So when buying a profitable business, what is a rule of thumb - when it comes to years of making your money back. Ex: Business makes 1.25m annually you purchase business for 5m . Good deal or bad deal? Is there a formula to follow?
categories of business differ. For example if you are going to purchased something like (some) pest control companies or an alarm monitoring company where the income is contractual and reoccurring you will generally pay a higher multiple, say 5 times NOI.
If it is a company that has to continually go out and get new sales in order to generate revenue or if the success of the company is based on the founders charisma and connection with the community then that is more risky and so would pay a lower multiple of NOI.
That being said there are a million variables at play here. Ultimately, it will be some multiple of NOI and that multiple will be dependent on the risk level of generating it.
Thank you! Your answer is what I was looking for! I understand the risk and different variables but wanted a number to have in my thought process!!
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