Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I know someone who is willing to sell me his business for $325,000.The equipment is currently being leased but everything else, he owns.
I have started the business plan and have looked at his financials and the business has been making a sound profit for the past 8 years. My main concern is, if I have enough money.
Can anybody give me some kind of advice as to how much cash on hand or how much of a down payment would a bank require me to have to get approved for a small business loan?
I know someone who is willing to sell me his business for $325,000.The equipment is currently being leased but everything else, he owns.
I have started the business plan and have looked at his financials and the business has been making a sound profit for the past 8 years. My main concern is, if I have enough money.
Can anybody give me some kind of advice as to how much cash on hand or how much of a down payment would a bank require me to have to get approved for a small business loan?
Any advice would be appreciated.
This probably sounds really obvious, but what about calling up a bank and talking to them about it?
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,722 posts, read 58,067,115 times
Reputation: 46190
go to your local SCORE office, or SBDC, or economic development council. The Chamber of Commerce can also direct you to help, and sometimes local community college.
There are some nice evaluation software packages that you can plug in your Business plan numbers and it will project risk scenarios, as well as compare to similar benchmarks. I've used a demo of Optimist, and found it quite useful. Some of these non-profit business development centers (listed above + others) can assist you through this. If you have a 'friendly banker', they will be more than happy to help your eval process.
There are benchmark valuations based on the type of business, assets, revenue... restaurants and businesses that the 'principle / owner' have LOTS of direct impact on success are valued very low.
Unfortunately banks are not in the 'lending mood' at the moment (no one's fault but their own... and a few sleazy loan consolidators...). They used to like 25-30% down on a sound and established business, but are now looking for 40-50% down. They also value assets at 10-50% for liquidation purposes. They will be real interested in cash flows and expenses, and most of all want to know that you are very adept at knowing your own business.
Owner financing is much easier BUT>>>> BE CAREFUL, you must be sure this is a legit business with stable customers, employees and cash flow. Do the very same evaluation process as a bank would do.
Owner financing can be a BAD sign too, but it is really beneficial to both parties in the right situation (usually a 'retiring owner' that is staying with the business to assure its success).
There are quite a few 'micro-finance' options coming available and may be a viable source, but usually not over $100k
Be sure to have an independent accountant, and business lawyer evaluate ALL reports and docs, once you think you really have something viable. If you are getting ANY equipment, you need to check UCC registration (with State Attorney General), as it may have a 'claim' against it and not actually be yours.
DO NOT (do not), I repeat... DO NOT ! borrow against your personal assets, or retirement, or house, or kids, or your neighbor's dog for a business venture. (I repeat... do not...) You can set aside some money that you are not afraid to lose, but limit your exposure to that, NOT your friends, family and pets. Stuff happens... ~ 90% of businesses don't make the first 2 yrs. It is a minimum of 5 yrs of cold sweat and little sleep to get a business viable, (If you are lucky). Hopefully this opportunity is recession proof... and this is not your Grandma's recession, so... be prepared.... I would want a minimum of 2 yrs excess $$ to support operations, as you have a learning curve + a transitioning economy and government and future tax burden of unknown magnitude, tho certainly larger than now.
"DO NOT (do not), I repeat... DO NOT ! borrow against your personal assets, or retirement, or house, or kids, or your neighbor's dog for a business venture. (I repeat... do not...) You can set aside some money that you are not afraid to lose, but limit your exposure to that, NOT your friends, family and pets. Stuff happens... ~ 90% of businesses don't make the first 2 yrs. It is a minimum of 5 yrs of cold sweat and little sleep to get a business viable, (If you are lucky). Hopefully this opportunity is recession proof... and this is not your Grandma's recession, so... be prepared.... I would want a minimum of 2 yrs excess $$ to support operations, as you have a learning curve + a transitioning economy and government and future tax burden of unknown magnitude, tho certainly larger than now."
Regrettably, this advice will almost always lock a person out of any major money-making opportunity. Example, if you own a movie theatre and want to rent from the distributors of movies, you have to sign an all-inclusive personal guarantee. Whenever you start a business, you incur a similar liability to the state for the collection of taxes. The laws are designed so that anyone trying to avoid such commitments can have those attempts overruled. In the past, entrepreneurs would place a home in the spouse's name, but that can often backfire. One key thought is that if a business venture requires the signature of the principle AND the spouse, there are times when that requirement is unenforceable. The spouse has to have a personal involvement or gain in the venture to be signatory to any agreement. If they get nothing in return for signing, it isn't a valid contract. That said, most places will simply refuse to do business with you if you challenge them.
The trick is to know when to hold 'em and know when to fold 'em. It is easy to become so enthused about a business and the possibilities that reality goes out the window. If you set a maximum allowable loss at the beginning of a venture, you stand a better chance of not losing too much in a failed one.
What, exactly, are you buying for the $325,000 outlay? Is there real property, inventory, intellectual property, a long term client list/contracts that will continue to do business with you?
How much money do you need? What's the fixed business costs per month? Insurance, supplies, raw goods, utilities, lease payment, employee witholding taxes, sales taxes, deposits, etc? How much labor cost is there per month? Training costs? Travel costs?
How much "blue sky" are you buying?
The list of potential expenses of hard and fixed costs can be extensive. You need to have, IMO, about two years worth of those costs in hand to start running the business. And that concept includes the prospect of having no personal income during those 24 months, so you'd best have that amount of money for your personal expenses in reserve or readily available to you if needed for awhile. Do not count on business cash flow in the first 24 months to pay for more than a portion of the business expenses and overhead.
Especially if the business is essentially a "one-man" show, don't count on it continuing to generate the same cash flow and ROI after the seller departs and you're on your own.
It all depends on your previous history, have you owned a business before, do you have a good credit rating, do the financial statements look accurate (people can write whatever they want, you need to know that labor in x industry should make up at least x% of expenses), do you have a business plan etc? Make sure you ask to see the seller's tax returns to make sure he really did make the amount posted on the financials. Keep in mind though, if he has any other income it will be combined, so it is still not 100%. Would you at least own the land the building is on? Once again, no one can answer your question because it varies for each individual and without knowing the industry or the financials, it's impossible to even give you an idea range.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
