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    3 Replies Latest reply on Jan 12, 2009 2:20 PM by dublincpa

    HELP - Existing Business Acquisition - start / financing

    JonVal Newbie
      Hello everyone, I am a recent civil engineering grad (currently attending grad school for Construction management) with three years construction experience with contractors who are at the top of their game. I've decided on eventually starting my own company since highschool and comitted to the construction industry working my first job. Been building my credit since then and maintain a 720+ credit score.

      I have found a very profitable construction busininess for sale where the current owner wants to sell due to heath reasons. He is very confident in his business and willing to hold a note for 35-40% @ 7% for 24 months. Other facts are:

      (all approx)
      $500,000 Purchase Price
      $750,000 Revenues
      $430,000 Cash flow
      $220,000 Equipment value (included in price)
      $ 15,000 Inventory value (included in price)
      Turn Key - Seller to stay and train for four weeks
      Facilities on long term lease

      This leaves me a minimum of about $220k to finance but problem is im fresh out of college and working as a full-time employee and don't have much to put up. As you can see the business would cash flow nicely and confident in my ability to carry on its continued success.

      Contacted the broker for additional information to begin composing the business plan.

      Any advice on what my options are as far as being able to finance this? Would private investors or commercial loans be best?
      Advice on important things to look for in the purchase process also welcome.
        • Re: HELP - Existing Business Acquisition - start / financing
          LUCKIEST Guide
          HELP, Welcome

          Sounds good, BUT who are you?? Go to Members page and share some info.

          Do you know about SCORE?? SCORE is FREE and can help
          • Re: HELP - Existing Business Acquisition - start / financing
            Bridge Navigator
            SBA financing might be an option. They generall only require 20% down and payback is 10 years - leaving much more cash flow for you.

             

            Is the Cash Flow you mention reported on the business tax returns?
            • Re: HELP - Existing Business Acquisition - start / financing
              dublincpa Scout
              In addition to what was said about verifiying the tax returns, my cautions are to watch:

              What methods are being used to determine cash flow and profitability. I have NEVER seen a contractor with that much free cash flow on that amount of revenue. Were job costs paid/recorded in the prior year and revenues/receipts recorded in a subsequent year inflating cash flow? Either costs should be deferred until revenue is received or preferably income is recognized as work is done on a cost to complete method. Great if its real though.

              Where will this year's revenue come from? That was last year.

              What liabilities may be assumed on the equipment? After the UCC search on the business, make sure that there aren't loans just in the owners name, but still attached to the equipment.

              If you are not buying solid receivables, are you able to float the out of pocket expenses for labor and materials for 60-90 days until you get paid?

              Is this a stock or asset sale? Are you buying any of his troubles as successor?

              Good luck.