Forums: Discussions for entrepreneurs and small business.

I have no experience in the liquor business. However, you need to work out the P/E Ratio and compare it with the industry standard before you buy. Basically you should pay the profit X the industry P/E Ratio. You can average out the profit for a number of years. I hope it goes well. Good luck.

I think you can easily get a bank loan if you use the inventory as collateral.

I hate to be negative but there are couple of statements that have been made in this thread that have to addressed.

Infinique1 wrote: “I think you can easily get a bank loan if you use the inventory as collateral. “

Sorry, but that just isn’t true.  First of all, the buyer states that the purchase price is: “$250k + inventory of $50k“. So the inventory accounts for only $50,000 of the $300,000 purchase price. But more importantly, banks don’t like to loan money on small business purchases and they certainly don’t loan money with inventory used as collateral. The inventory is supposed to be sold -customers walk out the door with it everyday. Failing businesses either have “going out of business sales” or they sell the inventory to a competitor, or sell it back to the supplier. When a retail business goes belly up there usually is no inventory.

If the buyer is buying the real estate the business sits on, that can be financed by a bank with little down.

Also byrneof01 wrote: “you need to work out the P/E Ratio and compare it with the industry standard before you buy. Basically you should pay the profit X the industry P/E Ratio.”

This is a small, owner managed business. P/E ratios are for publicly traded corporations.

There are no shares of this business so there can be no earnings per share.

This business sounds like it is priced very fairly. With $700,000 in sales and discretionary cash flow of $130,000 the business is priced at .35% of sales and almost 2 times discretionary cash flow. That’s pretty typical for a retail business.

The problem is that the buyer wants to finance 100% of the price. It also appears that the seller is not willing to finance any part of the price. I’ll bet this deal didn’t happen because the buyer doesn’t have any money to put down.

For small businesses like this, the reality is that the buyer and seller need to meet in the middle, with the seller willing to finance the sale (because banks won’t) and the buyer needs to have s significant down payment (about 30%-50%).