Buying a Business

[Shane19]

So I am thinking about buy a business, this business has two locations.

The business has been open for a little over a year. They are selling because they just accepted a great job offer across the country. They were able to open the business for 70k and they have two locations.

They two businesses bring in a revenue around 30k-40k a month with total expenses of about $13500 so a monthly profit of nearly 15k-20k.

Since I know who they are and since they have said they have already made their money back and more that they will sell me the businesses for 70k.

I am only 19 years old w/ very limited credit. I am wondering how hard would it be for the bank to loan me the money?

I was also considering asking them this if I am not able to get approved by the bank. I could see if maybe they would be willing to let me basically fun the place for free (because I really dont need the money I am just wanting to do this so I can eventually open a business of my own, and this will look good once I want to open my own) and they can receive the profit until the inital 70k is paid off. After that I would offer them 5%-7% of the monthly profit for a certian amount of time...


Are either one of those good ideas? Would anyone go for the 2nd idea?

[Adam Lanier]

Shane19,

Both of your options seem appealing from your perspective, but you must remember that the owners are selling the buisness for a reason. They probably want to get it off of their hands for whatever reason, and thus may not be willing to continue dealing with it for another year or two when they could get the lump sum at once from another buyer. Considering this, bank loans seem the appropriate action, but right now those are difficult to secure for established buisness owners, much less a 19 year old startout. In your case, a private investor may be your best bet if you are lucky (or skilled) enough to find one.

Adam Lanier

[ashleyg]

Borrowing money from your family and friends is another option to finance your business. Going to the banks or private investors requires you to have a well-written business plan, financial statements, and income tax records. If you do not have these ready, I don't think your loan application will be approved.

[awayoflife]

I agree with ash, I think that the best option would be to secure loans from friends and family. Just make sure you have it in writing as there can be disputes in the amount owed, the interest etc. But it sounds like a great business opportunity, good luck with it.
Sean

[alexander.m]

seems like a great business, be carefull about the intrest if you want to borrow the money from a bank. Somethimes is the best to borrow money from family, or to make them partners

[nbeasyget]

I think buy a business and company from other person is not good,just thinking why they want to sell.It is better that you set up by yourself,thanks. can skype or MSN to me.Thanks.

[ZingerIntl]

From all my knowledge, and buying 2 businesses previously, all businesses will sell for 2 - 5 times yearly earnings. Which would make this business $500,000 plus inventory, furniture, acct receivables etc. You need to get P+Ls to your accountant, do your due diligence, add backs, cfp, find the real earnings and if for some reason the business is $70,000 for everything, and makes $20,000 a month then you must have saved their lives. And if they are that silly to sell that cheap, then telling them that you will pay them $10,000 a month for a year if they sell with nothing down. That would still be a steal.

I highly doubt your numbers are correct... if they are, you can get funded in 3 days for that tiny amount from anyone with money and a heartbeat. ( I may be exaggerating but not by much)

For any acquisition tho there are hundreds of leverage points. Asset lenders on furniture, accts rec. credit card transactions, (do you know that you can actually get money out of a lease with out owning the building. Long story short, if the lease is five years and is locked in under market rate/sqft, say rate is $3/sqft and you have 1000 sq ft but only pay $2500/month. you can get up to 90% of the difference per month for the remainder,you can take the "equity". so $500 monthly difference, 60 mths = $30,000x90% = $27,000. there is a good dp. also if the place comes with computers and faxes and desks and couch and water cooler and whatever else asset lender will give you 80% of resale value. any machinery? same thing. Cash advances on your credit card transactions, up to $300,000 with no PG. Just look online.

[EBITDA]

If it seems to good to be true, it probably is - $70k for a business that generates $180k to $240k per year is, on the surface, way too cheap.

With that said, if its real and due diligence pans out, jump on it. If you can convince the sellers to finance the business, you would be better off just paying them a reasonable return on the financing, as opposed to a percent of the profits for some length of time. You may have to have some skin in the game, so be prepared to find some equity from somewhere. And, if you are raising equity, make sure you comply with securities laws.

Nick
TransCapital Pro