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Old 08-17-2008, 07:15 AM
 
Location: No city lights here
1,280 posts, read 3,848,650 times
Reputation: 473

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I have been looking at buying a business - and I am not sure of the questions to ask ...

I have my own business now ..out of my home doing the same thing .. but this would be a major expansion .. say going from 1 employee to 20 +

I have done this type of work forever so that is not the problem and I know how to do the books .......

What I am concerned about is what questions I can ask ..
And how much is stepping over the lines?

So hear is a little more info since I am now confusing myself .. I found a business for sale - person wants to retire ... I believe the set up and all comes together .. its been a back and forth e-mail. I will call today but am wanting more input before I do make that call so I dont sound like a idiot!

Oh this is the other thing .. I live in one state and will be relocating if this goes through ... how hard is it to finance something like this? Should the business itself be enough for the banks to lean on?

Thanks
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Old 08-17-2008, 08:03 AM
 
663 posts, read 2,385,473 times
Reputation: 386
There was a great thread on this forum awhile ago on methods to value a business. You need to find the methods and ask related questions to determine the health and viability of the business. No financial question related to the business is out of bounds. If the owner becomes defensive and says something like "This is a business decision. If you can't make it with what I've given you, then too bad", walk away.

Any bank financing for a small business will be based somewhat on your personal credit. The bank will want to see the business's financials and probably a business plan too. You might ask the owner if "owner financing" is available. Other forms of small business start-up money include: SBA loans, credit card loans, personal savings, loans from loved ones, etc.
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Old 08-17-2008, 08:58 AM
 
Location: No city lights here
1,280 posts, read 3,848,650 times
Reputation: 473
Thanks a bunch.

I was just reading the state that this one is in .. is offering loans for this type of business because of the need in the area!

I felt a little tug through e-mail I am not sure to take that is misreading due to e-mail
or to take it as "I Built this up and its hard to let go" .. am calling today so will see ..

I will try to find that thread but in the mean time if you find it will you send the link to me?

Thanks
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Old 08-17-2008, 05:53 PM
 
Location: Boise, ID
1,356 posts, read 5,324,961 times
Reputation: 890
If you find a solid business to purchase in your field then I highly recommend it. I did it once 4+ years ago and I am in the process of expanding our current company by purchasing a smaller competitor. I also sold a small company once.

On the financing front, SBA is likely what you are going to have to do since the company you would be purchasing is so much larger than your current one. The good news with SBA is that it is a federal program so relocating from one state to another is not an issue. Typically, SBA is going to want to collateral to secure the loan. This can include the equipment of the company you are purchasing as well as any equipment you currently own. It can also include personal assets. In our case they wanted collateral well in excess of the loan amount. We financed with 25% down. On our current acquisition we are likely to only have to put 15% down because we have more assets now and a longer track record. The way to get started with SBA is to go through a local bank. Find a bank that is an SBA Preferred Lender. That gives the bank more flexibility with your loan. Our first loan was with a variable interest rate and a 10 year term, both of which I believe are typical.

There are some rural development loans that you might qualify for. I don't have any experience with those.

On the negotiation front, be sure to have your own corporate attorney review the purchase agreement. If you have a good relationship with the seller that helps too but your lawyer will make sure to cover contingencies that you likely will not think of. Also, you will need a CPA to advise you on how to break up the purchase price for tax purposes. This is important because what is best for you is not the best of the seller and vice versa so you will have to reach a compromise. I found that on some issues it was easier to talk to the seller directly and reach an agreement that the lawyers could then codify for us.

Once you sign a non-disclosure agreement with the seller then I can't think of any questions that are crossing the line. You will want to know where the revenue is coming from and how much is left over. Make sure that you know how broad his customer/client base is (i.e. how much comes from the biggest customer or two or ten?). How much is the payroll and what are the benefits offered? What are the assets you will be purchasing? Are there any leases or commitments that you would have to assume? Any licenses or permits you would have to obtain? How many hours a week does the owner work and how much does he take home? You might also consider the synergies that you will gain by merging your current company with the acquired one.

These are just a few questions off the top of my head. The seller might feel an emotional attachment to the company he built. It will be easier if he feels like he is handing it off to someone who will value it the same way and be as anxious to watch it grow.

Best of luck to you. Sounds like an exciting opportunity.
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Old 08-19-2008, 06:54 AM
 
663 posts, read 2,385,473 times
Reputation: 386
Here's the link on determing a business's worth: http://www.city-data.com/forum/busin...ietorship.html

Niners gives excellent advice. The only thing I'd add off the top of my head is to scrutinize cash flow: Look at 12 months. Is there a time of year that is bad? Look at 5 years. How does the business do with a receding economy? Look for revenue streams. How much repeat business is there (i.e. business that you can almost count on and do less work to bring in). Look for any recent events that might affect the trends (for better or worse) that you see. Has a new competitor appeared? Has a large customer disappeared?

Buying an existing business has the advantage of having a track record.
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Old 08-19-2008, 06:58 AM
 
663 posts, read 2,385,473 times
Reputation: 386
Another thing occurred to me: You should have the owner commit to sticking around for a few months (even on a part time or on call basis) to help you with the transition. Put it in the contract. If he/she isn't willing, that is a bad sign.
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