If you have already started the process of looking for a business to purchase, you probably realized it is not as easy as youu thought. In fact, most buyers (roughly 90%) do not sucessfully purchase a business. It's hard to believe, but it's true. Buyers typically do not understand the process of buying a business. One of the reasons this occurs, is because a buyer usually hears of someone they know who went through the process, and they believe that was the only way a business sale is handled. Every business sale is handled differently, but there are some basic ideas that you should keep in mind.
What can I afford?
This seems like a simple idea, however it is commonly misunderstood. There are usually two basic ways a sale takes place. First, a buyer would put down 20-35% of their own money, and a traditional lending instition (SBA, Banks,etc.) would fund the remaining funds. Second, the seller can act as a lender and finance a portion of the sale, in addition to the buyer putting down an agreed amount of their own funds. Getting a business approved for traditional lending is not an easy task. There are many factors that go into the approval of the loan, and most of them have nothing to do with the buyer. If the purchase price is too low (roughly any price under $250,000), most lenders will not consider the deal. Also, if you do not have a proven track record showing experience in that particular industry, you will probably not be approved. Needless to say, that most purchases take place with the business seller financing a portion of the deal. This is where a typical buyer thinks that a business owner will finance the deal with almost no money down. This is not what usually gets a deal done. A sale usually occurs when a buyer puts down roughly 50-75% of the purchase price. Buyers usually feel like they are the only ones at risk, but a seller has equal risk an depends on your success.
When am I looking to make a purchase?
This is often confused with how long a "business purchase" will take to complete (basically have the buyer take ownership), and when the buyer actually is ready to begin making an offer on a business. This is probably the biggest reason why most buyers to do not succeed at owning their own business. If a business come on the market, and has great figures and a fair sales price.....it will not last long! You need to be ready, so you do not lose the opportunity to move forward on an ideal business. First you need to understand the proper steps and when to take to them. Contact our office to today for a complimentary consultation!
Who is involved with the purchase?
This can be a husband, wife, or simply an active or silent business partner. Make sure that any/all partners involved in the decision making, have access to the same information. Situations usually occur that prohibit the business sale, simply because one of the decision makers was misinformed of something. This is such a little thing that could cost everyone a good deal.
Why am I purchasing a business?
This can usually be associated with the type of business you purchase. Not everyone buys a business for the same reasons. One might be interested in a purchase because they want an investment type business, that does not require full time attention (laundromat,carwash,etc). Another buyer might choose to purchase something because it has been something they have a love for doing (restaurants,etc.). Again, this seems like common sense, but buyers do forget of why they are purchasing a business. We have worked with many buyers, that have changed their purchasing interest, after understanding this basic concept.