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    1 Reply Latest reply on Jan 25, 2010 3:32 PM by TheSoloGuide

    Purchasing an Existaning Business

    trowerhosting Newbie
      Hello everyone,

      I am wondering about purchasing an existaning business that the revenue is around 257k a year and has been in business for 9 years. I am wondering could I get a loan or have an investor invest in this. Would they invest or loan the money? What would be the down for the loan? Also the current owner wants to sell it for 500k which according to the brocker firm that is about right. Everything is included from business name, etc. Thank you
        • Re: Purchasing an Existaning Business
          Tracker

          Trowerhosting:

          When you mention that the broker states that $500k is a fair market price for the business, is this your broker or the listing broker? Brokers will calculate pricing in different ways, but what you want to focus on is the discretionary income for the owner(s) including:

          Income
          Insurance for the owner(s) (health, auto, etc...)
          Car allowance (repairs, gas, etc...)
          Phone
          Meals & Entertainment
          Travel

          ... anything the business pays for the benefit of the owner(s) that you can allocate however you see fit once you take over. There are other factors that can alter the price including:

          1. Are revenues and discretionary income growing, remaining the same or shrinking?
          2. How is business within the market segment?
          3. What is the status of competition in the area?
          4. Where is there mismanagement in the company that you can alter to add money to your bottom line?
          5. How much opportunity is there for legitimate upside to the business?
          6. Why is the current owner(s) selling?
          7. Do they have any contracts locked in that you would need to honor and for how long?
          8. Are there any upcoming dangers for the company (i.e. losing a long-term contract)?

          I know this is a lengthy response, but these are questions you will need to answer for any investor. The more you know about the books, business and reason for selling, the better off you are going to be to make certain you want to buy the business and effectively convince investors to participate.

          Make sure if you are bringing in investors (and not securing a loan from a bank), you have a clearly defined agreement to responsibilities, voting rights and rights of survivorship.

          Different investors will demand different ranges for you to commit financially into the buy in of the business. The more experience and expertise you have in the industry and your increased knowledge of the selling business will increase your chances of securing investors while minimizing the amount you may need to come in with.

          Hope this helps.

          Doug Dolan

          The Solopreneur's Guide

          http://thesologuide.com/