he acceptable Return On Investment on business brokers businesses for sale.
by Broker Service Network at www.brokerservicesnetwork.com
Don't be fooled - or let business brokers deceive you - by the misconception that you can make back your investment within the first year on businesses for sale. Yes, it is possible - if you have a heavy note being held or you drastically increase sales - but it's not the norm. The more accepted Return On Investment - ROI - is two and a half to three years after purchase. See our business broker rules of thumb for a definitive break down on businesses for sale. If you are waiting to find 100% ROI the first year then you may be waiting a long time.
That is not to say that you will not make money. If you invested $450,000 in cash and make $150,000 per year in profit then you will have a 3-year ROI yet be making 150K per year. Unethical business brokers will try to deceive you here - be careful.
Keep in mind that ROI is determined on the businesses for sale current cash flow. Increasing current sales will decrease the ROI time frame. IE: double the sales will decrease ROI time by 50%.
General Rules Of Thumb...
- 100% cash = 5 year ROI ( BUT no ongoing loan payments)
- 80% cash = 4 year ROI ( and small ongoing loan payments)
- 60-70% cash = 3 year ROI ( and manageable ongoing loan payments)
- 40-50% cash = 2 year ROI ( and high ongoing loan payments)
- 20-30% cash = 1-2 year ROI ( and very high ongoing loan payments)
- The more cash down, the better return rate - less debt expense
- The more financed, the quicker ROI
- If you are going to spend more than 25% of sales on debt expense then it's a huge risk
Most businesses for sale through our business brokers will fall into these ratios
BSN has certified all business brokers in our network at www.brokerservicesnetwork.com
