Tuesday, March 29, 2005

Live by Cash...........Die by Cash (aka Grounded in Reality)

Lately we have been trolling the market to purchase a small import/export business that fits our motto of "Buy for $1, Sell for $2".

And this being Canada, we have come across a few here and there. In association with these small businesses, we almost always come across the phrase, usually uttered by a broker, "They take a lot of cash out of the business (wink wink)" And then somehow this cash that they are "pulling" out of the business is being used to calculate the value of the business for the purpose of setting a selling price.

The problem is that as a purchaser, I can not verify the existence of this cash and hence, it becomes irrelevant to me. I can only make a judgment on information that I see, not what I imagine.

This scenario typically ends up with me remarking to the vendor or their representative that one of the cost of pulling cash out of a business and not documenting it properly is a lower valuation.

I don't have a lot of second conversations......go figure?

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