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    4 Replies Latest reply on Aug 13, 2009 8:25 AM by phanio

    Purchasing an existing business

    JacoWooten Newbie
      Hello all! I'm new to this forum. I have never owned my own business. I have experience in retail management and am an enthusiast of the products that I intend to sell. The following information I am asking about is geared toward understanding what information I will need to secure a loan to purchase the business I am interested in.

      I have considered buying a local coffee shop. I contacted the current owner to see what the asking price for the building was and what equipment was included with the sale and am semi pleased with the answers I received. I asked the current owner for some details pertaining to costs associated with the business as she is currently running it. She said she does not want to disclose her confidential information. I am asking for utility costs, vendor info, traffic info, lease details and other pertinent (as I see them) details.

      What are the things I need to be asking for and what should I expect to receive from a seller that is motivated to sell? What is it that a bank will be wanting to see from me to be willing to give me a loan to purchase this business. I don't have alot of cash, but I do have technology and software that will enable me to conduct the business. Are these assets considered when a lender is considering a loan?

      I am eager to read what anyone might have to say about this.

      Thanks,
      Steve
        • Re: Purchasing an existing business
          DomainDiva Ranger
          What bothers me is this owners unwillingness to show you the books. In any business deal this information is NOT confidential.

          If you are still serious get a forensic accountant and go over the books with a fine tooth comb, they will be able to uncover any fraudulent bookeeping. If she refuses to open the books then I hope you walk away from this deal...quick.

          Any technology / software that you have is not really considered an asset unless you own the intellectual property rights and are receiving income from them. If you do that's wonderful, and you will need all the financial statments pertaining to your royalty income, as well as tax returns showing that income on the correct schedule on your 1040.

          You also need to ask WHY the seller is motivated to sell? Moving to Tahiti and planning on drinking Mai Tais on the beach (I am all for that...) or are the answers just ho and hum and not very conclusive. Don't just rush into any deal because you want to own a business.

          Good Luck.DD
          1 of 1 people found this helpful
            • Re: Purchasing an existing business
              JacoWooten Newbie
              Thanks for the fast response.

              The reason she gave to me for wanting to sell is that she owns 4 more locations. This one was the least profitable. She attributed this to over extending herself on this. I can see this as being honest and truthful. I also have a problem with her current business model. There are a few competitors reasonably close. This is a niche market though. Quality coffee has it's followers. None of the competition has quality coffee. All of them accept credit cards. She does not, and will not. I would.

              I have looked into the pricing of credit card acceptance. To build it into the pricing structure would be a reasonable price increase, and go (for the most part) unnoticed.

              Another question I just thought to ask here is about the valuation of the business itself. I would suspect that I should be entitled to have a real-estate agent appraise the building to get an accurate market value of the structure. The business is not literally for sale, only the building and a few pieces of equipment are. If I am to purchase this building, I choose to improve on the current business model. The value of this structure is what I need to be concerned with as a secondary objective.

              I appreciate your honesty. I will not rush into a deal just to get the business.

              If there is any more insight from you or anyone else that may read this, please let me hear it.
                • Re: Purchasing an existing business
                  DomainDiva Ranger
                  Your business valuation is not only in hard assets but the business model as well as the financial statements. So she is just selling the location and you would basically be starting from scratch with a new business like the one she is already in. I still think a look at 90 days receipts is in order, this will give you a basis for your numbers and your business model. You will be able to see immediately where the problems are.

                  I am thinking that your first objective IS the value of the building and the fixtures. Get that settled, also start your business plan. If you have money thats wonderful you still need a business plan to keep YOU on track.

                  Contact SCORE, they can help.

                  DD
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              • Re: Purchasing an existing business
                phanio Pioneer
                If you are going to seek bank debt for the building and equipment - banks want to see positive cash flow to cover the loan payments. Thus, they will want to see the business owner's financial statements (last three years) as well as the business owner's tax returns. Where you may run into a problem is that you are not buying the actual business, it's name, etc. Therefore, banks and other lenders will want to see that you can support the loan through some type of income. If you approach a bank - ask about their SBA programs - might be your only way to get bank funding.

                Any lender will require an appriasal of the building and equipment then will only lend about 70% to 80% of that apprasied valued.

                Another option for you would be to just start from scratch yourself. Find another location that is close by - lease that space, purchase or lease the equipment you need - then open for business. This will help you save costs and if you think the business owner is doing something wrong you will prove it. As you business grows, then you could look at financing the building this person has. More than likely, it will still be there as the commercial property market has been hit very hard.

                Lastly, have you asked the current business owner to owner finance? If you can come up with some down payment then have the business owner hold the rest of the note.

                Business Money Today
                www.BusinessMoneyToday.com
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