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Do you know how much turn over it is currently making and that then turned into profit how many people do they normally get in at different types of year and things like that are all good questions to ask1 of 1 people found this helpful
1 of 1 people found this helpful
There are sources of funding to help people buy businesses but there are important things to cover first as part of your preparation to discuss your deal with those sources. It is not practical to list all the important things to find out here, but I will list the high points that you should look at:
- What is the reason for the sale? Is the owner selling because they "want" to do something else or that they "need to" because they see the business not doing as well in the future as it has in the past. The real reason for selling is very important to determine early on as best you can.
- With this type of business I'm sure that location is important. Is the traffic (I'm talking flow of people/customers/prospects etc.) volume in the area steady, going up, declining? Is the area growing, flat or declining? Does the city have any planned construction over the next 3 to 5 years that will disrupt access to the business? I have seen location sensitive businesses go out of business because of highway construction disrupting the traffic (of cars and people) in the business area.
- What is the revenue and net income of the business for the past 3 to 5 years? Check their financials for at least the last 3 years and see how sales and profits are trending. Are they going up, flat or declining?
- What do they forecast for the next 3 to 5 years? And are the projections realistic.
- How strong is the balance sheet ... i.e. are there assets with value and is the business carrying debt? If there is any debt, can it be assumed?
- Do they have appraisals to prove any value they are putting on any of the assets?
- Business values (i.e. their asking price or the selling price) are largely determined by the net income or EBITDA of the business (sometimes with owners benefits and compensation added back in) at a fair-market multiple on those earnings often plus the value of tangible assets. Do you know what they are basing their asking price on? Is that a realistic, fair and acceptable price? Again, keep in mind what the picture for the business looks like in the future. New business buyers often make the mistake of paying for past performance but end up with a business headed down. Check things out closely.
- Will the owner carry back any financing? If they need to sell the business quick, see if they will carry a good part of the purchase price on a note paid from the business earnings ... if you have a close relationship with the owner they may be willing to do this. That may lower the amount of cash you need for the deal quite a bit.
There are many more questions but the above will be critical when it comes to initially checking out the business as part of your due diligence. And these are the types of things you would need to get together to present to prospective funding sources to help you buy the business. If you do not have a lot of credit and collateral built up that a conventional lender is going to want to see, you should try alternative sources for amounts that could add up to enough to swing the deal. If you get the cash required to pay the owner as a down-payment low enough, you might be able to find a financial partner or private lender or investor to help you swing the deal. There are ways to do this, let me know if you have questions and I'll try to provide you some information that might be able to help you.
Buying a business means a lot of work and it can be frustrating to try and get all the pieces and the funding lined up; but if the dream of owning your own business is important to you ... you have to work at it to make it happen.
I hope the above helps you or gives you some direction.
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If you have some expereince and some capital to put down - an SBA loan would be the perfect product for you. Call around to your local bansk and see who offers SBA loans. Then, take their loan package to a SBDC and let them help you complete it.
Other ways for financing can be found on our website - just search for 'Business Money Today'
Business Money Today