I'm not sure if this particular business is a good deal, but if you're contemplating whether to buy or start a business I recommend reading Buy Then Build, it's a great book on buying businesses.
I just finished reading this book. It guides you through the process of acquiring an existing business.
Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game https://www.amazon.com/dp/B07JKM2F5Q/ref=cm_sw_r_awdo_navT_a_7K91HW3DK3VD1DBV131Q
First question, do you have experience running an online business in the niche that you're looking? I've owned an online retail business for over 21 years and still sometimes feel like I don't know what I'm doing... but at least I have my experience to fall back on. I can't imagine buying a business in a completely different industry.
As for due diligence, you should know what reasonable multiples for the industry/niche you're in... e-commerce sites are currently selling for around 3-4x SDE for medium sized (six figure SDE), 2-3x for <$100k SDE, and higher multiples for businesses with more than 7-figure SDE/EBITDAs.
You should verify everything... Ask for 3 years financial statements (profit & loss/income statement, cash flow, balance sheet), 3 years bank statements for all business accounts, and 3 years business tax returns. If you don't know how to read those, hire a CPA to review them and look for any anomolies.
And about "passive" income... no business is truly passive. If you buy a website that's generating "passive income" and don't do anything, it might continue earning the same revenue for a few months or a year, but things change and competition will encroach on your business. Whether it's a content site or an e-commerce site, they all require constant optimization to even stay at the same level. From organic SEO to PPC to social ads... they all need to be constantly optimized or you will be left in the dust. If you don't know how to do any of that or have the money to hire professionals, then it's probably not a good idea to jump into a business you know nothing about.
Also, read Buy Then Build it's a great book about buying an existing business to grow.
Have a read of this: Buy Then Build: How Acquisition... https://www.amazon.co.uk/dp/B07JKM2F5Q?ref=ppx_pop_mob_ap_share
However, you ALSO need to know how to run a business if you have not done so before. I highly recommend reading:
Also, what is crucial in those above figures is the net profit (not cashflow). Do you know what it is?
Not sure it will give you much comfort to know now, but a LOT of small businesses like this sell for WAY too much to ever be worth it. It's not your fault, it's not like you knew any better. Sure you could have gone to an attorney or business broker to do a better job with the due diligence, but hindsight is always 20/20.
A long time ago I was in a similar situation but it was not my first time starting or buying a business, so I was fortunate to catch some red flags in the due diligence. It was a coffee shop that had been sold twice (on it's third owner) and the new owners had no restaurant experience and essentially ran it into the ground. I had been a loyal customer since it opened, and they approached me about buying it when they wanted out. I asked for the past several years financial statements, and then corroborated them with the bank statements and tax returns. The income was going down every year and the last year the business lost money (was not profitable).
They were originally asking for something ridiculous like $100k or more. I ended up making a really low offer, I think it was about $30k which mostly covered the equipment and buildout of the existing location. On the day we were supposed to close, the owners backed out and ghosted me. Come to find out they found another buyer that agreed to pay $70k - and he was a friend of mine and former coworker. They cashed out their retirement accounts and put their life savings into the business. Between the $70k they bought it for, rent, payroll, food costs, advertising, etc they probably sunk a quarter million dollars in the business in just a few months, and then went bankrupt. They also didn't have any restaurant experience.
It was really sad to watch, and it felt like I dodged a bullet. I like to think I would have done a better job (aren't all serial entrepreneurs just a little too confident sometimes?) but looking back the timing would have been awful. A Starbucks opened up across the street about a year or two later.
Due diligence is SO important when buying an existing business. There are some great books on the subject, like Buy Then Build. It's important to learn how to properly value a business and then do your due diligence to confirm the value matches the actual performance over the past 2-3 years.
Look on the bright side, as far as business failures go this one was survivable. That's an accomplishment. Learn from your mistakes and next time you'll do much better!
It depends on the type of business you're looking for and how you will buy said company.
I've set a goal to buy a business and am now negotiating with sellers in a specific niche because my business partner is an expert in the field.
One of the brokers I've found the business through was a referral by a banker I started the SBA process with (he referred me after three weeks knowing we're serious people).
I reverse-engineered the most active bankers here https://www.sba.gov/partners/lenders/7a-loan-program/100-most-active-sba-7a-lenders and looked at the industries and, from there, created the relationships.
Here's my main tip for sourcing businesses:
>Any resources you recommend for due diligence?
Overall, know what you want, be confident, and have a long-term vision of what value you will bring to buying a business.
I wish someone had told me the advice I just gave you above.
Have fun.
No, but this book is a great resource. I am reading for the second time, and actively looking for another business to buy myself. https://www.amazon.com/Buy-Then-Build-Acquisition-Entrepreneurs-ebook/dp/B07JKM2F5Q
You can open a LOT of different types of businesses for $200,000. But what type of business you should open depends on you/your girlfriend's skillsets, experience, and long term plans. Do you want to work full-time in the business? Are you okay working 80 hour weeks? Do you have any skills that lend yourselves to a particular industry or trade?
If you have decent credit, some experience, and a good business plan, you can buy a business through the SBA with 20% down. That means, with $200k, you could easily buy a $600k business and still have a little operating capital ($50k) left over. A $600k business should be generating about $200k a year in free cash flow, which, after debt service, should generate about $120k a year. If you can grow it, pay off debt faster, then it could be even more profitable.
If you haven't started a business before, then you might consider buying one first, running it - hopefully growing it - and selling it before starting something from scratch. Here's a good book on buying businesses - Buy Then Build.