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Do cell phone stores make money? I see several cell phone stores listed at 1x or less multiples. Seem too good

Seems too good to be true. Are they inflating cash flow? I realize there is a lot of competition which could account for a lower multiple but I wonder if anyone has any experience with these businesses.

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Answers (3)
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Anyone have experience with independent or franchise wireless store?

Sep 23, 2009
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I was just wondering if anyone with experience in wireless phone stores can shed some light on this type of business.

Sep 8, 2009
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The BAF Group LLC
MD

Where are they potentially "inflating cash flow'? You always want to ask for a copy of the Seller's signed Tax Return. If they inflate cash on a P&L, it is almost always correctly reflected on the Tax Return - who wants to inflate profits to the IRS? And asking for a signed copy demands that they stand behind the information contained on it; they can't, easily come back later and say that particular Tax Return was not an authorized document.

A low multiple is usually reflecting the large amount of competition, low margins, the lack of sales/sales potential from previous customers, changing technology or the general, short term economics of the business. In the latter case, how bad is the local economy; are fewer and fewer people employed in the area and less able to qualify for the credit rating that allows them to get a contract with Verizon, AA&T and other services?

Some of the competition can come from smaller vendors, but some can come from direct competition with your own service. If you are a Verizon re-seller, what is the chance Verizon can or will set up its own Company store close to your location?

What is the cost and length of your lease? That can come into play, even if the industry is strong.

When you say the lower multiples are possibly "too good to be true", I would argue your entire statement - in a friendly and positive way. If the cost of entry is low, if the multiples are low, that means there is undoubtedly a reason for caution. Certainly, one Seller may need to get out quickly because of a divorce, health reasons and other pressures that could demand that he sacrifice a good price. But if an industry sector is doing that, it definitely reflects that it is an unhealthy financial situation, for the long term.

In most business buying situaitons, you only get what you pay for.

Sep 6, 2009

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