[LindsayG]

I have an opportunity to purchase an art & framing business. Owner wants 175k. There is one part time employee who works two days a week. The net profit of the store after all of the business deductions on the schedule C (rent, credit card fees, inventory, etc) is around 40k. The business has declined about 10k per year the past 3 years. (Note- Owner does nothing to actively generate revenue) Business broker thinks 150k is "fair" and my accountant thinks that's ludicrous and suggested paying 50k.. 80 tops. That's a huge variance.. thoughts? Thank you!

[odinn7]

I think your accountant has the right idea. It sounds like a losing proposition from the start.

[smoothy]

I agree... you are the buyer... you need to take the pessimistic approach, it's a business with a limited market to begin with... and you are saddled with the reputation of the business, or in this case... lack thereof with shrinking income.

Its only money however... yours.

You have to pay for utilities, taxes, inventory, wages, maintenance of the property... and it all comes out of your profits before you get to pay yourself...assuming its a cash purchace where you have paments and interest to pay out of that shrinking revenue as well.

THen lost opportunity costs if you had invested that same money in say a S&P 500 fund instead.

[joypulv]

We don't even know what is included! Building, inventory, how established is it, how many loyal customers, is the 10K loss per year after the 40K or is 40K last year, has a competitor arrived in town... making you sound naïve, sorry. Last but not least, the broker is on commission and your accountant isn't.

Go with the lowest offer. See what happens. If someone wants to sell, you take the risk of waiting. I can imagine that art/framing is first to go in a recession, before even spas and salons and shoe boutiques. Hang out there every day for a week. Go over the books and tax returns. Talk to the landlord and other businesses on the block. Check the Yellow Pages and local papers for what ads there are.

I know someone who started this kind of business from scratch, on her own. You shouldn't be paying for much more than inventory. The reputation and established location are all that is left, and in that business, it's not worth much.