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    3 Replies Latest reply on Jun 12, 2010 9:57 AM by Bridge

    I need help with buying 50% of a business

    805business Newbie
      I would like to acquire 50% of a business. Can someone, who had gone through this process before, give me some tips?

      1. Can I get financing to pay for this?
      2. What are the legal processes that I need to go through to be 1/2 rightful owner of the business?
      3. How should reponsibilities be divided between 2 owners?

      I know there are so much that I don't know about this process. I would appreciate any help or tips.

      Thanks everyone for reading.
        • Re: I need help with buying 50% of a business
          805business Newbie
          In addtion, I would like to know how a value of a business is determined?
            • Re: I need help with buying 50% of a business
              Bridge Navigator
              Valusing a small business can be tricky.

              Using "market comparables" can be dangerous since data on small business transaction is rarely reliable, businesses vary too much, and transaction term variable are not taken into account. This approach works in real estate where properties in an area are homogenous, commodity based, and transaction terms are similar.

              Pricing based on an IPO or public data have even less relevance to a small business which has no liquidity or active trading data.

              Additionally, you need to trake into account that you want to purchase 50% so there will be a controll premium discount since you will not own 100%.

              Value is primarily determined on after tax cash flow and needs to take into account a variety of factors.

              Sorry, but there are no "quick" answers on valuation. It woudl be like trying to leanr surgery on this board - get a knife and cut that's all there is to it. You should work with a professional who has experience valuing small, privatley held businesses and can help you structure the transaction appropriately. Up to 30% or more of the "value" can be hidden in deal terms. All transactions involve price and terms. Both are important.

              Best of luck,
            • Re: I need help with buying 50% of a business
              phanio Pioneer
              Lots of questions - some easy and some hard.

              First, yes you can finance this business - but, you will either have to buy the business first and use its assets to secure the finacing or use personal assets like home equity or personal equity (you might not have to come up with all of it but at least 20% minimum and get a loan for the rest). Yo could even look for several different financign avenues to piece together the funding your need.

              For legal proceedings, your best bet is to talk with an attorney - they would know best for your location - you could also look into the several forms of partnership available - like a partnership or LLC.

              In dividing up the work - sit down with the other person - discuss who will handle what, how expenses and revenues will be divided - then write it all down in a formal agreement - plus, if you forma partnership or LLC - this would part of your formation documentation.

              In valuing a business. The easiest way is to use multiples. Try to find other similar compaines in your market and industry that have sold recently. You can also look for recent IPOs - thus you have some relevant information. Then, divide their EBITDA into the sales price to get a multiple like 2X ot 3X. Take that multiple and apply it to the EBITDA of the business you are buying to get an idea of where to start of the valuation.

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