About a year before I sold my last business, I started working with a friend — let’s call him Rick — to help me prepare my company for sale. Rick had sold his own business and had gone on to lead M&A for a public company.  He had seen the guts of a lot of deals.

Our first few conversations were frustrating because I wanted to focus on how to maximize the multiple someone would pay for my business and Rick always responded in the same way:

“Multiple of what?”

“Multiple of earnings of course” would be my response, annoyed because I knew he was acting dumb.

Over time, I came to appreciate what Rick was talking about. It took me about a year — call me a slow learner — but I finally got it. So in this post, I’ll try to pass on Rick’s wisdom to you.

A multiple of course is M&A parlance for the multiple of your Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA) that you’ll fetch for your business when you go to sell it. Smaller businesses use something called Sellers Discretionary Income (SDI). Like fishing stories, cashed-out entrepreneurs often brag about the multiple they got for their business leading owners to a distorted view of what their business is worth.

Like a golf handicap or a marathon time, it’s tempting to fixate on getting a certain multiple for your business. It’s natural to want an objective measure for the value of your business and your multiple looks clean and simple to calculate.

But just like any other number on a spreadsheet, multiples can be manipulated.

Let’s say you’re having lunch with a potential acquirer and you ask her how much she thinks your business is worth. To answer your question accurately, she would likely do a discounted cash flow analysis.  Instead of making your eyes roll with complex financial equations, she responds by saying  “four times”. That sounds like a straightforward offer but, as the example below illustrates, there is a lot of room for interpretation:

Time

Let’s say you expect your business is going to generate $500,000 of EBITDA for the year ending December 31, 2011. Therefore, you might assume her offer of “four times” would equate to $2,000,000.

However, most buyers would argue that they’re going to peg their offer on your most recent completed financials.  If you only did $300,000 in EBITDA last year, then her “four times” offer now amounts to $1,200,000 – almost half of what you thought.

What’s more, some buyers will take a blended approach and average the last three year’s EBITDA. Assuming you just broke even in 2009, and you can get them to include your current year forecast, your average would be $266,000 and their “four times” offer is half of what you were expecting.

“Normalized expenses” – the market rate effect

Not only can an offer of four times vary on when you calculate EBITDA,  the price you get for your business will also go up or down depending on how you keep your books.  A buyer will want to “normalize” your earnings which means they will want to figure out how your business would perform if you stopped using it as a tax shelter.

For example, you might pay yourself a below market salary to minimize your personal tax bill. An acquirer will argue that, if they buy your business, they will have to install a manager with a market rate salary and will therefore recast your Profit and Loss statement with a fatter salary for the manager and corresponding lower EBITDA.  Therefore, if you’re paying yourself $100,000 a year but it would cost $200,000 a year to replace you, then your “normalized” EBITDA is going to be $400,000, not the $500,000 you told the buyer. Their “four times” offers will go down from $2,000,000 to $1,600,000 (4 x $400,000).

“Normalized expenses” – the piggybank effect

Normalization can work the other way too. Let’s say you’ve been running your business like a personal piggy bank (don’t worry, I won’t tell). Your spouse is on the payroll and the kitchen renovation you did at the house last year found its way on to your list of business expenses as an “office renovation”. You can argue to an acquirer that these costs should be deducted from your expenses when calculating EBITDA. So maybe, once you eliminate the piggy bank effect, you actually make more like $600,000 of EBITDA which means an offer of “four times” should garner more like $2,400,000.

Hard assets

When you’re talking about multiples you also have to take into consideration any hard assets. If your motel is generating $500,000 a year and you get offered “four times”, $2,000,000 may sound like a fair price until you take into consideration the land your motel is sitting on (that you own) is worth $1,000,000.

Working capital

Sometimes buyers will offer you an abnormally large multiple only to take it all away with an overly stingy working capital calculation. Working capital is the money you need to leave in your business at closing. If you’re able to pull out $200,000 in excess cash based on the working capital calculation a buyer proposes in their offer, you’re putting an extra $200,000 in your jeans even though the multiple the buyer is offering has not changed.

Fully loaded

Some buyers casually refer to a multiple they would pay including an earn out. For example, let’s say for a business generating $500,000 in EBITDA an acquirer offers $2,000,000 at closing with another $1,000,000 in consideration available if certain performance targets are met in the future. Most would agree that the acquirer is offering “four times” based on the cash changing hands at closing. But a sly buyer, looking to optically inflate their generosity, may choose to characterize their offer as “six times” basing the multiple on the full price paid if the earn out is achieved. That’s a big if.

Savvy buyers know that we entrepreneurs get fixated on getting a certain multiple for our business and the smart buyers use our obsession to their advantage.

Before you agree to discuss a potential acquisition based on a certain “multiple”,  peel back the layers of the offer to understand the details.

Just curious, how else have you seen multiples manipulated?

I started Warrillow & Co. in 1997 to help big companies understand the small-business market. The company was acquired in 2008. Over those 11 years, I built some relationships with people who work in the world of entrepreneurship—people like Bob Lapointe, the president of Inc. (Inc. magazine, Inc. 500, etc.), Curtis Kroeker, the boss at BizBuySell.com and Wendy Vinson, the president of The E-Myth, the coaching company behind the book of the same name.

A few weeks ago, I went groveling to people like Bob, Curtis and Wendy so I could pull together a package of goodies for you in return for ordering my new book this week. You know the drill: in a world of distracted readers and fragmented media, the week of a book launch—like that of a new movie—can make it or break it. So I leaned hard on my friends, pulled in all my markers and put together what I hope you’ll agree is a nice package of bribes for ordering Built to Sell: Creating a Business That Can Thrive Without You this week.

If you order one copy of Built to Sell between today and this Saturday, you’ll get five gifts worth a total of about $65 (offer #1):

1. A one-year, complimentary subscription to Inc. magazine

Every time Inc. arrives at my house, I steal away to a quiet corner and crack the spine. I start with Jane Berentson’s letter and then skip right to Norm Brodsky’s column, “Street Smarts.” Norm’s advice is so good that I consider him a mentor even though we’ve never met in person. Then I read Jason Fried’s latest rant. I study the “American Dream” article about the latest business for sale. Then I dig into the cover package.  After an hour with Inc., I invariably feel better about my decision to shun corporate life for the wild ride of business building. It’s one part therapy, one part inspiration and one part how-to manual. If you order my book this week, I’ve arranged to get you a complimentary, 12-month subscription to Inc. magazine.

And…

2. A two-hour conference call with me

At Warrillow & Co. we held an annual summit each year, and I used to hate listening to paid speakers stand up on stage and give their rehearsed spiel in exactly 45 minutes. I would sit restlessly waiting for the Q&A period. I got to moderate the discussion and always tried to get the speaker to go “off message.” I loved it when someone asked a question so good that the speaker needed to think. It was the gaffes, candid admissions and spontaneity that I craved—which is why I think you’ll like this call. I’m going to answer your questions about building a sellable business. I’ll be direct with you—I’m sure I’ll say things I’ll later regret—and the only thing you won’t get is a rehearsed speech.

And…

3. An e-book from The E-Myth on building a sellable company

When I started my first company, I read The E-Myth, and to this day, it is the book that most profoundly shaped my thinking on what it means to be a successful business owner. The E-Myth is so good that it has become the entrepreneur equivalent of What to Expect When You’re Expecting—practically required reading for business owners. So I asked the coaching company behind the book to develop a special package of content for you that applies the idea of “working on your business, not in it” to building a sellable company. This e-book is not available publicly—it’s just for the people who order my book this week.

Plus…

4. A free BizBuySell.com valuation report

I used to ask myself two recurring questions when growing my last business: “What is it worth today?” and “If I do x, y and z in the coming years, how much more would it be worth?” If you’ve ever wondered what your company is worth—or what it could be worth down the road—a BizBuySell.com valuation report is your answer. The report takes your key financial data and compares them against recently completed transactions in your industry to develop a benchmark for the multiple being paid for a business like yours. As the Internets largest marketplace of businesses for sale, BizBuySell.com has a deep data set of past deals to draw benchmarks from. If you order a copy of my book this week, you will receive a code to develop a customized BizBuySell.com valuation report for your business. Just plug in your basic financial stats and see what your business might be worth. (The report alone retails between $19.95 and $59.95, depending on the number of comps included).

And…

5. A $25 Kiva.org loan in your honor

I stumbled onto Kiva.org when we, at Warrillow & Co., were looking for a charity to support. I instantly loved its business model.  Through a website, it allows people to lend money to aspiring entrepreneurs in the developing world and follow their progress. If I’m ever feeling a little low or something is not going quite right, I make a loan and get an instant pick-me-up—a feeling that I’m helping someone in need and a reminder of how lucky I am to be able to lend.  If you order my book this week, I’ll make a $25 loan to a Kiva entrepreneur in your name. You can then follow the entrepreneur’s progress for yourself and see how you’ve helped someone pick him- or herself up by the bootstraps.

So that’s the deal. If you take two minutes now and order the book from Amazon (or Borders, Barnes & Noble, Chapters/Indigo, 800-CEO READ, etc.) for around $16 and forward your order confirmation to rachel@BuiltToSell.com, we’ll get you your package of five complimentary gifts today (please note, the Inc subscription is only available to U.S. residents. If you live outside the U.S., you’ll still get the other four gifts).

Get my advice on your business (offer #2)

Occasionally business owners ask me to consult for them about how to create a sellable business. It probably doesn’t come as a huge surprise to you that I hate the consulting business model. I just think it is flawed on so many levels, which is why I don’t consult.

But for this book launch, I’m bending my rule a bit.

If you have a specific question and want my advice—maybe it’s about valuation or creating a recurring revenue stream—I’ll spend an hour with you on the phone one-on-one to answer your question, provided you order 10 books this week. If you send me some details about your business before the call, I’ll also spend some time prepping for our discussion. Given my allergy to consulting, I’m limiting this offer to the first 10 takers.

Ten books is about nine more than anyone would ever need, so my suggestion is to give the ones you don’t need to friends who own a business. Or if you’re in an Entrepreneurs Organization (EO) chapter or Vistage forum, hand them out to your chapter or forum mates. If you can’t think of anyone to give them to, let me know, and I’ll donate them to an enterprise center where new entrepreneurs go to get business advice.

Just email your proof of a 10 copy purchase (e.g. Amazon order confirmation) to Rachel@BuiltToSell.com before this Saturday April 30, 2011 and we’ll be in touch to book your phone meeting.

Spend two intense days with me to make your business more sellable (offer #3)

I’m going to host a small, intimate session at the Four Seasons Hotel in Chicago on Sept. 28 and 29, 2011, for a group of 16 business owners interested in making their businesses more sellable.  The Sellability Workshop will be an intensive, two-day session designed for business owners running companies with between $500,000 and $5 million in annual revenue. I will lead a spirited discussion and Q&A around the following themes:

• Recurring/subscription revenue models
• Pricing psychology
• Branding and packaging
• People and leadership
• Positioning yourself for a strategic acquisition

The limit of 16 people is a luxury. We’ll have lots of time to get to know each others businesses and provide our lessons learned and war stories. I’ll lead the conversation, but it will be a workshop format with lots of discussion, Q&A and time to reflect.

The Sellability Workshop is $2,495, but if you buy 50 copies (at a cost of around $800) of Built to Sell between now and Saturday, you can come as my guest. Again, just forward your order confirmation to rachel@BuiltToSell.com. Please give the other 49 copies of my book to friends or forum mates who run companies, or we can donate them on your behalf to an enterprise center library, where they will be well loved. This offer is obviously limited to the first 16 people who send in their confirmation of a 50-book order between now and Saturday. (Hint: often times 1-800 CEO READ or B&N are better at handling large bulk orders).

Have me as a guest speaker (offer #4)

From time to time, I get asked to speak to Vistage chapters or EO forums.  Usually it is not a fit because I charge to speak, and most groups are looking for me to speak in exchange for exposure to their audience. That model doesn’t work for me because I don’t have a follow-on product to sell: I’m not a consultant or an M&A professional who speaks to gather leads. The upside is, if you have me speak, your members get 100 percent content with no hidden agenda. The downside is, I don’t do freebies. To that end, I’d be happy to speak to your group, provided you order 400 books by this Saturday (this offer is limited to the first two takers).

Just email your proof of a 400 copy purchase to Rachel@BuiltToSell.com before this Saturday April 30, 2011 and we’ll be in touch to book your speaking engagement. (Hint: often times 1-800 CEO READ or B&N are better at handling large bulk orders).

Q&A

Q. What’s the difference between the first edition of Built to Sell and the second edition being launched this week?

A. In the second edition of Built to Sell, the story of Alex Stapleton remains intact and is accompanied by an all-new 10,000-word Implementation Guide, which outlines my experience, war stories and lessons learned from starting and exiting four businesses. The Implementation Guide is a practical, nuts-and-bolts manual for turning a business into one that can thrive without you.

Q. What if I order after Saturday, April 30?

A. Sorry, April 30, 2011, is a firm date. Send Rachel your order confirmation before 6 p.m. Eastern Time on April 30 to take advantage of any of the offers above.

Q. What if I live outside of the United States?

A. All offers are valid except for the complimentary subscription to Inc., which is just for U.S. residents. If you live outside the United States and you send Rachel your order confirmation by April 30, 2011, you’ll still get the other four gifts.

Q. What if I have already ordered the new book?

A. First of all, thank you. Provided it is the second edition (Built to Sell: Creating a Business That Can Thrive Without You), dig up your order confirmation and send it to rachel@BuiltToSell.com, and we’ll send you your five-pack of gifts.

Q. What if I ordered the first edition, Built to Sell: Turning a Business into One You Can Sell?

A. Thank you. Unfortunately, these offers are just for people who order the second edition, called Built to Sell: Creating a Business That Can Thrive Without You.

Q. Are these offers good for e-book purchases (e.g., for Kindle, Nook, iPad)?

A. No. Unfortunately, these offers are good only for hardcover book purchases.

Q. What if I don’t need that many books?

A. Let us know, and we’ll arrange for the books you don’t need to be donated to a small-business development center (SBDC) or enterprise center library.

Q. What are the logistics on the Sellability Workshop on Sept. 28 and 29, 2011?

A. We start at 9:00 a.m. on Sept. 28 and finish by 4:00ish each day.  We’ll grab dinner together somewhere nice the evening of Sept. 28. You’re responsible for your own travel and hotel costs (there are lots of choices in Chicago, from super-swank to very modest). There is no long-distance or webinar access to the session. This is an intimate and small-scale group. Plus, Chicago is a great city in the fall—it’s worth the trip, promise.

It’s amazing how much peddling a book has changed over the last few years. In the old days, an author would have to go from store to store signing books.

Nowadays, books are marketed like movies and it all comes down to how many people tweet about the book or write a comment on your book’s video trailer:

Giving away a free chapter online has also become standard but I wasn’t sure what to share with you. This is the second edition of Built to Sell and it includes everything in the first edition plus an all new “Implementation Guide” which outlines how to apply the lessons in the book to your business. In case you have already read the first edition, I thought I would offer you the first chapter of the Implementation Guide. Hope you enjoy:

Implementation Guide (excerpt).

Step 1 of 8: Isolate a product or service with the potential to scale.

The first step in building a company that can thrive without you is to find a service or product that has the potential to scale. Scalable things meet three criteria: (1) They are “teachable” to employees (like the Stapleton Agency’s Five-Step Logo Design Process) or can be delivered through technology; (2) they are “valuable” to your customers, which allows you to avoid commoditization; (3) they are “repeatable,” meaning customers need to return again and again to buy (e.g., think razor blades, not razors).

Brainstorm all of the products and services that you provide today and plot them on a simple diagram with “Teachable” on one axis and “Valuable” on the other:

Once you have plotted everything you offer on the chart, eliminate services or products that a customer needs to buy only once.

Often, you’ll find that the most teachable services or products are the ones that customers value the least. Alternatively, you’ll find that the products and services your customers value most are the least teachable. That’s normal. Try combining one or more services or products to create the ideal offering.

By way of a hypothetical example, let’s take a look at how Alex Stapleton might have plotted his services before deciding to focus exclusively on creating logos. You’ll recall he had Elijah working on the branch posters for MNY Bank. Since creating a branch poster is a simple task that lots of marketing agencies can do, Alex would have plotted the branch posters at the top left of the chart: high on teachable since he could get his juniormost designer to do them, but also low on value to customers because branch posters can be done by lots of other marketing agencies.

You may also recall how Chris Sawchuk was struggling to get the local bicycle shop to be ranked number one on Google’s natural search listings. Chris was a generalist designer without any specific knowledge of search engine optimization (SEO). In fact, SEO is a highly sought-after skill in the market that requires a deep subject matter knowledge and years of experience to do well. Successful SEO is very valuable but also very difficult to teach, which is why Alex would have plotted the SEO project for the bike shop on the bottom right corner of the chart.

On another level, creating logos was something Alex could teach his staff to execute, and since they had come up with a unique, proprietary approach to developing them that clients liked, Alex would have plotted Ziggy’s Natural Treats logo at the top right of the chart.

Lessons from Experience

Of the three criteria for a scalable product or service—teachable, valuable, and repeatable—I found the single most important factor in driving up the value of my companies was ensuring my revenue was repeatable, meaning customers had to repurchase somewhat regularly.

Although all recurring revenue will have a positive impact on your company’s value, some forms are more desirable than others. Based on what I’ve learned from talking to buyers, here are six forms of recurring revenue presented from least to most valuable:

No. 6: Consumables—toothpaste

Consumables are disposable items customers purchase regularly but that they have no solid motivation to be brand-loyal toward.

Each morning I wake up and brush my teeth with Crest Whitening Gel. I’m fairly sure the “whitening gel” is a placebo, but it appeals to me given the amount of black coffee and red wine I consume. Every once in a while, I’ll go off-piste and try a Colgate product that promises “extra whitening,” but I always work my way back to Crest.

If you sell a consumable, start tracking your repurchase rate from existing customers. This will be a number that acquirers will use to calculate your projected sales into the future—and to calculate how much they’re willing to pay to buy your company today.

No. 5: Sunk money consumables—razor blades

More valuable than basic consumables such as toothpaste are “sunk money consumables .”In the case of these items, the customer has made an investment in a platform.

When I started using Gillette Sensor razor blades, I first had to buy a handle. Now I buy a new five-pack of blades every month, and I can’t bring myself to try Schick because then I’d have to purchase its handle mechanism. I’ve been a Sensor guy since I grew my first patch of peach fuzz. I’ve made an investment in the platform, and that makes me reluctant to switch providers.

The same is true at the office. When I was in the market for a printer, I bought a Xerox. And even though I probably won’t need to buy another printer for a while, I still have to buy Xerox’s expensive toner cartridges.

Expect to garner a premium for your business if you can demonstrate a loyal group of customers who have made an investment in your platform.

No. 4: Renewable subscriptions—magazines

Even better than having loyal customers who repurchase is having revenue that is guaranteed into the future. For example, I am a loyal subscriber to Outside magazine. Each year I get a re-up letter, and I send a check to cover my next twelve issues. Outside recognizes one-twelfth of my subscription fee the month it receives the check and each of the next eleven months.

Magazines are cheap compared with the subscriptions that analyst firms such as Frost & Sullivan or IDC sell their customers, which can run into the hundreds of thousands of dollars, making these companies more valuable than their competitors that offer project-based consulting on a one-off basis.

No. 3: Sunk money renewable subscriptions—the Bloomberg Terminal

When customers make an investment to do business with you, they become very sticky. If they buy on a subscription model, you will have one of the most valuable businesses in your industry.

Traders and money managers swear by their Bloomberg Terminal. Bloomberg customers have to first buy or lease the terminal and then subscribe to Bloomberg’s financial information. Having sticky customers loyal to a proprietary platform allowed Michael Bloomberg to build a valuable company.

No. 2: Auto-renewal subscriptions—document storage

When you store documents with Iron Mountain, you are charged a fee each month until you ask for your documents to be shredded or you agree to pick them up. Unlike a magazine subscription, for which you have to make the conscious decision to re-up, Iron Mountain just bills you until you tell it to stop.

Iron Mountain tracks its cancellation rate down to the decimal point and it can predict its revenue well into the future, which is why it is such a valuable company.

No. 1: Contracts—wireless phones

The only thing more valuable than an automatic renewal subscription is a hard contract for a defined term.

As much as we may despise being tied to them, wireless companies have mastered the art of recurring revenue. Many give their customers free phones as long as the customer locks into a two- or three-year full-service contract.

As you ascend the recurring-revenue hierarchy, expect the value of your business to go up in lockstep.

Once you’ve isolated what is teachable, what your customers value, and what they need most often, document your process for delivering this type of product or service. You’ll recall Ted helping Alex to define and document the Five-Step Logo Design Process. As Ted explained, describe each of the steps so that you can repeat the model in the same way each time. This will form the basis of your instruction manual for delivering that product or service. Use examples and fill-in-the-blank templates where possible to help ensure that your instructions are specific enough for someone to follow independently. Test your instructions by asking a team or team member to deliver the service or product without your involvement. Getting the instruction manual right will require time and patience. Expect to develop many drafts.

Next, name your scalable product or service. Naming your offering gives you ownership of it and helps you differentiate it from those of potential competitors. Once you own something unique, you move from providing a commoditized service or product to providing one whose terms of use you decide. If your product or service isn’t generic, customers won’t be able to compare your price to others’. Instead, name your offering, along with each of the steps you take to deliver it, to differentiate your offer so that you can set its price and payment terms.

After you come up with a great name, write a short description of the features and corresponding benefits of each step in the production of your offering. Revamp all of your customer communications (e.g., website, brochure) to describe your process in a uniform way.

Lessons from Experience

I used to own a market research business, and one of the services we provided was focus groups. You know the drill—the clients are sipping beer on one side of the one-way mirror while eight hapless “respondents” on the other provide their feedback on whatever the client wants to peddle.

Focus groups used to be a great business. It cost about $2,500 per group to rent a facility and pay the respondents. We would charge $6,000 for each group and clear a tidy $3,500, or roughly 58 percent gross margin. I say “used to be a great business” because as other companies caught on to the profitability of focus groups, the competition increased, driving down prices. Worse, clients started to issue requests for proposals (RFPs) for their focus groups.

The first time I saw an RFP, I was excited. The client was a big phone company, and it had asked our little company for a proposal to conduct six focus groups. A $36,000 potential order was a big deal for us, so I painstakingly responded to all of the RFP’s questions. I sent off my proposal and waited. Eventually I got a call from the phone company saying it had chosen another bidder. I couldn’t believe it. I’d thought my proposal was perfect.

I followed up with the buyer, and after several failed attempts finally reached him and demanded an explanation. He told me the winning bid was $3,500 per group. I would have had to drop my gross margin to $1,000 per group, or 29 percent! I would have had only twenty-nine measly points to pay for all of my operating expenses such as payroll, rent, and so on.

If you want your business to be profitable, enjoy fat margins, and thrive without you, you need to stop responding to RFPs and start carving out your own one-of-a-kind product or service. RFPs commoditize a category down to the point where the only way for a business to win a contract is to be the lowest-cost provider.

In my business, I decided to develop an alternative to focus groups that I could control the pricing for. We called them “customer advisory boards.” A company that wanted consistent and candid feedback from its customers could hire us to set up and run an annual advisory board on its behalf. We documented the process, developed an uneditable PDF deck for our salespeople to use to pitch the service, and, since customer advisory boards were unique in the market, set the price at a point where the gross margin returned to our historical averages.

DONE DEAL

By Nick Whitmore

When Ken (not his real name) decided to retire and sell the company he’d spent over 20 years building (12 as owner), his business was generating revenue of around $2 million.

Ken’s rental business offered props (e.g., tents, furniture, dishes) and planning help to those organizing graduations, birthday parties and other celebrations. The established rental business had multiple locations, which included retail space and a warehouse for storing the rental inventory.

Unfortunately, the sale of Ken’s firm didn’t go quite as smoothly as planned, with one of the major stumbling blocks being the value of his rental inventory. Ken placed a value of $1.2 million on it, whereas the buyer valued it at just $600,000.

“One of the key elements in a sale like this is getting a handle on the true utility value of the rental inventory,” said Sue Wain, director of business sales at Calder Associates and Ken’s business broker.

After some negotiation, the parties agreed to a sale price of just over $1.5 million, including all inventory, which represents a 6.0 multiple on Ken’s $250,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The full amount was paid on closing, and there was no earn-out involved in the deal. Real estate was not included in the sale of the business; the seller decided to lease the premises to the buyer.

Wain believes that Ken made a good decision choosing to sell his business. “He didn’t want to make the additional investment required to grow the business on his watch. He felt like he was inhibiting its growth. It was a perfect invitation for a buyer to come in here, but not only buy it—grow it.”

Deal Snapshot

Business type: Party rental
Revenue: $2 million
EBITDA: $250,000
Selling price: $1.5 million *
Multiple paid: 6.0

*includes inventory valued at between $600,000 – $1,200,000

(photo courtesy of Flickr/ *ASAP*)

One of the most interesting things about researching our new Done Deal series for this site has been discovering how common it is for the person selling the business to lend part of the money to the buyer.

It’s called “vendor financing” and for the sale of smaller businesses, it has become common. Basically you mutually agree to what the company is worth. The buyer then pays you a portion of the money on closing, with the other chunk paid to you over time with interest (the rate is negotiable).

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