business. So that's why you need attorneys, CPAs, maybe someone that already has, um, experience in the businesses that you're looking at. So we looked last time at, ah, time to uh, look at acquisitions. So, um, taking the business that you started or that you, that you purchased and you are now looking to acquire other businesses to expedite the growth potential and the growth factor. Today we're gonna talk key, um, metrics and indicators. So now that, now you know, so now that you've identified, um, some potential acquisitions, some things that just really get your, get your interest up and on the surface they look good. Um, you know, so the next step is a thorough evaluation of their performance. And this isn't simply about looking at the bottom line. It's about developing a comprehensive understanding of the business's health, profitability and future potential. This requires a really, really deep look into the, uh, financial statements, sales data, operational efficiency, market positioning, um, overall cash flow, uh, where's the cash coming from, uh, all that. A superficial assessment can lead to costly mistakes. So you really got to get into this and in the meat of this whole thing. And that's where we might need some help. Help with a CPA or a qualified business attorney. The first area of focus should be the financial statements. These provide a historical snapshot of the business's financial performance. So you'll need to obtain at least three years worth of data. Ideally you want more, but sometimes three is all you're going to get and you want more. So you can identify trends and patterns. Key statements, uh, to scrutinize include the income statements, the balance sheet and the cash flow statement. The income statement reveals revenue, cost of goods, uh, that are sold, the gross profit, operating expenses and the net income. So when you analyze these figures, you're going to get a clear picture of the business's profitability, profitability over time. Look for consistent growth in revenue and net Income or at least a clear explanation for any declines. A sudden drop in revenue or profit margins should trigger further investigation. The balance sheet provides a snapshot of the business's assets, liabilities and equity at a specific point in time, like right now or one year ago or three months ago. Examine the asset composition. Is there a significant amount tied up in inventory, accounts receivable or fixed assets? High levels of inventory could indicate slow moving products or poor inventory management. Large accounts, uh, receivable. Large accounts receivable might suggest problems with collecting payments, uh, from customers. Uh, on the liability side, pay close attention to debt levels and the business's ability to meet its obligations. High levels of debt relative to equity can signal significant financial risk. The equity section reveals the owner's investment and retained earnings, providing insight into the business's historical profitability and financial stability. And we can all see why all of this is that important. The cash flow statement, and I'm going to tell you this is, um, to me, this is what I base so much of it on because cash flow is king, right? You can overcome a lot of things if you have really good cash flow. So, uh, to me, this is the most crucial of the three statements. It reveals the actual cash coming and going into the business. It provides more realistic view of the business's financial health compared to the actual accounting reflected in the income statement. Analyze cash flow from operations, investing activities and financing activities. Positive cash flow from operations is a strong indicator of a healthy and sustainable business. Negative cash flow despite positive net income indicates a potential problem that requires a lot further examination and explanation. This could signal issues with inventory management, slow paying customers, or excessive capital expenditures. Now if some of this is that you can find this and it's fixable and you feel like you're certainly the person to fix it, then you could possibly obtain a business that doesn't have the greatest numbers at a discount because you know that you have the expertise and the talent and the team to come through and do a quick cleanup and fix it and be on your merry way. So beyond the formal financial statements, you should also request and analyze sales data. This data should provide a, uh, detailed breakdown of sales, sales revenue by product, customer and region. This analysis helps identify the business's key revenue drivers, seasonality and customer concentration. High customer concentration, meaning reliance on a small number of major clients, presents significant risk because if you lose one, you know, it could be a, it could be a big issue. Sales, um, data also helps assess the effectiveness of marketing and sales strategies. Are sales growing consistently or are there periods of decline. What are the business's key sales channels? Understanding those aspects is crucial for evaluating the sustainability of the business model. Operational efficiency is another critical factor to evaluate. This involves examining the business's UH processes, productivity and resource utilization. Key metrics to consider include inventory, inventory turnover, accounts receivable turnover, and UH, days payable outstanding. High inventory turnover indicates efficient inventory management, while low turnover could signal problems in slow moving products or poor demand forecasting.

Speaker E: Ryan Reynolds here from Mint Mobile with a message for everyone paying Big Wireless Way Too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying, no judgments. But that's weird. Okay, one judgment anyway. Give it a try. @mintmobile.com Switch upfront payment of $45 for

Speaker B: three month plan equivalent to $15 per month required intro rate first three months only then full price plan options available, taxes and fees extra.

Speaker F: See full terms@mintmobile.com high interest debt can be a real vibe killer. Credit cards, personal loans, and more can make you feel uncomfortable even in the sanctuary of your own home. Well, what if you knew that SOFI could help you leverage your home's equity to feel more at ease? It's called a SOFI Home Equity Loan and it could consolidate your debt at a typically lower interest rate than existing debt with lower monthly payments, and all while keeping your existing mortgage rate. View your rate@sofi.com payoffde hey mortgages originated by sofi bank na member fdic nmls 696891 terms and conditions apply.

Speaker D: Equal Housing Lender similarly high accounts receivables turnover suggests efficient collection, while low turnover indicates potential problems with collecting payments. Days payable Outstanding helps evaluate how efficiently the business manages its payable. Low days payable outstanding might indicate strong bargaining power with suppliers. However, excessive low Days payable outstanding could indicate a strained relationship with suppliers, potentially leading to disruptions in the supply chain. We definitely don't want disruptions in the supply chain, do you? Do we? We're all familiar with the supply chain. Uh, beyond these financial and operational metrics, you should also access the quality of the management team. A strong management team is essential for the ongoing success of any business. Assess the experience, skills, expertise of the key personnel. Are they capable of continuing to run the business successfully, or will significant changes be required after the acquisition? If the current management team plans to stay on, it's important to gauge their commitment to the business. Their expertise is a significant asset that should not be overlooked. You don't ever want turnover with employees, particularly upper level management, if you can at all help it. Um, in addition to these quantitative metrics, qualitative factors also play a crucial role in evaluating business performance. These include brand reputation, customer loyalty and employee morale. A strong brand reputation and loyal customer base contribute significantly to the value of a business. High employee morale indicates a positive work environment and can contribute to higher productivity and retention and that's huge. Conversely, low employee morale can lead to high turnover and decreased productivity. Like we said, you don't want employee uh, turnover. It's a nightmare. Market research is essential to assess the market's overall attractiveness and businesses competitive position within the market. Analyzing market trends, growth, uh, potential and competitive landscape will help you determine the business's long term perspective. It's a market growing or is it saturated? What are the major competitive threats? Does the business have a sustainable competitive advantage? These are crucial questions that need to be answered through market research. Finally, legal M. Excuse me one second. Um, finally, legal and regulatory compliance is a non negotiable aspect of due diligence. Ensure the business is operating in compliance with all relevant laws and regulations. This includes reviewing licenses, permits and any potential legal liabilities. Ignoring legal and regulatory aspects can lead to significant problems and financial penalties down the line. Again, if there's a problem that's existing and you can find a way to negotiate that when the price down and then negotiate the problem out, uh, maybe you could get a really good deal. On a business that has some struggles. Seeking legal counsel specializing in business acquisition is highly recommended. It is, it absolutely is. The effective, um, to effectively evaluate business performance you need to systematically collect and analyze data from various sources. This includes not only financial statements but also sales data, operational metrics, customer feedback and market research. Utilize industry benchmark to compare the target business performance against its competitors. Industry databases and professional associations are excellent resources for obtaining this information. Comparing the business performance to industry averages helps identify uh, areas of strength and weakness. Consider engaging independent experts such as accountants and business evaluators to provide objective assessments to identify potential red flags. Their experience can be invaluable in making informed decisions. Amen to that. Remember, the goal of this um, evaluation is not simply to identify them. The most profitable business is to find a business that aligns with your skills, resources and long term goals. A high profitable business in a declining industry might not be the best fit for your aspirations. Conversely, a less profitable business with a strong growth potential in a thriving industry might represent a more attractive opportunity. Especially if you have the skills, uh, the mindset and the team. Um, to grow this into the growth market through evaluation. Um, this involves balanced consideration of quantitative and qualitative factors, ensuring that your decision is based on a holistic understanding of the business. Be prepared to walk away from deals that don't meet your criteria or present an unacceptable level. Remember, this is about you and it's about your decision. Don't be overly influenced by whoever's selling the business and business brokers. Ultimately, you and your team need to make this decision. Remember, a poorly chosen acquisition can have devastating consequences. Careful evaluation is your safeguard against such pitfalls. Take your time. Perform a, uh, meticulous due diligence and let the data guide you. Your decision making process. Take most of the emotion out. Can't take all of it out because that doesn't really exist. Take most of it out. This meticulous approach will lay a strong foundation for a successful entrepreneurial journey. Uh, that's a good section right there. Okay, so next we're going to talk valuation methods. We're going to hit that next time. So, um, we're all business today, so I'm out and I will see you all next time. God bless.

Speaker F: Tired of your car insurance rate going up? Even with a clean driving record, you're not alone. That's why there's Jerry, your proactive insurance assistant. Jerry compares rates side by side from over 50 top insurers and helps you switch with ease. Jerry even tracks market rates and alerts you when it's best to shop. No spam calls, no hidden fees. Drivers who save with Jerry could save over $1,300 a year. Switch with confidence. Download the Jerry app or visit Jerry AI Libsyn today. That's J E R R Y AI Libsyn.

Speaker B: Grainger knows when you're a procurement manager for an office park, uh, you're not managing one building, you're managing all of them. And to stay ahead, you need to see through walls and around corners. Lights about to fail. Filters ready to clog H VAC on its last leg. If you wait until something breaks, you're already behind. Count on Grainger for quality products, easy reordering and, uh, 24. 7 support. Call 1-800-grainger click grainger.com or just stop by Grainger for the ones who get it done.

Speaker G: Marketing is hard, but I'll tell you a little secret. It doesn't have to be. Let me point something out. You're listening to a podcast right now, and it's great. You love the host. You seek it out and download it. You listen to it while driving, working out, cooking, even going to the bathroom. Podcasts are a pretty close companion. And this is a podcast ad. Did I get your attention? You can reach great listeners like yourself with podcast advertising from Libsyn Ads. Choose from hundreds of top podcasts, ah, offering host endorsements, or run a pre produced ad like this one across thousands of shows. To reach your target audience in their favorite podcasts with Libsyn ads, go to Libsynads.com that's L I B S Y N ads.com today.