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    6 Replies Latest reply on Mar 9, 2009 1:09 PM by BizBuyer

    Input on buying a business

    BizBuyer Newbie
      My business partner and I both currently work for big companies. However, we started looking for a business to buy last summer and have been particularly interested in one company since September. Hisotrically, they have had very strong cash flow and revenue growth. However, they are an agent that markets F&I products to car dealerships, so as you can imagine, their business has slowed.

      Our dilemma is that we still think this is a very good business and one that is built for the long haul. The owner wants to exit the business so he can focus on his passion (a pre-school that he also runs). He is a good guy, very reasonable, with lots of good ideas as to how to grow.

      We had been looking at a valuation of about 4x cash flow. However, the challenge is projecting how bad the economy is oging to slow things down and how much they can be unique and deliver strong cash flow despite a horrendous external environment.

      So, here's what I would want input on. As a business owner, if you were selling right now, how would you want to structure a deal to give both you and the buyer protection against the ecomomic uncertainty. Obviously, the seller does not want to project cash flows as if the great depression was starting and yet as buyers we do not want to bet on a mild recession. In addition, we both think the business will survive any scenario, but clealry there is risk out there.

      any thoughts?
        • Re: Input on buying a business
          LUCKIEST Guide
          Input on buying a business. Welcome

          Any thoughts?? YES (it would help if I knew who I was writing to).
            • Re: Input on buying a business
              BizBuyer Newbie
              Luckiest,

              Thanks for responding. Sorry, I did not realize I had to provide more detail than i did in my profile. I have to think about this. I don't want people at work to realize I am looking to buy a business. If you can be specific on what would be more helpful, I'd be glad to try to add more info.
            • Re: Input on buying a business
              NoBullFunding Scout
              Sometimes a good idea in these situations is to build an "earn out" component to the deal. Let's say you think that the business is worth $100K based on historic number. You can give the owner $50K up front, then have the other $50K which is contingent on certain benchmarks (sales, cash flow, profits, etc). If the business continues to decline, you own him less than the $50K which is more reflective of the current business.

              The idea is that the seller gets some money upfront, but only gets the rest if the business performs as it has historically. As the buyer, it also ensures that the seller will stick around to assist you with the transtion since he knows he won't get paid if you fail.

              On an related note, the SBA just issued some new rules about financing business acquisitions. They will not finance goodwill that is more than $250K or 50% of the loan amount. what this means is that most busines acquisitions will require the seller to hold a note, which is a good idea in most cases anyway.
              • Re: Input on buying a business
                LUCKIEST Guide
                Input on buying a business. Welcome (sorry about the first post)

                Any thoughts?? YES (it would help if I knew who I was writing to). If I was looking to purchase any business I would do TWO things FIRST

                One, I would develop both a Business and a Marketing Plan. The Plan forces you to think through every aspect of the idea of buying or purchasing this business.

                Two. I would contact SCORE. SCORE is FREE both in person and online and can help.

                Do you have a Lawyer?? An Accountant??

                Good luck, LUCKIEST
                • Re: Input on buying a business
                  snipperred Scout
                  I had to look up F&I, but can see it is a business I believe will become obsoleted. http://www.scribd.com/doc/1822093/How-to-avoid-losing-your-shirt-during-the-FI-process

                  In order for U.S. companies to compete with foreign automanufacturers, they are going to have to cut the unnecessary fat of autodealerships and make genuine connections with their markets again. Conventional F&I products are part of the problem and the process will be wiped off the board in my opinion. Marketing Insurance and Financing outside of contemporary dealership transactions still sounds interesting. I believe there is a prospect worth looking into in liasoning direct and on mutual behalf of both manufacturors and consumers...the genuine interest in serving both and adding value to transactions etc. That could be part of the process that replaces dealerships.

                  I think it is only common sense that consumers are going to shift to a predisposition to purchase more on a need basis than luxery. From a manufacturor point of view, I think the goal is going to be to move autos and not ancillaries. So those companies that can save people money by ensuring they get as much value and as little wasted expense in transactions will outdo those that continue with the status quo. In the auto industry shakeup, there will certainly be new emerging opportunities. However, I beleive those will come at the expense of the current establishment and processes. Now would be a good time to sell such a business unless you have a very dynamic and intelligent strategy for moving forward.

                  Best,

                  Anthony
                  • Re: Input on buying a business
                    bmt2008 Adventurer
                    As stated above - let the seller keep some skin in the game. I like the idea of a tiered payment system. You could also get the seller to finance the note. This will ensure you that the business onwers knows it to be a good business - now and in the future.