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Sounds like to me you have many of your ducks in a row. My question to you is would you be eligible for a grant of some sort since you are a veteran? I would toy with that one first off. Other wise, I personally would lean towards the "Patriot Express Loan" program way. Of course I don't know the details of that program in terms of interest and time frame. I would also speak to a CPA (one that will grow with your business and one that you trust). A CPA can make or break your business. Good luck!
Thank you for your thoughts. Yes, I have a CPA whom I will meet with next week. One of the things that might make this business hard to finance is that the current owner uses a "bookkeeper" and his financials are not on par with what a CPA would provide. When I start my "due-diligence" I'll have to get my CPA to fill in the blanks. And yes, I think the "Patriot Express" is that way to go right now, its pretty much in line with a 7(a) SBA backed loan. I'm told a lot less paperwork is involved, but given that the government is involved I'll believe that when I see it....lol.
Thank you again.
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The financials make it look like this is likely priced right. You may want to check the receivables end of the business (does it operate at a near cash basis or are the recievables over a long period of time) and how the business flows. If 50% of the business happens in one quarter, you may have to consider how this impacts cash flow and staffing.
For financing, will the current owner take back either part of the loan or can you pay a percentage at closing, another percentage at 90 days and the balance at 180 days?
Be careful with taking a loan from your 401k vs cashing out some of your 401k as that will trigger a tax liability.
First, thank you for your response. You can consider this business as solely "cash basis" and here is why. When an event is booked and depending on the size of the event either a $500 or $1,000 deposit is received, then 30 days before the event 50% from that balance is received and then 5 business days before the event the remaining balance is received. Example, a wedding is booked at $135 a plate, so for a wedding of 100 the cost would be $13,500 $500 deposit is collected with a balance of $6,500 due 30 before the event, and the remaining balance of $6,500 is due 5 business days before the wedding.
This allows time for any checks to clear and still leaves time to order food and any extra setup props needed.
Also, since this a catered event you already know your food cost. i.e. 100 plates so there is virtually no waste, as compared to a restaurant. This also helps eliminate shrinkage (food going out the back door) and theft of cash by employees, because all monies are collected before the event.
As far as sessional, June, July and August are slow for weddings here in South Florida, the peak months start to ramp up September thru February, and then slowly ramp back down until June. My area of concentration is to bring in corporate clines to boost revenue for the June to August slow period. They currently do some off-site catering, but the profit margin is not a great when its done on the property.
Yes, I am very much attune to the pitfalls of drawing from a 401k.
Thank you very much.
I need advice. Looking to buy an existing restaurant/catering event planing business. They are primarily doing weddings, but can stage any function on the premise. Its located on the water and in a gated community in South Florida. The current layout has about 5,000 sg ft with an outside area, they have staged 3 events at the same time. The owner was operating as a restaurant only, but changed the business model in 2011 to its current operation. Its listed at $175,000 down from which is the business only, building is leased.
I'm starting to learn that financing this purchase with a conventional business loan may be impossible.
Here is where I stand, I have $180,000 in an employer based 401K, but at present I will not quit my employment. This business currently has a strong management team in place and will stay. The current owner has another business and spends 1 day a week and weekends at his restaurant/catering business. In addition to the $180,000 401K (can borrow $50,000 from this account) I also have $60,000 in cash/stocks. I'm also a veteran which gives me access to the "Patriot Express Loan" program.
As far as financial statements are concerned the owner has provided cash flow statements only, for years, 2011 and 2012. He's using a part time bookkeeper not a CPA. His future bookings for wedding looks real strong, some weekends he is staging 3 weddings. His weekdays could be filled with corporate events and I have someone lined up for those sales.
The business is currently doing $700,000 and has a pre-tax profit running about 22% of gross sale. Can anyone give me some idea for financing this business. Any ideas are greatly appriciated.