I’m looking at buying a small retail business. The asking price of the biz is about one times the revenue (margins are small now). I think this is pretty good. Agreed?
No, one times revenue doesn’t sound very good to me. You have to look at the net profit — not the revenue.
For example if you have to borrow the money you need to buy the business and your net profit is 20% and you buy at one times the revenue and borrow the money with a 5-year payback you will be working for free for 5 years.
Even in you are talking one times the net it may or may not be a good deal. For example, if a brick and mortar business is the neighborhood going up or down? What are the chances you can build the business up and increase your profits? What are the strengths and weaknesses of the competition?
Don’t sell yourself on the business just because you want to be in business for yourself. Sit down and write up a list of questions you would have a friend or relative ask about a business he/she was planning to buy. Unless the answers are positive don’t make the buy.
On the other hand if the answers are positive do it!
Hope this helps