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    16 Replies Latest reply on Jan 2, 2011 7:04 PM by cici52

    Seeking Funds to Purchase Well Established Business

    san902 Newbie
      My husband and I are very interested in purchasing a well established fabric and quilt shop. This business would be a great investment; I can not tell you how many women are flocking to this shop because it is closing in Sept; the current owner has not found a buyer and is ready to retire after 26 years. The shop is set up beautifully and has many great classes with teachers from the community which are very popular. The owner is asking $225,000.00 for the business; I don't have many of the details such as inventory, furnishings, or financials; we are trying to get information regarding types of financing that might be available if any first before we would approach the owner.

      If anyone has any ideas or words of guidance for us it would be much appreciated.
      Thank you,
      san902
        • Re: Seeking Funds to Purchase Well Established Business
          Bridge Navigator
          Don't get too emotionally involved in making a mjor business decision. It may or may not be a good invenstment, you do not know yet.

          Start by getting he financials from the owner. At a minimum you want the last three years tax returns. Business acquisitions are very financible if it is a profitable business.

          There are many SBA loan programs that can help but you want to have the business financial first, not the otherway around. Before you approach any lenders, know about your target company and how much of a loan you will need.

          Generally, SBA backed loans require 20% down (some people will tell you less, but right now, plan on 20%). Rate are reasonable and payback terms generous. Many samll businesses are also sold with some owner financing.

          I am not a lender but could refer you to one or two reputable people I have referred other clients to.

          I would alos suggest working with a professional business broker how could guides you through evaluatong the business and structuing the transaction - it would be money well spent and learning yourself if an expensive learning curve (I am a business broker by the way, so I am bias - I think my services are well worth the cost).

           

          Best of Luck,
          Greg Dupuis
          Bridge Ventures, LLC
          Merger & Acquisition Advisors
          813-343-2214
          • Re: Seeking Funds to Purchase Well Established Business
            Tracker
            What Bridge says in his reply is correct. Take a close look at all the details before deciding to buy any business. Don't let a feeling make the decision for you.

            The scenario that you outlined (buyer closing because he cannot find a buyer) is one that I talked about in one of my first posts on this forum; the fact that there are a lot of good businesses out there (and more coming as baby boomers seek to retire from their businesses) and not enough buyers.

            Most small businesses are sold with seller financing; so that should be the primary funding for the business. If the owner will not carry back financing; what does that tell you about what they believe about the business long term viability?

            Another thing not known by many people is that often the balance of the purchase price (the down-payment) can also come from the deal structure and/or the business itself. I'm going to paste here the earlier post that I mentioned above; perhaps it will be helpful to you:

             

            How to buy a good business without using your own money - Part 1 - Why This Works:

             


            We all know the principle of leverage.

             


            In its primary application it is where you use tools and positioning to increase your power and ability to lift or work with heavy objects.

             


            Archimedes stated "Give me a lever long enough and I can move the world".

             


            Well, we don't need to move the world and we are not talking about moving heavy objects but in its truest application, leverage can be used in financial transactions just as in mechanical applications.

             


            You can use the principles of financial leverage to buy a good, solid business without using your own money.

             


            Financial leverage is a fancy way of saying "Other Peoples Money".

             


            When you use other people's money to buy a business it's called a leveraged buyout or LBO.

             


            Leveraged transactions (LBOs) work this way:

             


            The buyer finances the transaction with funds borrowed against the assets and projected cash flows of the business being acquired. Through the use of proven deal structure the buyer accommodates the needs of the business owner yet creates a means to defer additional cash required to purchase the business from them.

             


            Leveraged buyouts are financed chiefly with borrowed capital (from lenders and even from the business seller themselves), not only because such funds are readily available, but also because if you used cash to buy equity you actually lower the return on your investment than when transactions are financed predominately with debt and cash deferral deal structure.

             


            Debt is less costly than equity financing for two reasons. First, equity is at greater risk. It is subordinated to debt, trade creditors, and others as to rights to the cash flow of the business.

             


            If you funded the acquisition through bringing in equity investors, they expect substantially higher returns on their investment than do lenders.

             


            Second, interest on debt is a deductible expense whereas dividends on equity are paid with after-tax dollars. So from a buyer's standpoint it is more costly for your business to provide a return on equity than it is to provide the same level of return on debt.

             


            You structure the leveraged buyout of a business by using the assets and cash flow of the business to finance and pay for the entire purchase price; both the cash down payment and the monthly installments to pay for the business.

             


            The business buys itself and you own it.

             


            This way of buying business has been going on for decades; earliest actual reports of LBOs date back to World War II and no doubt occurred even farther back than that.

             


            In fact leveraged transactions such as LBOs are so accepted by the financial communities that an entire financial services industry supports these types of transactions.

             


            Even the Business Brokerage industry is trying to educate people to the benefit of using creative ways to structure deals; recently the International Business Brokers Association distributed an article entitled "Creative Financing for Buyers with Limited Capital".

             


            Brokers understand that the more they can educate buyers to use the same tools as we discuss in this book, the more businesses they can sell.

             


            We know that if you are reading this, that you might be interested in buying a business of your own. But you probably have two main questions:

             


            Who would sell me a good business if I don't put my own money into it?

             


            And ...

             


            Can I really do it?

             


            Those are good questions; we'll answer them directly.

             


            Right now we're entering a period of tremendous availability of good solid businesses; baby boomers that own businesses get older every day and many of them need to find a way to exit their business as best they can. And remember just because you do not put cash of your own into the transaction; it does not mean that the seller does not get a cash down-payment and other acceptable terms to satisfy them in order for them to sell their business to you.

             


            Yes. Leveraged buyouts and buying businesses without using your own money is done every day countless times in the United States and internationally.

             


            Most people think that they have to have a lot of their own money to buy a business.

             


            That is just not true.

             


            It does take money to buy a business but again we're talking about learning how to use other people's money ... not your own!

             


            Perhaps you have another question like "I've heard that it is very hard to find money to start a business ... why would someone provide money for me to buy a business?"

             


            Here's why:

             

            1. It is cheaper smarter safer and much faster to buy a good business rather than to start one.
            2. Established businesses have proven revenues and cash flow.
            3. They have existing customers and supplier relationships.
            4. The financial communities know that it is much safer for them to put money into an established business as compared to a start-up business.
            5. The financial community that we mention above is familiar and comfortable in working with business people in leveraged transactions for solid established businesses.

            They understand their business and what's more they are comfortable and understand the businesses of their clients.

             


            They know that asset-based transactions are a good investment for them and that historically they have worked well for many buyers who use their services (and capital) to buy businesses.

             


            Keep in mind, as an example, if you buy a successful business for $1 million using other people's money; you own a significant asset that produces a regular income.

             


            It doesn't matter if you bought the business without using any of your own money.

             


            When the financing is paid off you will own a $1 million business asset free and clear. Paid for by other people's money that is paid back from the cash flow of the business!

             


            The business market favors the knowledgeable buyer!

             


            Right now we're entering a period of tremendous availability of good solid businesses as baby boomer business owners look to exit their businesses.

             


            Here's a couple of interesting statistics from the business brokerage industry:

             

            1. Over 90 percent of the people who began the search to buy business fail to complete a purchase and they look at business for sale listings for eighteen months yet still never buy
            2. Only 25 percent of business broker listings sell; 75 percent of the business listings do not sell

            So we have a very significant and dynamic event shaping up. More business owners than ever in history reaching a point where they need to sell, faced with people who want to buy but 90% of the time, never do!

             


            Why do "buyers" not buy and "sellers" not sell?

             


            I have been involved in literally hundreds of types of transactions over the course of my business career and I can answer this question with absolute certainty.

             


            Lack of knowledge.

             


            Buyers that do not know how to find, evaluate, structure and negotiate transactions and business owners who do not understand how proper valuation and deal structure can help them sell their business for a fair (in some cases premium) value and with a structure that optimizes tax benefits for them.

             


            For buyers that understand these things there will be hundreds of thousands if not millions of dollars made by them over the next few years as they are presented with opportunities from thousands of business owners motivated to sell their business.

             


            Again you don't need your own capital, you just need to learn how manageable leveraged transactions are done and go out and do it.

             


            You've probably seen the big business buyers always in the news. There are hundreds, if not thousands, of smaller business buyer success stories that happen every day that you never hear about ... setting their life up so that when they retire, it will be with a pile of money ... and all they are doing is buying businesses using other peoples money.

             


            The huge number of available businesses out there and business owners interested to sell their business coupled with the fact that there are not enough knowledgeable, truly knowledgeable buyers out there is one of the main reasons why this works when you become one of those knowledgeable buyers.

             


            The point that we make is that the cash for the down-payment does not have to be yours.

             

            • Asset based and collateralized lending has been around for hundreds and thousands of years.
            • Using the assets and cash flow of a business to help you buy it is something that's commonly accepted in the financial community.
            • There is a whole industry of lenders and investors who focus just on that very thing.
            • There are literally hundreds and thousands of investors and lenders that put money into businesses based on the assets of the business and its cash flow and ability to pay the money back.
            All of the above, are the reasons that leveraged transactions have worked in the past, they work today and will work in the future!

            Obviously there is a lot more to know and learn in order to buy a business as outlined above; but it all starts with realizing that there are many ways to help you buy a business. Now knowing that, begin to study how you can apply those proven methods to your own business acquistion.

            I hope the above helps; good luck with your acquisition plans. if you have any specific questions feel free to reply/post and I'll answer as best I can for you (I'm sure other members will chime in as well).

            Dennis Lowery
            Adducent, Inc.
              • Re: Seeking Funds to Purchase Well Established Business
                Tracker
                Correction to the above; I meant to say:

                "The scenario that you outlined (+business owner +closing because he cannot find a buyer) is one that I talked about in one of my first posts on this forum; the fact that there are a lot of good businesses out there (and more coming as baby boomers seek to retire from their businesses) and not enough buyers.
                  • Re: Seeking Funds to Purchase Well Established Business
                    Newbie

                    Hi Adducent,

                     

                       I have found a Profitable Bed and Breakfast that I want to buy and the owner has agreed to do financing for 10 years if I can come up with 40,000. I have no money to put down and banks won't loan money for a down payment. I have already secured the last 3 years financials from the owner. She wants to retire and already has bought her home in florida. She owes nothing on this business but feels it is a risk on her part to do 100 % financing. Where can I find a downpayment?

                     

                     

                    Thanks for any help

                     

                    Marti

                  • Re: Seeking Funds to Purchase Well Established Business
                    driven Newbie
                    Hi Adducent

                     

                    I found your post interesting - LBO! I am looking at a business with approximately 125,000 to 150,000 in assets for the low selling price of $20,000. It is an Art and Frame Design store in a very upscale area of Scottsdale AZ - my problem is that I have 10,000 of the 20,000 and I need some operating capital to grow the business. The seller wants the whole 20,000 which I can understand because he started with a selling price of 125,000 and over the last 8 months dropped it to 20,000 (this includes everything plus a 1000 name customer list) but he will need 10,000 to pay the broker and he needs the other 10,000 for his new internet business.

                    my question is - most sellers want the cash not monthly payments so how would LBO work with a seller who wants 1/3 or .50 down (some will finance the balance) in my case the seller is really letting everything go for a mere 20,000.

                    I have tried to get a bank loan based on the assets and they keep saying I need two years track record owning the biz (I have an Art, sales, marketing and an accounting background which bodes well for this business. He has owned the store for 8 years - worked it himself - never had an employee and always made a profit whether it was 40,000 or 90,000. I keep hearing ...not in this market the banks have tightened up on everything.

                    I have applied for an SBA loan and I am told that today in this market only 10% of 100% of applications submitted have been approved and this biz is very low risk. What's a buyer to do?

                    What are your thoughts on what I have just told you.

                    Thank you

                    Gail
                      • Re: Seeking Funds to Purchase Well Established Business
                        Tracker

                        Hi Gail,

                         


                        The first thing that comes to mind is not so much about a source for the funding but rather; why is the owner selling it so cheaply if he has $125,000 to $150,000 in assets and makes a profit of at least $40,000 each year? There are a lot of due diligence questions you should get answered and things to look at. A couple of things: Do they have appraisals to prove the value they are putting on the assets? Also, check their financials for the last 3 years and see how sales and profits are trending.

                         


                        It is possible for funding to be created for many types of acquisitions, from the deal itself, but sometimes it is better to pass on a deal if it is the wrong one. I discuss that in detail in one of my books on LBO's and buying businesses but simply put: "do not buy a business just because you can ... make sure it is the right business for you to buy before you do the deal".

                         


                        Most small business sellers want cash; but in reality, order to sell they must be willing to take back financing. Rarely do small businesses sell for all cash ... and frankly a buyer would be making a mistake if they did pay all cash. There are better uses for their cash and there is compelling reasons to have the seller have some sort of "skin" remaining in the deal. What does it tell you about their faith in the business if they won't carry back financing? If they demand all cash and you can't negotiate other terms then you may want to look at whether the business is viable long-term. You don't want to buy a business that is fading or going down-hill.

                         


                        Right now conventional bank funding can be difficult to line up unless you have a track record for them to rely on. But there are sources of funding that you can try that don't care about your track record or experience. Search online for asset-based lenders or hard money lenders. These lenders are interested in the value of the collateral only. The problem you are going to be faced with is that many do not like to do small transactions. So when you contact them see if they have a minimum transaction size and if they would have interest in your deal. You can also check your local paper for hard money lenders. Many wealthy or well capitalized individual investors put their money to use in that way and will do smaller transactions. of course you have to be sure that in your evaluation of the business that its cash flow will pay for debt service.

                         


                        If the assets are worth what the owner claims then you should be able to find a source for the down-payment.

                         


                        I hope the above helps you. Let me know how things progress; feel free to contact me if you'd like to discuss your deal or have other specific questions and I'll help you with what feedback I can give you.

                         


                        Dennis Lowery

                         

                        Adducent, Inc.
                        • Re: Seeking Funds to Purchase Well Established Business
                          Tracker

                          Hi Gail,

                           


                          The first thing that comes to mind is not so much about a source for the funding to buy the business but rather; why is the owner selling it so cheaply if he has $125,000 to $150,000 in assets and makes a profit of at least $40,000 each year? There are a lot of due diligence questions you should get answered and things to look at. A couple of things: Do they have appraisals to prove the value they are putting on the assets? Also, check their financials for the last 3 years and see how sales and profits are trending.

                           


                          It is possible for funding to be created for many types of acquisitions, from the deal itself, but sometimes it is better to pass on a deal that could be the wrong one to do. I discuss that in detail in one of my books on LBO's and buying businesses but simply put: "do not buy a business just because you can ... make sure it is the right business for you to buy before you do the deal".

                           


                          Most small business sellers want cash; but in reality, in order to sell they must be willing to take back financing. Rarely do small businesses sell for all cash ... and frankly a buyer would be making a mistake if they did pay all cash. There are better uses for their cash and there is compelling reason to have the seller have some sort of "skin" remaining in the deal. What does it tell you about their faith in the business if they won't carry back financing? If they demand all cash and you can't negotiate other terms then you may want to look at whether the business is viable long-term. You don't want to buy a business that is fading or going down-hill.

                           


                          Right now conventional bank funding can be difficult to line up unless you have a track record for them to rely on. But there are sources of funding that you can try that don't care about your track record or experience. Search online for asset-based lenders or hard money lenders. These lenders are interested in the value of the collateral only. The problem you are going to be faced with is that many do not like to do small transactions. So when you contact them see if they have a minimum transaction size and if they would have interest in your deal. You can also check your local paper for hard money lenders. Many wealthy or well capitalized individual investors put their money to use in that way and will do smaller transactions.

                           


                          If the assets are worth what the owner claims then you should be able to find a source for the down-payment.

                           


                          I hope the above helps you. Let me know how things progress; feel free to contact me if you'd like to discuss your deal or have other specific questions and I'll help you with what feedback I can give you.

                           


                          Dennis Lowery

                           

                          Adducent, Inc.
                            • Re: Seeking Funds to Purchase Well Established Business
                              driven Newbie
                              Hi Dennis,

                              I do agree with what you have said - I did receive the financial's for the business - 2005 he grossed $175,000 cash flow $71,000, 2006 he grossed around $180,000 with a $76,000 cash flow, 2007 he grossed 156,000 with a $38,000 cash flow and then for Jan thru May 2008 he dropped to a gross of $55,000 to date with a cash flow of 21,000. After 8 years he just lost interest in the business so he placed it for sale in October of 2007 for $125,000 (what the assets were worth) due to the high rent of 6800.00 it was hard to sell - so he kept dropping the price - it $40,000 and by May he dropped it to $20,000, many people have looked at it and loved it - just hated the rent. To be realistic the rent is right on target for an super upscale area - the mall itself is huge and is only 4 years old., The rent concerns me also in this market climate but it is what it is. The next closest Art & Frame shop is over a 1/4 mile away.

                              The landlord will not re-negotiate a new lease for me - he told the broker that the seller will remain responsible for the remainder of the lease which is 6 more years whether I buy the business or not. The seller sweetened the pot so to speak when he heard the landlord would not reduce the rent for me - seller said he would contribute 400.00 toward the rent for two years.? This shop has zero debt, light expenses except for the rent, all stock, artwork, including limited editions, machinery and equipment all included - really its....put the key in the door and do business nothing needs to be done or ordered to resume business.

                              He did start another business about a year ago (an Internet business) which is taking off for him so his head has been there the last several months to a year. He seemed very honest when I met him - he said the bus. had slowed down because his heart just wasn't in it anymore and that he started closing a couple of hrs early during the week and one saturday a month to do his other business which has hurt his sales.

                              Question one......Even though it is located in one of the richest towns in AZ could the market climate right now be affecting it more than the seller is saying? Could advertising help? (he also stopped advertising 9 months ago and that is when I noticed his monthly gross getting smaller each month to present) I know I could make it successful with my marketing and sales plans but can I do it in this economy..rich area or not I mean it is an Art and Frame shop and do people still buy art and frame prints when the economy is tight? Would being in a wealthy area dotted with tourists and resorts not affect business? I am in a quandary on what to do - if the rent wasn't so high it would be easier for me.

                              If you have any insight for me I sure would appreciate it.

                              Best Regards,

                              Gail
                                • Re: Seeking Funds to Purchase Well Established Business
                                  Tracker

                                  Hi Gail,

                                   


                                  The owner may be sincere in what is telling you but keep in mind that a lot of small business owners whose business is dying lose heart after it starts to slide and not the other way around.

                                   


                                  Did they define for you if the cash flow was net income, EBITDA or Seller's Discretionary Cash Flow (SCDF)? Usually SCDF is where they add back owners salary and benefits back into the bottom line number to show the owner's total compensation/profit from the business. Try to find out what the owners true margins are so you can run the numbers to see if you your self could survive while turning the business around.

                                   


                                  Is that rent $6800 per month? That is a large monthly debt to support and in what for many is turning into a dicey economy ... taking on that could turn the current owners problem into a problem for you if you took over his lease.

                                   


                                  Before doing that you should consider buying the assets of the business and moving it if possible to somewhere else in the area where a lower cost would help your bottom line and increase your ability to survive the drop in sales until you can build them back up. Another thing you could do is see if there are opportunities to co-locate the business with a complementary one; perhaps a fine furnishings store or even a camera store.

                                   


                                  If moving the business is not viable and you decide to work a deal with the seller; I would not by any means let them off the lease. In other words; don't take on the lease obligation your self. Let the current owner retain it and you sub-lease from him for the net amount (gross rent less what he said he would contribute to rent). This is assuming that the landlord is willing to go along with this.

                                   


                                  I hope the above helps or gives you some food for thought. Let me know how things progress for you.

                                   


                                  Regards,

                                   

                                  Dennis Lowery

                                   

                                  Adducent, Inc.
                                    • Re: Seeking Funds to Purchase Well Established Business
                                      driven Newbie
                                      Hi Dennis,

                                      Thank so much for your reply - super insightful for me. You have asked some great questions. I put a call into the broker regarding the income and I am waiting for her to call me back. I have a feeling it would be his income added to the actual net and your right I need to know which it is.

                                      As far as the $6800.00 rent - the landlord has already said that he is holding the seller to the lease until it expires in 2014 and that the seller will be responsible for the rent until then - so yes, the seller would have to give me a sub-lease. I have already informed the broker since a new lease can't be negotiated that the sub-lease with the seller will in no way make me responsible for his lease with the landlord.

                                      The rent was a big issue for me, even though it is warranted in that town I felt in this economy (even in a wealthy area) that it might be too steep. And your right the seller may whole heartedly believe he is selling because he doesn't really like doing it anymore when in fact the slowing of business pushed him in that direction. He did call the business broker last week and told her to tell me that it has been slow - now, is it because he stopped advertising 9 months ago? Because he is closing early during the week and 1 to 2 Saturdays a month? Because he is closed on Sundays? or.... is it the economy even in a wealthly town like Scottsdale? or a mix of all?

                                      I thought about moving the business I am just concerned how much it would cost to move the equipment and have it set up again (saw to cut framing, huge lighted matting box etc.) maybe it is more cost effective in the long run to do that considering the rent of $6800.00. I guess I need to get some estimates and look for vacant stores to come to a conclusion. I just don't have alot of time.

                                      I will definitely write you when I know about the cash flow. You were a tremendous help, you gave me alot more to think about which I need to think about.

                                      Best Best Regards,

                                      Gail
                                        • Re: Seeking Funds to Purchase Well Established Business
                                          Tracker
                                          Hi Gail,

                                          You're welcome. That rent is pretty steep and would be a tough one to take on in a new business (for you) that is slipping. His continuing sales drop is probably primarily due to stopping advertising and not keeping good retail traffic hours. I'm somewhat familiar with some past retail ventures/clients in the Scottsdale / Biltmore area and I think that it is very important to maintain presence in those areas so that consumers know you are there and open; so much of retail, especially art, can be an "impulse buy" so you need to be there when the customer is ready. But even well-to-do affluent people I know, not really impacted by economic concerns, are starting to watch their discretionary spending. So that is something you have to take into account when looking at starting or buying a business right now that may be affected by that thinking.

                                          If you move forward with this; when you structure your sub-lease ... I would not be shy about establishing a much lower rent payment to the current owner so that you have a period of time to see if you are going to have success in building the business back up. If they don't sell the business then they would apparently have to pay the lease anyway so your rent to them would defray some of their cost. As the new owner you are buying a shakey business that is not as profitable as it once was (which the current owner admits they are the cause of) and you should not have to pay that full rent until you get it turned around.

                                          Do not frame this deal in the context of buying assets that are worth more than what you are paying. You have to view it as "long-term will those assets and my efforts generate enough revenue for me to cover all my debts and make it worthwhile for me to own the business". Structure the deal to your best advantage so you have a good shot at making it work to where you can afford to pay the rent and still do well in the business and keep it running and growing. That would serve best the interests of all the parties involved.

                                          Regards,
                                          Dennis Lowery
                                          Adducent, Inc.
                                            • Re: Seeking Funds to Purchase Well Established Business
                                              driven Newbie
                                              Hi Dennis,

                                              You really know your stuff! Lucky for me!!! I was thinking alot about what you told me in your previous post and I have to tell you I am feeling pretty sure that what my gut has been telling me about the rent is an omen. It has been the one bone of contention for me all along stopping me from going forward even when he keeps sweetening the deal. I would need to have gross sales of $10,000.00 every month just to pay rent and expenses and that doesn't include a salary for myself.

                                              I am thinking about going back to my original business idea.

                                              I was a loan officer for 16 years and I counseled clients who I could not qualify for a Mortgage due to poor credit. Instead of telling them to re-apply when they fixed their credit problems (as my colleagues did) I worked with them - I created individualized structured plans they could follow easily to repair their credit themselves. This served as a valuable plan - because it was a time consuming task at the onset, it taught them how precious their credit rating was and by letting it decline only major effort could rectify it - they always came back to me and said..."I will never let that happen again"! Most of them urged me to write a book and/or start a business - (I wrote the book "Credit Repair Guide" which was released in Dec.07 and I have a website) because they hadn't a clue how to repair their credit. The plan worked like a charm!

                                              In January I wanted to start an actual business structuring credit repair plans for a moderate cost. I was going to rent an office suite for around $400 - 500 a month which includes everything while keeping my costs low and concentrate on marketing. I have a friend who is a freelance writer who writes articles for TV, Radio and Newspapers, she knows many people in that venue. She said she would promote the business and the book by booking me on radio spots and writing not only press releases but do a feature on my company and book and would not charge me a cent until I started making money.

                                              This business would require far less money and it is recession proof - actually, more people are in need of my services now that credit scores are even more critical. My fees are no where near what these bogus credit repair services charge and... my structured plans actually resolve the issue's by paying them off where as other companies write dispute letters to have the credit issue's removed. Believe me, if they don't pay the debt they find their way back on the customers credit report.

                                              So what do you think of my original business idea? Maybe I should just move forward with this at least I wouldn't be in over my head with the rent & expenses.

                                              If you could let me know what you think of this I would be appreciative - I thank you so much for all your insight & advice so far - it has really helped me define my position on the Art & Frame Shop. You and Luckiest and Bridge are amazing to help us all on this forum - Thank You so much!

                                              I will wait to hear your take on this reply

                                              Best Regards,

                                              Gail
                                                • Re: Seeking Funds to Purchase Well Established Business
                                                  Tracker

                                                  Hi Gail,

                                                  You're very welcome. Based on what you told me; I think you would be better off going back to your original business idea and focusing on it instead of taking what could be a risky chance of turning around the Art & Framing business.

                                                   


                                                  In my opinion you should consider going with your area of expertise and proven ability and solutions that help people - that's a much easier business model for you to follow than to force a deal to buy a business that puts you at some financial risk. Like you said, with the current economic conditions and financial challenges and problems many people are faced with; you should be able to hit the ground running and create a low-overhead business that in all likelihood provide you a better income than you would get from the business you were considering buying.

                                                   


                                                  You should also sit down and rough out an Executive Summary of your idea, that sets up further defining the business idea in a business plan for execution that lays the groundwork to launch. Your friend with the promotional experience will be a great resource for you so definitely include them in your planning process.

                                                  Leverage your experience and previous success with clients; use your book as a "calling card" (to give to clients or as a promotional piece for your services) or as a revenue stream by itself. Having a service business can be very profitable but you should always also consider developing products based on your experience and intellectual property (as you have with your book). This is something I have done in my businesses and if done correctly it can be very rewarding (both for you and the people who buy the book) and a great supplement to your service business.

                                                   


                                                  When you get your executive summary roughed out; feel free to send to me and I'll review and give you some feedback that might help you with the business launch. At my profile you can see my contact info and web site so you can get in touch with me directly if you like.

                                                   


                                                  Regards,

                                                   

                                                  Dennis Lowery

                                                   

                                                  Adducent, Inc.
                                                    • Re: Seeking Funds to Purchase Well Established Business
                                                      Newbie
                                                      Wow, I'm glad I ran into this thread. Thank you everyone for all the good information.

                                                      We're kind of on the same boat. We're in the process of doing our due diligence to purchase a well established (and profitable) daycare center. The business is booming, and parents are demanding that the center increase its enrollment capacity to accomodate more children. Enrollment is averaging at about 95-100% and net income for 2008 is expected to be $100k ($50k for the first 6 months). The owners want to retire and that's why they are selling. We negotiated a selling price of $294k. The downside is the owner doesn't want to do seller financing since they want to move out of state and just retire.

                                                      The business is very viable, and there is enough unused space in the center that will allow us to construct 2 additional rooms that will allow us to increase capacity. After renovations, we expect to increase capacity from the current 66 to 110. Once we average about 100 enrollments, our expected annual net income will be $175k, and we project to achieve that in about 2 years. My business partner and I are putting 20% and are looking to finance the remaining 80%. And that is where we're having problems. Due to the current economic climate, the banks have been very tight and it's been difficult for us to get lender financing. A poster here mentioned that the SBA loan route is not that rosy either. Only about 10% of loans are getting approved, and the requirements are getting much tougher. For a typical commercial loan, they are requiring our business to have 2 years of history, even though the business we are purchasing has been in business for more than 4 years. We are seeking some angel investors - friends, families, etc. but we don't think we'll be able to raise the amount even though we are offering good return rates for the investment.

                                                      The Letter of Intent we signed did stipulate that the transaction will not push through if we can't raise the capital to purchase. We're a bit desperate now. We think we can make the business continue to be successful, but if we don't get the needed capital, we'll have to let it go. When the seller first posted the ad in June, he was trying to gauge how much interest is going to be generated, and that he was pretty firm with his asking price. He wasn't willing to lower it since he figured if no one was willing to buy it for the price which he thinks is reasonable, he can just keep the center say another 6 months and earn the $50k net that he expected to receive at the end of the year. He'd keep on doing that until a party would come and offer him the right price.

                                                      So should I say that we are pretty much hosed here and not even have a chance at an LBO? Since we're at a point where we're running out of options, we're thinking of just risking asking the seller if he'd do an LBO for whatever amount we cannot raise to pay the selling price. If he doesn't like it, then we would have to drop off the race.
                                        • Re: Seeking Funds to Purchase Well Established Business
                                          1prosper Newbie
                                          Gail, I wish you the best. My husband and I also purchased a business in Scottsdale, we live in Florida. Right now we are looking for working capital and it has been extremely difficult. We have excellent credit, but are over extended because we've had to carry the business. We had to fire the person managing the business because he robbed us blind. I refuse to lose our entire livelyhood just because we trusted the wrong person. We're strill trying..failure for us is not an option. I'm currently trying to get a loan so that I can move to Scottsdale and manage this business of ours. We seen to have some things in common, I'm also very driven and I also moved from New Jersey, but I love Florida, humidity and all. Wishing you the best.....Angie
                                            • Re: Seeking Funds to Purchase Well Established Business
                                              DealReal Newbie

                                               

                                               

                                               

                                               

                                              Required Documentation for Business Loans

                                               

                                               

                                               

                                               

                                              Sole Proprietorship

                                               

                                              Required Documents:

                                              • Fictitious Business Name Statement, Certified by the County Clerk
                                              • Proof of Publication

                                              Supplemental Documentation:

                                              • Business License

                                               

                                              General Partnerships

                                               

                                              (All Partners must execute the signature card)

                                               

                                              Required Documents:

                                              • Partnership Agreement
                                              • Fictitious Business Name Statement, Certified by the County Clerk
                                              • Proof of Publication

                                              Supplemental Documentation:

                                              • Business License

                                               

                                              Limited Partnership:

                                               

                                              (Generally only General Partners should execute the signature card)

                                               

                                              Required Documents:

                                              • Certificate of Limited Partnership (Form LP-1)
                                              • Fictitious Business Name Statement, Certified by the County Clerk
                                              • Proof of Publication

                                              Supplemental Documentation:

                                              • Business License

                                               

                                              Limited Liability Partnership

                                               

                                              (Generally only General Partners should execute the signature card)

                                               

                                              Required Documents:

                                              • Registration Filing (Form LLP-1)
                                              • Fictitious Business Name Statement, Certified by the County Clerk
                                              • Proof of Publication

                                              Supplemental Documentation:

                                              • Business License

                                               

                                              Corporate Accounts

                                               

                                              Required Documents:

                                               

                                              • Articles of Incorporation

                                               

                                              • Corporate Resolution

                                               

                                              • Bylaws (If Adopted)

                                              • If dba: Fictitious Business Name Statement, Certified by the County Clerk

                                              Supplemental Documentation:

                                              • Certificate of Corporate Status or Good Standing
                                              • Business License

                                               

                                              Foreign Corporations Engaged in Intrastate Business

                                               

                                              Required Documents:

                                              • Certificate of Qualification or Exemption
                                              • Biennial Statement

                                              Supplemental Documentation:

                                              • Certificate of Corporate Status or Good Standing
                                              • Business License

                                               

                                              Foreign Corporations NOT Engaged in Intrastate Business

                                               

                                              Required Documents:

                                               

                                              • Registration of Corporate Name

                                               

                                              • Certificate of Good Standing

                                               

                                              Supplemental Documentation:

                                              • Certificate of Corporate Status
                                              • Business License

                                               

                                              Limited Liability Company

                                               

                                              Required Documents:

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                                              • Operating Agreement
                                              • Limited Liability Company Statement of Information (form LLC-12)

                                              Supplemental Documentation:

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                                              • Joint Ventures*

                                               

                                              Required Documents:

                                              • Joint Venture Agreement
                                              • Fictitious Business Name Statement, Certified by the County Clerk
                                              • Proof of Publication

                                              Supplemental Documentation:

                                              • Business License

                                               

                                              Unincorporated Association

                                               

                                              Required Documents:

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                                              • Charter, Bylaws or Governing Rules of the Association.

                                              Supplemental Documentation:

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