What can you afford?
This is an important question, but a vastly more important question is…
What can you REALISTICALLY afford?
Anyone around for the real estate crash of 2008 knows that a major contributor to that disaster was people buying homes they had no business buying. Great big loans were common, and eager home buyers leapt at the chance to buy dream homes that were well out of realistic reach.
While one would hope that we’ve all learned our lesson, there are many instances in the business market today where buyers make a 2008-esque mistake. They purchase a business they can’t realistically afford and guess what happens? Failure. Time and time again we’ve seen buyers bite off more than they can chew, use up all of their free capital and end up having to walk away six months after the closing table.
How do you protect yourself from this disaster?
Have a frank and honest conversation with your business broker when you start the business buying process. Your broker needs to know what funds you actually have available and what you are willing to risk. It should go without saying that you should be using as little of your free capital as possible for the purchase of your new business.
You are going to need cash available for a litany of things when you take over the helm. Payroll, inventory, licensing – there are day to day costs that will need to be paid in order for the business to continue running long enough for you to get profitable.
What we’re trying to drive home here is if you have $100,000 available – don’t look at $100,000 businesses. Look for businesses well below your max budget so you leave yourself some financial wiggle room in your early days as owner.
Are you currently looking for businesses to buy and want to know what you can realistically afford? Would you like to know more about how much free capital you should leave yourself? Ask us! Leave us any questions or comments and we would be happy to help.
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907