Helping You Buy A Business
Why You Should Consider Owning A Business ➝
When you become your own boss, you accomplish three very important things:
Job security, you have a job for life.
You have the opportunity to make more money.
You are building something you own and can sell later if you wish.
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START UP OR EXISTING BUSINESS?
Do you want to start up a business or, do you want to buy an existing business? With the start-up of a new business, you have no customers, no cash flow, and at first, just operating expenses when you first get the business started. When you purchase an existing business it is an ongoing economic entity that has cash flow, trained employees, an existing customer base, and a track record that you can take to a bank to assist with financing the purchase.
The business is already up and running and should have an immediate income for you and your family. There is, of course, a cost to purchasing an existing, on-going business.
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WHAT CASH FLOW SHOULD YOU EXPECT?
As a good rule of thumb for a business with $1 million or less in sales, you should expect Seller Discretionary Earnings, or SDE of between 10% and 20%. With sales over $1 million, the business SDE should be approximately 10%.
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CALCULATING THE BUSINESS’ CASH FLOW
Three important issues will help determine how much you make in the business you purchase:
• How much is the present owner currently making in seller discretionary Earnings? (cash flow)
• Next, subtract any debt service or other costs that you would have after you purchase the business.
• Then add any additional costs you might have to improve and grow both the sales and profitability of the business. This could be expansion of location, employees, inventory, equipment, marketing, etc.
As you go through the process of buying a business there are a number of things ABBG can help you consider:
Do you believe you have what it takes to manage a business? This can be the make or break attribute that determines your profitability being as little as 5% or as much as 25% of a business’s sales.
The location of the business.
The furniture, fixtures, and equipment that help produce the company‘s product and or service.
The trained employees of the business.
Is the established cash flow sufficient to pay all of the business expenses and provide for the owners lifestyle.
The inventory or product of the business that your customers will be buying.
The existing customer base that buys the company’s products and services.
Is there competition that could disrupt the businesses future profitability?
Are the financial records true and match the seller’s income tax return?
Is financing available, either through a bank, SBA or the seller of the business? What plans do you have for the business after the purchase? Will you personally be managing the business you are buying? Have you prepared a strategic business plan for the future? Importantly, do you feel you will enjoy the challenge and opportunity of being your own boss?
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FINDING THE RIGHT BUSINESS FOR YOU
So you feel you’re ready to purchase a business, or how do you find one? The best answer is go to a Business store. That’s ABBG, as your professional, experienced business broker.
We’ll help you determine what’s the best business for you, your finances and your experience.
ABBG will provide you with information about the business you selected. We can assist with financing your purchase. We can even assist with the purchase process in order to consummate a sale.
As a business broker we help you find the kind of business that will best serve your needs, capabilities and financial wherewithal. We can even assist you in finding the financing for the purchase of the business you are interested in.
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INVOLVING YOUR FAMILY
Your family is important. Are they buying into the idea of being in business? It can be a 24-7 lifestyle/occupation, and while the potential for great profits and cash flow are possible; being a business owner requires a full-time commitment in time, which can possibly involve other family members. If there is a loan involved in the purchase, your spouse will most likely need to sign the loan papers as a guarantor and your personal assets may be required as collateral for any loan with a bank.
FINANCING THE PURCHASE
If a bank and/or the SBA are involved, the bank will want to secure the financing with whatever personal collateral you have. That also means that you, and possibly your spouse, will be guaranteeing the loan. But most importantly, a bank wants to believe that you’ll be able to return the money you borrowed from them. Usually this requires you to provide personal financial statements and projections of cash flow to give them the assurance that you’ll be able to repay any loans.
Most lenders will require a minimum of 25 percent of the cash flow after paying yourself a salary, as money to re-pay the principal and interest on your loan.
An option to support part of the purchase price is seller financing. The seller may be willing to provide seller financing for part (10% to 20%) of the purchase price at terms similar to what a bank would be offering.
Regardless, be prepared to bring a minimum of 10% to 30% of the purchase price in cash for purchasing a business, with a balance provided by a bank, SBA, and your seller.
Steps that you may follow in the purchase of your dream business include:
Communicating your interest in buying a business with an ABBG representative.
Signing a non-disclosure agreement (NDA) and buyer profile.
Working with ABBG to define the attributes of a business you would consider.
Finding a business that meets the attributes you identified— perhaps from a listing on Biz Buy Sell or another one of the online sources.
Review the confidential business profile’s business and financial information from the seller’s information.
After review and acceptability of this information, prepare a non-binding LETTER OF INTENT for presentation to the seller.
Begin the process of securing financing for the purchase upon seller’s acceptance of your letter of intent.
Continue any due diligence of the business operations and possible meetings with the seller at the business location.
Closing documents are prepared including Purchase Agreement, Non-Compete, Bill of Sale, Consulting Agreement, and possible Real Estate Contract.
Final Agreements are reviewed by attorneys and Closing takes place with transfer on money at a Title Company or Attorney’s office. ABBG does not prepare these documents or represent Buyer with legal or income tax advice.