1) hire a broker 2) do your damn-dist to have them sell you a good chunk of the business on a promissory note. it will force them to have skin in the game and force them to care about your success moving forward 3) ignore cash flow trends that aren't established for at least 3 years 4) don't ever pay more than 1.5-2 times the cash flow. ever
edited to add point #4
1. I am looking through brokers in my area now, would you say this is simliar to home buying where I should find a broker to help me "shop" that would represent me?
2. Was that hard to find people who were willing to go that route?
3. Solid advice, I plan to look back 5 years.
4. Why 1.5 - 2 times cash flow? I was under the impression it can fluctuate up to 4x based on the industry.
2. If the owners actually believe in their business and think it's not a trend / fluke, they should be willing to play ball with the idea of a seller's note. Big red flag if they won't.
3. 5 is a good number
4. Sure, there are differences for different industries, especially if there is capital or large expenditures, etc. But you have to be able to pay the business back while still looking at growth, expenses, etc. etc. Beware of the "growth" trap and the "endless possibilities." If this business scaled that well or is worth 4x or whatever multiple, and it runs itself why are the owners selling?