You make money on the buy

I was sitting with a retired car dealership owner. "You make money on the buy", rolled off his tongue like a soccer ball on ski hill.

"Buy low, sell high" was my financial advisor's advice. Buying low scratches the back of a buyers mind like a cat scratches a carpet pole. A low price means something is wrong, or worse, that no one wants it.

Imagine going to a furniture store and picking out a dining room table. Eight chairs, two of which are captains, eight foot long table, all solid wood. Retail price tag is $4000.
The word "retail" means you just bought high. And lost on the buy as you will never resell that table for the price you paid for it.

My wife is an excellent deal hunter. She hinted at a new dining room table five months ago. Not wanting to spend money needlessly, I asked her if she could fulfill her desire on the used market. Off she went on her search to find her treasure online. I forgot about our deal until she arrived with 6 chairs in the back of the van. The set was beautiful. Slightly used, but retail the set sold for $4000 five years earlier. The family was relocating back and didn't want to be bothered by movers. Used price tag was $450.
She may not have made money on the buy, but she won't lose either.
When she wants to sell this table, we will get our money back.

Emotion gets involved in most purchase decisions. Emotion lures us to buy based on desire. Desire gets us into trouble as we rationalize our purchases after the transaction is completed.

I spent 5 weeks working for a used furniture store owner. He gave me the same advice. If you make money when you buy something, the selling takes care of itself.

From a business perspective,  I bought a restaurant and sold it seven years later for less than I paid for it.
On day one, it had no customers.
It didn't have trained employees.
It had no extra cash in the bank.

Customers and trained employees are called goodwill. And as a new business goes, goodwill is negative.

After seven years of ownership, I sold the business for $200,000 less than I paid for it. I didn't make money on the buy. I paid retail price for that business.

In other words, I bought high.

If you want to make money on the buy when buying a business, be patient for the deals. They are out there.  If you can buy the business for less than the depreciated assets, you might be getting a good deal.

When buying a car, the purchaser looks up the Blue Book value, reviews comparable cars, gets a mechanic to look at it and then makes a purchase decision. We understand how to buy a car.

Buying a business is done the same way. Look at the value of the depreciated assets. Get an appraiser to verify the value of the assets. Look for comparable businesses that may have been sold or on the market. Talk to an accountant or business consultant about the metrics of the business and then make a purchase decision.

For the past two years, I've been knocking on doors, asking owners if their business is for sale. The owner who wasn't thinking about selling will get seller fever. They place a value so high on the business that it doesn't make financial sense to buy.

Some businesses get sold for significantly less than the assets are worth because the owner needs to protect other business interests.

The best deals on houses are the ones that have to sell fast because of divorce, death or relocation.
The businesses that have to sell fast are also the biggest opportunity.

If I was leaping from employee to entrepreneur, I would search out these fast deals, make ridiculous low offers. Low risk, low upfront capital investment, huge upside when I make the business profitable.

Making money on the buy is hard to do because it requires either a motivated seller or an aggressive buyer.

The unmotivated seller will catch seller fever and never reduce the selling price for an aggressive buyer to make money on the buy. If you determine the seller is not motivated, you must move on. Continuing down that path will be exhaustive and a complete waste of time.

I've ridden that path for the last two years in agony. Move on...