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In this YouTube video about buying a business, Jonathan Jay discusses the specific challenges of buying a distressed business and why it's important for the seller to admit that their business is distressed.

The video begins with Jonathan Jay responding to a question from a reader of his book, who asks why the seller's admission is important when the business assessment during the due diligence stage would show that the business is distressed.

Jonathan Jay explains that the biggest challenge for a business buyer is agreeing on a valuation of the business with the seller. He notes that many business owners are delusional about the value of their business because they put a monetary value on their effort and the fact that they have run the business for a long time.

He stresses that when purchasing a business it's essential to value the business on the here and now, not on what happened in the past or what might happen in the future.

Jonathan Jay also discusses the challenges of potential and valuation when looking to buy an existing business and says that he often gets into disagreements with people who argue that a business should be valued on its potential. He notes that the people who focus on the potential are usually the ones whose business is not doing well.

Jonathan Jay also explains that an acquisition strategy including an earnout structure can bridge the gap between the buyer and seller, where part of the payment is linked to the future performance of the business. He notes that if the business does well, the seller gets paid more, but if it does not do well, the seller does not get paid.

In conclusion, Jonathan Jay stresses that the seller's admission of the distress of their business strengthens the buyer's negotiating position, as it helps to establish a realistic valuation of the business. This video is helpful for anyone interested in buying or selling a distressed business.