Buying A Small Business
Buying a business, as opposed to starting something from scratch, can streamline your path to profitability. It can also be less risky, in some cases, if the brand is already successful and established.
buying a small business
If you have the funds to make a 10-20 percent down payment, industry experience or business management skills, and good credit scores, an SBA loan would be ideal. If yours is a large business, you can apply to the big banks (this is one of the toughest sources of financing for small businesses to tap into).
See your funding options for a business acquisition loan. Lendio will ask you a few basic questions, and will narrow down the lenders that are right for your purposes. Doing business this way saves you a lot of time, and it will help you take over your business and start making a profit much sooner than if you take the traditional route.
Depending on the nature of the business, you will have additional questions. Do your due diligence by checking the amounts from the cash flow statement against those from the balance sheet and income statement.
Go beyond the quantitative data and check the pulse of the state of affairs of the small business within its community. Here are some places to check the reputation of a small business and its owner(s):
Supplement the sentiment of the community about the small business with research on plans of large competitors, such as large franchises and big box stores, to move into the area. What would happen if you buy a hardware store and a Home Depot would move into the area next year? During your research, inquire directly with franchises and big box companies about their plans to move into the area. Despite the lack of a physical store, some corporate moves are ongoing and well documented. For example, Whole Foods has already announced the location of 16 new 365 by Whole Foods Market stores in several cities, including Akron, Ohio; Decatur, Georgia; and Gainesville, Florida. These stores are scheduled to open in 2017 and beyond and may affect the operations of many local small business operating in the same industry.
You can borrow up to $1 million, and terms from one to three years. Using the latest cash flow statement from the small business and making your own cash flow projections for the next three years, you can determine whether or not a term loan is the right financing option.
The first one is that unsecured personal loans are often capped under $50,000, which would only cover a small portion of your small business acquisition. The second one is that unsecured personal loans often charge much higher interest rates (as much as 80%!) than other types of loans. The third one is that unsecured personal loans have several fees, such as an origination fee of up to 5%, a service charge, a late payment fee, and, sometimes even, a prepayment fee.
When done right, buying a small business allows you to become your own boss faster and gives you a leg up on the competition with a proven business model. Spend some time evaluating your options and doing the necessary legwork to back up any claims. Be patient throughout the entire process and be willing to try alternatives particularly when it comes to finding financing.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.
Establishing a search fund is the most popular way to raise enough capital for out-of-pocket expenses and your cost of living during this time. The process involves approaching potential backers (wealthy individuals in your network or those in the small-business-acquisition community) and offering them a first look at investing in an eventual acquisition at favorable terms. Bautista, Ambrosia, and Braus all went about their searches this way. Their aim was to acquire not just money but also advisers who could help them through the deal process, since none of them had M&A experience.
Along with relationships, cash flow should be a top priority. The most common trouble for small firms under new owners is running out of cash; after all, they are likely to have acquisition debt to service. So set up a process whereby you approve all payments before they go out, and review your accounts-receivable balances at least weekly. You should also implement a 90-day rolling cash-flow forecast.
Having your own business is great. Building one from scratch? Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.
At some point, while jumping through legal hoops, you might have forgotten that you just became a small business owner. Congrats! Your new life awaits. And if your brand new business needs bookkeeping, Bench can help with that.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
Shop from hundreds of thousands of sellers and access discounts on supplies available only to Amazon Business customers. With business-only pricing and quantity discounts, your organization can save on over 50 million items.
Adding employees or new locations can be exciting and challenging. Amazon Business can help you observe purchasing behavior, identify buying trends, and discover new ways to save. You can also make the accounting department happy with simplified expense reports and account reconciliation features.
But some reasons for selling may be red flags, and it might take a little more work to uncover them. For example, if the business is losing business to a more popular competitor, or has a bad reputation, you could be facing an uphill battle from the moment you take over.
Some business valuation experts use a blend of two methods, such as the market approach and the income-based approach. In any case, the process of determining the value of a business is complicated, so you might want to consult a professional business broker or accountant who specializes in business valuations.
Better survival rate: Many new businesses fail in their first few years in business. According to a study published in Industrial and Corporate Change, business takeovers have a higher survival rate than new venture startups.
Existing cash flow: Because an existing business has all its operational processes and staffing already going, as well as an existing customer base, you can start generating cash flow on day one. In contrast, when you start a new business, it can take months or even years to turn a profit.
High upfront costs. Buying a successful business can be expensive. You may be able to buy a struggling business for less, but then you run the risk of acquiring a tainted brand, unhappy customer base or a dying product or service. Simply put, you get what you pay for.
Challenging to make it your business. When you buy an existing business, you also buy an existing company culture, mission, vision and values. It can take a lot of work to make changes that reflect your goals and turn a struggling company culture around.
But, buying a franchise business can be expensive. You typically need to pay an upfront franchising fee, in addition to the normal business startup costs, such as buying or leasing a location, purchasing inventory and equipment and hiring employees.
For example, according to LendingTree research, it can cost anywhere from $1.24 million to $3.53 million (not including land) to open a Sonic Drive-In, and $1.3 million to $2.3 million to open a McDonalds. And while you may be able to get financing to cover some of those costs, many companies require franchisees to have significant personal net worth and invest a large amount of their own money into the business.
Produced by BizBuySell, the Internet's largest and most active marketplace for businesses and franchises for sale, written in conjunction with Ed Pendarvis, Founder of The Business Buyers University, this guide provides a detailed overview of the business buying process.
Ed Pendarvis is the founder and chairman emeritus of Sunbelt Business Broker Network LLC, the largest small business brokerage network in the world with three hundred plus offices in the US and thirty foreign countries. With a track record spanning more than 30 years, Ed has been helping buyers, sellers and their business brokers successfully close thousands of deals. In 2009, Ed founded the Business Buyers University, to help buyers understand the process of buying a business.
BizBuySell is the Internet's largest and most heavily trafficked business for sale marketplace, with more business for sale listings, more unique users, and more search activity than any other service. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry's leading franchise directories.
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