Ask yourself who will still love me if I get this wrong and how much do you value them?
That was the question I didn’t ask when I was in your situation. By knowing who could get hurt you will know just how high to set the bar when conducting your due diligence on this potential “deal”.
Just from your two posts these would be questions I would want satisfactory answers to before I would be comfortable in even making a decison:
2 months trading: what can you point to as an indicator of future performance?
With figures like this what would month three look like $4000 + $9000 or $4000 - $9000. a big difference and which is more likely given past figures? You really need to understand what their business plan figures are and how they are compiled?
If this is a rocket ship, why are they interested in selling now?
Haven’t got their QuickBooks right yet, if the most important structure of the business is not right then what is?, business registrations, warranty claims procedures, product liability protection, Tax Liabilities?
Without auditable figures from QuickBooks, How can these sales figures be correct or verified?
if i understand you corectly $35k of stock at srp that is not much supply and why would you be valuing it at srp? If you are buying it at SRP then what price are you going to sell it at for Profit?
In terms of inventory control, can new stock be easily reordered? What supply guarantees do you have to be able to replenish stock in the future?
What would stop the owners taking your cash and restarting a very cashed up new business in competition to you?
Asked a few of your associates and mentors for advice, that is great, because the more impartial views you get the better. I just hope that they were CPA, and lawyers. Proper financial and legal review is “mandatory” for any business purchase. Better to spend the money on an expert who can punch holes in a deal than to punch an even bigger hole in your future with a deal that is not right for you.
Apart form working of a discounted cash flow model which wouldn’t work due to a lack of historical figures a valuation based on Fire sale prices would be more appropriate.
A good starting point for buying liquidation stock would be to take product off their hands for a price as low as possible and preferably less than one third of verifiable wholesale price. Then the rest of the assets you will take for $1. leaving the corporate structure and any undisclosed debts and or liabilities to the outgoing owners.
I am not a lawyer, accountant or expert in any way, I have simply walked in your shoes and paid a high price for not asking the right questions at the time.
Good luck and keep us all posted.