If the business is for sale for $1.2 million, it should have free cash flows or an SDE (seller’s discretionary earnings) of around $300-400k per year, or it should come with real estate or other real property to make up the difference. The multiples for small businesses are typically around 3-4x annual SDE or free cash flow.

If the business is “struggling” and not making much of a profit, it is NOT worth $1.2 million, regardless of the “opportunity.” That’s just not how it works. Don’t get scammed into buying a failing business. Businesses with declining revenues or profits go for lower multiples… of actual TTM (trailing twelve months) SDE. So if the business has a TTM SDE of $200k, and it’s declined the past two years running, then I might be willing to offer somewhere in the neighborhood of 2.5x for it, or $500k.

If you don’t have experience as an entrepreneur AND don’t have experience in the particular industry, and the business is struggling, then I would caution you to be really cautious before jumping into a sinking ship. I know several people who lost their life savings and set themselves back decades by buying businesses like that. If you get a loan to buy this business, it will be personally guaranteed.

As for whether you could buy it, your net worth is honestly meaningless. What matters is your short term assets - do you have enough cash or cash equivalents for 10-20% of the purchase price + short term operating capital? At a purchase price of $1.2 million lets say you might need $300k operating capital to get started, or $1.5 million total. You would need liquid assets of $150k to $300k to be approved for a loan to purchase the business. If all your net worth is tied up in your home or other long-term investments, it probably wouldn’t be possible to be approved for a loan.

But as I said above, there’s a really good chance you wouldn’t want to pay that anyway. If you’re at all interested, sign a LOI and nondisclosure and get the past 3 years financials, bank statements and tax returns. Use them to corroborate the financials and see what the trend lines show. If the business isn’t clearing over $300k a year, beware.

Check out the book Buy Then Build if you’re interested in buying a business. It’s a great resource.

How much liquid capital do you have? You will need a minimum of 10% down plus operating capital to purchase a business with an SBA loan, and more if you tried to get a traditional loan.

Do you have $1 million in liquid assets (not equity in your home)?

If not, sorry to say it probably isn’t possible to finance a business that size, even with good credit.