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The Signs of a Profitable Business

4th June 2018 by Jonathan Jay

How can you tell if the business you’re considering buying is a solid business? Will it be a worthwhile investment?

A profitable business will have the following:

  • High margins: 60% of Gross Profit.
  • Sizeable assets: Inventory, property, stock. For example, the company I bought for £1 had 80 unused Apple Macs, which we were able to sell off as a job lot for £40,000.
  • Recurring revenues: You need to know there is sufficient revenue to cover:
  • Your £10,000 monthly management fee—or more if the company can afford it.
  • Finance repayments.
  • Any deferred payments to seller.
  • Sufficient funds to cover operating expenditure (OpEx) and capital expenditure (CapEx). Make sure the business has sufficient funds to cover its operating expenses (for example, salaries, rent, insurance, property tax, R&D, pension plan contributions and business travel). It should also have sufficient funds to cover necessary capital expenditure (such as hardware or vehicles).
  • Long-standing contracts.
  • Substantial IP. These could include trade secrets, copyrights, patented and unpatented products or technology or processes, use rights, licences and so on.
  • A history of steady sales. Beware of fast growth in sales because this might require a substantial capital injection to finance growth.
  • Automated marketing.
  • High performing marketing controls—these will help you attract and convert a steady stream of leads for the business and include:
  • Sales letters;
  • Email sequences;
  • Web pages; and
  • Collateral.
  • Streamlined and systemised processes.
  • Loyal, trained and qualified staff.
  • A ‘Can Do’ culture.

Filed Under: Misc Tagged With: business flipping, businesses for sale, businesses to buy, buying a business, Jonathan jay, no money down, profitable business, selling a business, solid business

 

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