ForumsFinancing Tips

If you prepare properly I think your chances are good that you can arrange financing to buy this business even with your lack of management experience. But you'll need to structure things in the right way for that to happen. I'll break my feedback to you into two sections:

1) Sources of funding to buy the business (a couple of things for you to consider in your situation):

In many situations like this, there are ways to create cash to buy a business and that cash does not have to come out of your pocket. Depending on the details for this liquor store ... you should be able to structure something acceptable to the owner.

• Most small businesses sell with some amount of owner financing (where the owner carries back a note that you make payments on ... like a real estate mortgage only this would be secured by the assets of the business). Usually in that scenario, the buyer makes a 25% down payment and the seller holds the 75% balance on the note payable to them. I would start with that as my first offer if you have not already gotten into deal structure and an offer to the owner. I would not pay the owner all cash for their business. A couple of reasons for this: it may not be necessary (again most businesses at this size carry some owner financing when they sell) and you want them to give you a transition period so that you have an opportunity to learn more about running the business (more on this shortly). If you cash them out they do not have much in the way of an incentive to provide you a good transition period to learn about the business. They can just take your cash and walk away and probably will not care about how well you do as the new owner. If they are receiving payments on their note ... they have a vested interest in your success with the business. That makes a big difference.
• You may be able to leverage some of the inventory or furnishings/equipment value if it is free and clear (in other words ... there is not any money owed to the suppliers). Example: if the inventory is valued/appraised at $50,000 you could probably get an asset-based lender for $25,000 (50% of the inventory value). Another way to use that value is to let the owner retain ownership of the inventory at its stated (or real) value and then pay them as the inventory is worked off. That could create enough value to pay for a good part of the purchase price (assuming that inventory is included in their asking price). So you have some options with using inventory value if it is free and clear ... if it is encumbered (money is owed for it) then you do not have the use of that value.

2) Management of the business once you own it:

• Your offer to the owner should include a transition period so that you learn about the business directly from the owner. I would make that period no less than one month (included in the offering price) ... longer if you can get it and if possible pay (if the business can afford it) the owner for an extended transition/support period as a consultant so that you can get even more exposure to their knowledge base for the business. Just be sure that you make decisions on the business based on your judgment as the new owners and what is right for the business under your ownership.
• As Luckiest said; meet with a SCORE representative and/or take classes in small business management (there are many SBA and SCORE related classes available online for free I believe). That will help you with some practical aspects of running a business.
• Also in your business plan list your personal contacts with business experience as your "Board of Advisors" that will help establish that you do have those resources to draw upon to make up for any perceived weaknesses in your management experience.

I hope the above helps you. If you have a specific question I can help with just let me know. Best of luck to you with your plans to buy a business.

Dennis Lowery
Adducent, Inc.