Buying A Business? 3 Financing Options

 

If you are looking at buying a business, you may not have the full amount you would need to make an all-cash offer – so financing options might need to be considered.

 

If I need financing, what options are available? 

 

Traditional Loans

 

You may be thinking that you can just head down to your local bank and take out a loan to help you buy a small business, but this option will probably have to be taken off the list. Traditional lending institutions are very gun-shy about financing small businesses.

 

If you are entering the world of small business ownership you already know that starting a small business is a risky venture. You are trying an unproven product or service in an unproven location with unproven operating methods.

 

Buying an existing small business removes the “unproven” part of the equation – good news for business buyers – but a traditional lending institution is only looking at the risk. For most prospective business buyers, a traditional loan from a traditional lending institution probably isn’t on the table.

 

The Small Business Administration (SBA)

 

Some businesses on the market and some buyers who are considering those businesses will qualify for a loan from the U.S. Small Business Administration – just be aware that because this is a government program it comes with it’s fair share of paperwork and red tape.

 

Both the business and the buyer themselves will have to meet the qualifications necessary, but in some instances this can be a great financing option for those looking to buy a small business. If you would like to know more about financing options from the SBA, click here to visit SBA’s website or click here to contact us with questions about this lending option.

 

Seller Financing

 

Most small business transactions involve this third type of financing, where a buyer puts down a down payment (typically 50% or more) and the seller finances the rest.

 

This is a great financing option for several reasons. A seller who is willing to keep some skin in the game speaks volumes about their confidence in the future of the business – and it gives opportunities to future business owners who may not have been able to find more traditional lending options.

 

If you can’t get a traditional loan, and SBA financing isn’t in the cards – talk to your business broker about the possibility of seller financing and about what businesses on the market are currently offering this type of financing. Want to learn more about how seller financing works? Click here to read Seller Financing: The Business Buyer’s Guide.

 

The opportunity to buy a business can come in many forms. The financing option that suits you best and is available for the business you are interested in will vary – just ask your broker about your options.

 

Do you have questions about how to qualify for a loan from SBA? Would you like to know what currently available businesses are offering seller financing? Please feel free to leave comments and questions here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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A Fair Price Or Are They Dreaming? Small Business Listing Prices

 

As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price.

 

How much are you willing to pay for the business, and how does the seller arrive at their asking price?

 

These are important considerations, and as you progress through the due diligence phase, you will be deciding if you think the price is fair. What parts of a business will you need to consider when determining the price you are wiling to pay?

 

Cash Flow and Contracts

In order to determine the cash flow of the business you will need to examine financial statements, sales records, and tax returns for the last few years.

This is a great time to enlist the help of your business broker and possibly an accountant who is familiar with analyzing business transactions. Both will have the experience necessary to determine what the records really show in terms of how the business has been doing. It is impossible to gauge the health of a business by simply looking at the bottom line of tax returns – more analysis will be necessary.

You can also have your business broker determine the operating ratios of the business, as these ratios can be a good indicator to compare against industry standards.

Examine any and all contracts and agreements the business currently has. These include purchase agreements, leases, contractor agreements, and any other legal instruments.

 

Inventory

What is the inventory? The inventory includes any materials and products that are used for resale or for client services.

It is very important that you personally and a trusted and qualified representative (like your business broker) are present for and participate in any inventory examination.

You will need to know the inventory status in order to give it a proper evaluation. You should also request the inventory counts from the end of the previous fiscal year.

You may need to have the inventory appraised if you are unable to properly appraise it yourself. The inventory counts as a hard asset, so you will need to know what dollar value to assign to it.

An important point to keep in mind is the value of the inventory is something that can be negotiated. If the inventory is incompatible with your future target market, or in poor condition – these are points to be brought up during negotiations.

 

Equipment and Furnishings

These parts of the business are important in terms of value because they are considered hard assets, so you will need to know what furnishings, equipment (like kitchen appliances in a restaurant), and vehicles are part of the deal.

For any equipment you will need the name and model number for each piece, the present condition, the value when purchased, the current value, and whether the equipment was leased or bought.

You will also need to consider what kinds of changes and improvements to the building will be needed in order to suit your future business plan.  Find out what the seller invested in terms of maintenance and leasehold improvements so you will know what it will take to keep the facility in good condition.

 

 

The price of a business may change based on the economic climate or on the motivation of the seller, but in all reality the price of a business is what a buyer is willing to pay for it. Take a good look at the inventory and other hard assets, along with the cash flow and records of the business before you head to the negotiation table with a number you consider fair.

 

Do you have more questions about how you as a buyer can determine if a price is fair? Would you like to know more about the importance of cash flow? Ask us! Please feel free to leave any questions or comments and we would be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Miserable At Work? Mid-Life Crisis? Buy A New Life By Buying A Business

We all get burned out. Burned out at work. Burned out in relationships. Burned out on life in general.

 

You feel like you need something new, something exciting to turn your life back towards happiness – but what new adventure can make this happen?

 

A hot new car? A brand new boat? Sure, these toys can be fun – but will they really bring you life-altering satisfaction? Probably not in the long run.

 

 

The happiest people are typically people who have followed their passions. They wake up every morning with the drive to do what they do because they love it – not because they have to. If you are truly dissatisfied with your career because deep down you always wanted to pursue another passion – maybe now is the time to make that change. Maybe making the jump to entrepreneurship is for you.

 

Entrepreneurs are a unique breed. They are willing to take risks. They have drive and passion. Best of all, they get to do what they love and don’t have to answer to anyone but themselves. Sounds good, doesn’t it?

 

The good news is you don’t have to make the jump to entrepreneurship by starting from scratch. Start-ups are notoriously tough, expensive and risky. You are developing an unproven product in an unproven location using unproven operating methods.

 

You can make your life easier by buying an existing business instead. With an existing business you remove the unproven part of the equation. You get to walk into a business with a proven product, location and operating procedures. You also get a previous owner who will train you before you take over the reins.

 

There are many, many businesses for sale from multiple industry sectors – so if you’ve ever considered following a passion in the small business world, there is likely a business out there that will fit well with your goals. Try a cursory search by clicking here, and then have a conversation with us about your goals for business ownership, the types of businesses you think you’d like and the capital you have to invest. You and your broker can then narrow the search to just those businesses that will be right for you.

 

We aren’t saying that an existing business is without risk or that an existing business won’t be a challenge. Owning a business, whether you started it or not, takes dedication. The hours might be long and the work might be hard – but all of your time and energy are spent working for yourself instead of for someone else.

 

Is small business ownership for you? It could be, and it could be the key to a happier life. The only way to find out is to start looking. Skip the new car and invest your money in a business that could bring you not only financial returns, but a better quality of life.

 

Would you like to know what types of businesses would fit with your goals? Do you want to know what your dream business would cost? Ask us! Please leave any questions or comments here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Why A “Used” Franchise Is Better Than Brand New

In our society, the word “used” typically carries with it a less than ideal connotation – it means that someone else got the best and the “used” buyer is left with what’s left.

 

In the business world, however, “used” gets a boost because a “used” business is an existing business. Existing businesses are good.

 

If you are thinking about getting into the franchise ownership game, you will have to initially decide if you want to start a new franchise location or try to find an existing franchise location to purchase.

 

 

If this is your first business or your first franchise – then buying existing is probably the best option.

 

Why?

 

An existing location is proven.

A franchise location that already exists and is currently running is far less of a gamble than putting a brand new franchise in an unproven location. An existing location also has an existing staff and it’s own established daily operations. There won’t be as much guess work for you as the franchise owner because there will be a seller there to train you as to what works and what doesn’t at that particular location and with that particular staff. An existing location is turn-key instead of starting from scratch.

 

An existing location has records.

Another major benefit only an existing location will have? Records. Deciding how much a business is worth to you as a buyer is far easier if there are records of the cash flow and finances of an already existing location. Buying new means a great deal of guesswork as to the future projections on your investment.

 

An existing location already has customers.

You might be considering a franchise because it comes with the added benefit of an already loyal customer base. The brand will definitely get people in the door, but and already established location will come ready-made with regular clientele.

 

An existing location offers flexibility during negotiations.

When you start a new franchise location, there are often strict rules and fee structures you must abide by – and very little (if any) room for negotiation. When you buy an existing franchise, there will likely be fees associated with an ownership transfer, but the price you pay and the terms of your deal will be largely in the hands of you and the seller. This may allow you some wiggle room in terms of price and contract terms, but this will depend on the franchise itself.

 

If a franchise is the business path for you, don’t get hung up on the “used” nature of an existing location – for most buyers it can be a far better bet. Ask your business broker about what franchises are currently available on the market and about the terms required to take over an existing franchise location.

 

Do you have more questions about how the process to buy a franchise differs from buying an independent small business? Do you want to know what the purchase of a franchise might cost? Please feel free to leave any questions or comments here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Borrowing From Family To Buy A Business? A Few Considerations

We’ve all had those pie-in-the-sky conversations at the dinner table over the holidays, when the discussion turns to entrepreneurial ambition and your uncle/grandmother/father says something along the lines of “Sure, I can help you buy a business!”

 

When considering borrowing money from family members (or from anyone with whom you have a personal relationship), there are a few things you should consider.

 

Buying a small business is a very expensive venture, where you will need working capital in addition to the amount you offer because of necessities like licensing fees, lease deposits, payroll and initial inventory – just to name a few. What your relative initially considered loaning you/investing in you will probably not be enough, so they will likely need to write a much bigger check then they had imagined.

 

They will also need to provide financial records to business brokers, sellers, landlords and property managers – even licensing agencies in some cases. This can be uncomfortably intrusive if the business in question isn’t even yours.

 

If these considerations have you possibly rethinking borrowing from family, just remember that you absolutely can borrow from family successfully – there just needs to be good communication between both parties and a contract of some kind to ensure everyone is happy in the end.

 

You can also ask your business broker about other financing options that may be available.

 

You and the business you are interested in may qualify for financing through the Small Business Administration (SBA), for example. Want to read more about this financing option? Click here to read Business Buyers: A Guide to Financing and the SBA (U.S. Small Business Administration).

 

In most cases seller financing may also be an option, allowing you to purchase a business with help – but without the personal strings attached. Want to read more about this financing option? Click here to read The Business Buyer’s Guide to Seller Financing.

 

Were you considering family financial help, but now think a SBA loan or seller financing might be a better way to go? Do you have questions about what a family loan contract might look like? Ask us! Please feel free to leave any questions or comments here, and we will be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Business Buyer Advice: Don’t Take Your Seller For Granted

You’ve just left the closing table, and now you are the proud owner of your very own small business. Is it time to celebrate? Sure, but you also need to hit the ground running.

Why? I’ve bought an existing business, how hard can it be to just take over the seller’s responsibilities?

Really, really hard – especially if you make the mistake of taking your seller for granted during the previously negotiated training period.

Most training periods are only two weeks long, and learning every last aspect of your new business in that short amount of time can only happen if you buckle down and take full advantage of the plethora of information a seller has to give you.

You need to learn how to do things as simple as unlocking all of the doors and disarming the alarms to as difficult as how to put together the weekly payroll. You need to learn what licenses you will need to renew and when, how to set up and pay for utilities, how to order new inventory, how to run the website and social media accounts, what customers are regulars and what they expect, who the staff are and what they bring to the table, where all of the supplies are kept… you get the idea. It’s a lot.

The list is seemingly endless, but it is absolutely manageable in the typical two week training period – you as a buyer just have to make the most of every second of that two weeks.

Why can’t I just have a much longer training period?

First and foremost because if you apply yourself, two weeks is plenty of time. Secondly, it isn’t fair to keep a seller tied to a business they no longer own for longer than 99% of new business owners are able to learn the reins.

What about the 1% who didn’t learn the reins in two weeks? What happened there?

To be completely honest, buyers who weren’t able to get it together in a typical two weeks just didn’t try. They let the seller continue to run the business for that first two weeks like the seller was going to be there forever. They didn’t bother showing up, didn’t bother putting together a list of questions and didn’t work side by side with the seller to see everything they do and why. When the two weeks were up they were handed the keys to a business they knew almost nothing about – then blamed everyone but themselves for the mess they were now in.

The lesson here is that no one knows your new business better than the person you just bought it from – so use your training period to absorb every last drop of information you can from them, before it’s too late.

Are you considering buying a business and think two weeks isn’t enough time for training? Would you like to know more about the business buying process? Please ask us! Leave any questions or concerns here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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It’s New Year’s Resolution Time – No More Excuses, Buy A Business In 2019!

Anyone who’s ever had a job where they worked for someone else has considered life on the other side – as the owner of a business. The entrepreneurial dream is one where you control your own destiny and do something that gives you a reason to get up in the morning.

Many budding entrepreneurs hold back on their dream of business ownership because they think they could never afford it, owning a business is too risky or now isn’t a good time.

With the new year on the horizon, perhaps you should rethink these excuses that keep you from business ownership and start the new year on a path to your own dreams.

Excuse #1: I could never afford it.

Sure, there will always be businesses that are well outside of your price range, but think of it this way. If you had a small budget when you were looking for a place to live, you probably weren’t looking at mansions on the beach. You looked at your options within the framework of your budget. The same thing goes when you look for businesses. You might have to start small if you don’t have a lot of funds at your disposal, but small business ownership comes in many forms. If you work hard, you can make any business grow into what you need it to be. If you are shopping for businesses, you may also be able to find a seller who will take a significant down payment and seller finance the rest. You can also look into funding through the Small Business Administration (SBA). The SBA, as a government agency, will require a lot of paperwork but it could help you on your path to business ownership. Talk to a business broker about what funds you have available and what your goals for business ownership are. They will likely be able to find you a few options that would be feasible.

Excuse #2: Owning a business is too risky.

Yes, owning a business comes with it’s fair share of risk. You could end up bankrupt if you don’t put in the effort to make the business into a success. You could also walk into your “stable” job tomorrow and get laid off. In the working world nothing is ever a sure thing, so if you have always wanted to own your own business (and you have the passion and drive to get you there) – entrepreneurship is just as risky as anything else. Buying an established business is also typically less risky than trying to start your own company from scratch, as the concept and location have already been proven successful. Talk to your business broker about the risks you will be taking by buying an existing business.

Excuse #3: Now isn’t a good time.

The business market fluctuates from a seller’s market to a buyer’s market and back again on a regular basis. The good news if you are buyer is the market is about to be flooded with a wave of baby boomer owned businesses, and when this wave hits the market the tide will shift in the buyer’s favor. More and more businesses list every month, so now is as good a time as any to jump in and find the right business for you. Besides, you aren’t getting any younger- so why wait to fulfil your dreams?

If you have ever considered business ownership, now is a great time to take that dream and turn it into a reality. Make your new year’s resolution one where you buy yourself a business in 2016!

Do you have questions about the kind of business you can afford? Are you concerned about the risks or timing? Please contact us today or leave any questions/comments here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com


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Using Your Interview Skills: Buyer Questions For Sellers

Basic interview skills are a bit of a no-brainer, especially if you aren’t new to the world of the working. Whether you’re applying for a new job at a new company or being interviewed for a promotion within your current place of employment – you know that you need to do some leg work and prepare before you are sitting across from an interviewer. You will need to know some basic information about the job you are applying for, have pre-prepared answers to common interview questions and have some creative questions of your own to ask the interviewer themselves to stand out from the crowd. You get the drill.

What is totally shocking about buyers in the small business market is they rarely, if ever, do the same kind of preparation for meetings with sellers.

Why is this shocking? When you buy yourself a business, you are essentially buying yourself a job, so coming up with questions and getting those questions answered before you ultimately make a purchase decision seems like the sensible thing to do.

True, you are not typically trying to impress a seller so they will hire you – but initial meetings and conference calls with sellers allows you the opportunity to vet a business long before you write a very big check, so why wouldn’t you come prepared?

What should you be asking? The questions you ask will depend on the type of business you are looking to buy, but there are a few general questions you should always ask.

When you buy a business you are essentially buying cash flow, so questions about how the business makes money will be very important.

How is income derived?

How much did the owner take home last year?

What were the gross and net profits of the business?

How much of the profit was reinvested in the business?

Other questions, equally important as the questions about financial matters, deal with the fact that entrepreneurship isn’t just a job, it’s a way of life. You will have no idea what lifestyle you will be inheriting from the current owner unless you ask, and the answers to these questions that are undefined by black and white numbers will also help reveal any red flags.

For instance, if the question “what aspect of the business keeps you up at a night?” gets an answer of “absolutely nothing” – you know you are being lied to. All small business ownership comes with a fair amount of stress because the buck stops with you.

In addition to more traditional financial questions, try asking questions like these about your future life.

What does a typical work day look like for the owner?

What about a work week?

How often do you take vacations?

How long are you comfortable leaving the business in the hands of the staff – hours, days, never?

How many hours do you work on a typical day?

Do you work weekends, holidays?

If you had all the time and money in the world, what would you do with that time and money to grow or change the business?

What has prevented you from making those desired changes a reality?

The message here is to treat all of those years of interview preparations as a primer for your conversations with business sellers. Asking questions during those crucial first conversations can save you a lot of wasted time and energy by weeding out the businesses that aren’t going to fit with your goals for business ownership.

Don’t waste the opportunity – ask questions!

Are you looking for a business to buy and want to know more about the types of questions you should be asking? Do you have questions about what other answers you should consider as red flags? Ask us! Leave any comments or questions here, and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com


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Tick, Tock – Why Business Buyers Need To Make The Most Of Due Diligence

If you are in the midst of your business search, then a major step in the process to buy a business is coming your way – due diligence.

 

This step in the business buying process occurs once an offer from a buyer is accepted by a seller. The business is pulled from the market and placed in a sort of limbo so the buyer has a chance to review all business related documentation and then make a final decision about whether or not they wish to buy the business and how much they would ultimately like to offer.

 

This limbo phase is great for buyers because it essentially stops the access of other potential buyers to the business they want and gives them a chance to peek behind the scenes.

 

Due diligence is not, however, an indefinite period that can drag on forever. A typical due diligence period is two weeks. That’s it, and honestly that’s all you really need. We regularly get requests for due diligence periods of multiple weeks or months – but that extended amount of time is unnecessary and unfair to the business itself.

 

Why is an extended due diligence period unnecessary? If you’ve made an offer on a business, you’ve already seen a good deal of the financial information and have a decent understanding of the inner workings of the business – like the contractual agreements the business has with major clients (for example). You don’t start the due diligence process with a blank slate, it is instead a more in-depth look at something you are already familiar with.

 

Since you aren’t starting from scratch, you should use your due diligence time efficiently. You should review the documentation as soon as you get it, thereby giving yourself a few days to think about your upcoming decisions. You should also have your broker or your business transaction accountant help you if you have questions – but you need to get them any questions and any documentation promptly as they may not be able to get to it right away. Don’t wait until two days before due diligence is over to rush the paperwork to an accountant and then try to request an extension. Procrastinating during due diligence could mean you are rushed into a decision without having reviewed the information thoroughly – leading to unnecessary surprises down the road.

 

Why is an extended due diligence period unfair to the business? An extended due diligence period pulls a business off the market and shifts a seller’s focus to just one buyer. The seller has to take time away from the day-to-day operations of the business to provide requested information and answer buyer questions. At the end of an extended due diligence a buyer can then decide they don’t want to move forward with the business sale, leaving the seller to start over with the process of finding buyers after an extended absence from the market. To shift focus for a period of two or three weeks isn’t unfair – but to ask a business owner to change their focus for weeks or months is.

 

If you are in the market to buy a business, it is in your best interest to use the due diligence period to your advantage by working quickly with the information you are given and giving yourself the time to think about the decisions you need to make. It will alleviate some of the stress of the business buying process and allow you discover any surprises before they become a problem down the road.

 

Are you looking at businesses and are concerned that a two week due diligence period won’t be enough? Do you have more questions about what happens during due diligence? Ask us! Please leave any comments or questions and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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The 3 Big Trade-Offs – Are You Ready?

So you think you want to buy a business and start off on a career as an entrepreneur?

 

Before you spend too much time daydreaming of becoming the next Branson or Zuckerberg you need to consider some very big trade-offs that your new life as a business owner will require.

 

Control Of Your Time

You may have hated your 9 to 5 job, but working for someone else offers you the opportunity to have something many entrepreneurs don’t – time off. If you are buying a business so you can have more control of your time, the good news is you will. Your work schedule will absolutely be up to you. The caveat here is that work schedule is going to have to cover more hours than your traditional job did, so you need to be mentally prepared to work nights, weekends and take working vacations (if you are able to take vacations at all).

 

The Need To Reinvest, Reinvest, Reinvest

One of the best ways to grow a small business is to reinvest your money in every way you can. What this means from a trade-off standpoint is you may end up making far more owning your own business than you ever did working for someone else, but that money really belongs back in the business if you want to be successful. You should also be prepared to go without paying yourself in the very beginning because you will need working capital available for things like inventory and payroll when you first take over.

 

Your New Baby

Working a traditional job means that you have to punch a clock, but the time when you aren’t at work belongs to you – and you can use that time for your family, your friends and your hobbies. When you own your own business, that business becomes your baby, and as such it will require you to make sacrifices in terms of the time you were once able to dedicate to the non-working parts of your life. The good news is you won’t have to ask your boss and hope that you can get the day off for your daughter’s ballet recital, you will be able to accommodate those all-important things in your non-working life. You will just have to find a way to balance the needs of your business and the priorities in your life.

 

Should these trade-offs scare you away from buying a business? Absolutely not! Owning your own business means that every expenditure of time, energy and money comes right back to you instead of going to someone else. The rewards of flexibility and control over your own destiny make any trade-offs worth it in the end. You just need to be aware that these trade-offs will be necessary so you can be prepared for business ownership.

 

Do you have questions about the trade-offs business ownership requires? Would you like to know what the schedule looks like for a business owner in the industry you are considering? Please feel free to ask questions or post comments below, and we would be happy to help you on your journey to entrepreneurship.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

No Comments »




Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907




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