ENTREPRENEURSHIP THROUGH ACQUISITION
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The Top 5 Ways to Finance Buying an Existing Business
Are you looking for innovative ways to finance buying an existing business? Read on to learn about some common ways to finance buying an existing business.
Buying a business
Here are five ways to financing your acquisition
Are you looking for innovative ways to finance buying an existing business? Read on to learn more.
Finance buying an existing business
In a lot of ways, running your own business is the ultimate fulfillment of the American dream. You set your own hours, act as your own boss, and get to spend your days doing something you love. But how can you become a business owner without all the risk that comes along with starting something from scratch?
What do you do if you want to finance buying an existing business?
There are a number of ways to approach business financing. From making arrangements with the seller to getting a standard loan, you can choose the option that works best for you. Read on to learn about some common ways to finance buying an existing business.
1. Seller Financing
Depending on who you’re buying your business from, you may be able to get the seller to finance the sale of the business. Like with a loan, you pay an agreed-upon amount every month for a certain period of time until you’ve paid for the business in full. This gives the business owner a guaranteed source of income for the life of the loan, and it allows you to avoid the initial up-front expense of buying them out.
2. Partnership
If your seller won’t finance your purchase but you want to avoid a traditional loan, you may be able to go into business with a partner. Each of you would pay for a portion of the business, and you would run it together. This effectively doubles the amount of capital you have to invest in this business and gives you some help in running it.
3. Sell Stock To Employees
If you plan on having a number of employees, another financing option may be to sell stock to your employees. You’ll have to organize the business as an S-Corp or a C-Corp, and we would recommend selling non-voting stock so you retain ownership. But this option can get you a huge discount – possibly as much as 90 percent – on the business price.
4. Lease The Business
As with many other large purchases, one of your options with buying a business is to lease it. This will require cooperation with your seller since you will take over running the business and pay them a fee each month, while they still retain ownership. But it gives you time to build up capital in the business before you make the big purchase.
5. Get A Loan
And, of course, a very popular option for financing buying a business is getting a loan. You can get a term loan, a Small Business Administration loan, or asset-based financing, depending on your situation. You can also use a combination of the three to get the right solution you need to buy your new business.
Learn How to Finance Buying an Existing Business
Starting a business is challenging enough, but knowing how to finance buying an existing business is a whole different ball game. There are a number of different approaches that will work, depending on your needs. Talk to your seller and your bank and see which option will work best for you.
If you’d like to learn more about entrepreneurship through acquisition, check out the rest of our site at BizNexus. We have tools to help you buy or sell a business or franchise. Check out our posts about buying a business to start planning your entrepreneurial success today.
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
3 Practices to Get Your Business Ready for Sale
Are you looking to sell your business? Read through to learn a couple of things you'll need to do to get it ready for the big sale.
Get ready
To sell your business
Are you looking to sell your business? Read through to learn a couple of things you'll need to do to get it ready for the big sale.
Let’s get your business ready to sell
A record number of businesses were sold in 2018. Four percent more businesses were sold that year than in 2017.
Selling a business is a lot like selling a home. It's something you've put a lot of blood, sweat, and effort into, and it takes time to prepare for an exit that makes it all worthwhile.
More often than not, your employees can't come with you once you've sold your business, and that alone can make selling a business rather bittersweet and difficult when it comes to making sure they stay on board with a new owner so you can get through a successful exit.
If you're wondering how to begin to get a business ready to sell, we can help with that. Keep reading to learn our three ways to start the process of selling a business.
1. Get a Business Ready to Sell by Boosting Your Brand
The more brand awareness you have, the more valuable your company is to potential investors. Here's how to boost your company's brand:
Appearance
All your marketing and branding efforts should have a consistent and attractive look to them.
Visibility
Customers and buyers alike should be able to find your company online. Make an effort to get your website ranked first on searches.
Integrity
Clean up any problems your business has going on. That includes any scandals, lawsuits, or scam reports.
Potential buyers want to know you and your business are honest.
Followers
You can't just post every once in a while on social media. You must have an active profile and accumulate followers.
The more customers who are loyal to your brand, the more successful your business becomes. And buyers are purchasing not just your office space and products or services, but your customers as well.
2. It's About Timing and Knowing Your Worth
Get an appraisal done on your business. You'll not only know the real worth of your business but prospective buyers will want one done anyway.
But selling a business is all about timing. While you may think you need to sell because your business has legal challenges, is facing bankruptcy or is losing too much money, you'll also attract buyers eager to cash in on your distress.
It's better to sell when your business is doing well. It's appealing to investors and you walk away with more money in your pocket.
3. Keep Costs Down
The more costs you can cut, the more profits you'll make. And the goal as a seller is to show buyers a revenue trend that's ticking up instead of down.
Take a look at your current expenses and find ways to either reduce them or eliminate them entirely. Often, all it takes is a quick phone call to your vendor to ask for a better deal.
Cutting costs can help show buyers that the business is improving rather than slowing down.
Get Help
Another way to learn how to get a business ready to sell is to partner with the right business broker. We can help match you with the best professionals for you and your unique business when the time comes.
We'll also help explain the process and be there with you every step of the way. Click here to learn more.
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PREPARING TO EXIT YOUR COMPANY
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
5 Effective Ways for Financing a Business Purchase
Financing a business purchase can be challenging, but there are some options to help you make this purchase. Keep reading to learn what these options are.
Financing a Business Purchase
5 Effective Ways
Financing a business purchase can be challenging, but there are some options to help you make this purchase. Keep reading to learn what these options are.
Financing a business purchase
In the third quarter of 2015, the median sales price for a business sold was $185,000. Most people don't have that much cash on hand.
This means financing a business purchase is the only option. But there are several ways to find finance to buy a business.
Which one you choose often depends on your current financial situation and the type of business you're looking to buy. We want to help you make the right decision on how to make a successful small business acquisition.
Keep reading as we list five effective ways to acquire financing to buy a business.
1. Financing a Business Purchase With a Bank Loan
If you want to buy a business and are thinking of making the purchase with a bank loan, make sure the existing company has substantial assets. Also, you'll need to prove you have good credit and a proven track record in the industry.
Expect that trying to obtain a bank loan to be very difficult and time-consuming.
2. SBA Loans
The Small Business Administration (SBA) also provides loans. The best option to buy a business is to apply for an SBA 7A loan.
If approved, you can get a loan of up to $5 million dollars. However, to qualify for the loan you must have the following:
Good credit
Provide three years of tax information
Provide personal finance information
Show prior experience in the industry
You must also prove you can put 20% down. However, you can also find that extra 20% through seller financing.
3. Seller Financing
Seller financing is another option. With this option, you ask the seller to provide financing in the form of a loan.
Typically this loan is amortized of a period of time and you pay the loan back using the proceeds of the business. This is an easier method to obtain than traditional financing methods such as a bank.
More Transparent
It's more flexible, can often be cheaper, and since the seller wants to be paid back, they will be more inclined to provide you with accurate financial documentation.
However, don't expect a seller to finance more than anywhere between 30% to 60% of the business unless you come armed with additional assets and can make a large down-payment.
4. A Leveraged Buyout
A leveraged buyout happens when the buyer acquires a company using a significant amount of borrowed money to buy the company. Often the assets of the company being bought are used as collateral for the loans such as:
Equipment
Real estate
Inventory
The assets of the acquiring company can also be used.
However, if things don't go as planned, it may have a largely negative impact on your rate of return. Your losses may also be maximized.
5. Get Financing Online
You have options when it comes to finding an online source to get a loan. You can choose a business loan, personal loan, and even a HELOC (home equity line of credit).
Shop around for the best interest rates. Also, not all lenders are willing to give money to buy a business.
We Help With Financing
Financing a business purchase isn't always easy because not every lender wants to deal with the risk. We're different.
We want to help entrepreneurs buy and sell their businesses with as little effort as possible. And we can help you with financing. Click here to learn how.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Financing the Purchase of an Existing Business: Different Financing Methods to Know
Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business. As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. If you are looking into buying a business on your terms, you'll need to explore all options in front of you. If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. Financing the purchase of an existing business is a strategic move that you need to carefully consider.
Buy A Business Through Financing
Have A Look At Different Financing Methods
Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business. As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. If you are looking into buying a business on your terms, you'll need to explore all options in front of you. If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. Financing the purchase of an existing business is a strategic move that you need to carefully consider.
It's important that you take the proper steps when you are looking to acquire a business.
As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. Thankfully, there are lots of ways you can go about it.
Follow these tips to see which form of financing suits you.
1. Ramp Up Your Own Funds to Allocate
When someone is looking to sell a business, there are countless arrangements that come into play.
The best thing you can do for yourself is to put up your own money if you have it. This way, you call the shots and aren't worrying about crazy interest rates or strict terms.
It's always best to have a nest egg set aside, and you can use this nest egg to your benefit when you decide to allocate some of your own money to acquire a business.
2. Find a Traditional Bank Loan
If you are looking into buying a business on your terms, you'll need to explore all options in front of you.
Getting a traditional bank loan is still an incredible option. Reach out to either a big bank, community bank or credit union to see what sort of loan options you can explore.
Make sure that they are feasible for your budget and that the terms are beneficial to your needs.
3. Talk to the Small Business Association
Be sure that you look into the Small Business Association (SBA) as an outlet when you'd like to get some lending.
These organizations are allies for small businesses such as your own and can help you get your hands on the funding that makes the most sense.
They'll give you access to the financing options that are most conducive to growth so that you are able to expand your business.
4. Use Your 401k to Roll Money Over
You can use your 401k as a tool to fund a business.
If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. The benefit of using a 401k is that you'll be able to do so without the same early withdrawal penalties that you would experience when taking the money out for other reasons.
5. Get Financing Through the Seller
Finally, it also pays to seek financing from the seller.
A number of sellers will offer you ongoing financing at a great rate, which can expedite the sale of the business. Be sure to thoroughly read through the terms to know what you are getting.
Financing the Purchase of an Existing Business: Use These Tips
Financing the purchase of an existing business is a strategic move that you need to carefully consider. If you're in the market for buying a new business, let these tips guide you.
Our company can help you out so that you can find the assistance that you need.
For more information on buying a business on your terms, stay tuned and get in touch with us for more help.
Financing the Purchase of an Existing Business: Different Financing Methods to Know
Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business. It's important that you take the proper steps when you are looking to acquire a business. As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. Thankfully, there are lots of ways you can go about it. Follow these tips to see which form of financing suits you.
Do you want to purchase a business but don't have the money for business acquisition? Here's all about financing the purchase of an existing business.
It's important that you take the proper steps when you are looking to acquire a business.
As such, you'll need to learn the ins and outs of financing the purchase of an existing business on your terms. Thankfully, there are lots of ways you can go about it.
Follow these tips to see which form of financing suits you.
1. Ramp Up Your Own Funds to Allocate
When someone is looking to sell a business, there are countless arrangements that come into play.
The best thing you can do for yourself is to put up your own money if you have it. This way, you call the shots and aren't worrying about crazy interest rates or strict terms.
It's always best to have a nest egg set aside, and you can use this nest egg to your benefit when you decide to allocate some of your own money to acquire a business.
2. Find a Traditional Bank Loan
If you are looking into buying a business on your terms, you'll need to explore all options in front of you.
Getting a traditional bank loan is still an incredible option. Reach out to either a big bank, community bank or credit union to see what sort of loan options you can explore.
Make sure that they are feasible for your budget and that the terms are beneficial to your needs.
3. Talk to the Small Business Association
Be sure that you look into the Small Business Association (SBA) as an outlet when you'd like to get some lending.
These organizations are allies for small businesses such as your own and can help you get your hands on the funding that makes the most sense.
They'll give you access to the financing options that are most conducive to growth so that you are able to expand your business.
4. Use Your 401k to Roll Money Over
You can use your 401k as a tool to fund a business.
If you have been building your retirement money over the years, this can be a great outlet for acquiring a business. The benefit of using a 401k is that you'll be able to do so without the same early withdrawal penalties that you would experience when taking the money out for other reasons.
5. Get Financing Through the Seller
Finally, it also pays to seek financing from the seller.
A number of sellers will offer you ongoing financing at a great rate, which can expedite the sale of the business. Be sure to thoroughly read through the terms to know what you are getting.
Financing the Purchase of an Existing Business: Use These Tips
Financing the purchase of an existing business is a strategic move that you need to carefully consider. If you're in the market for buying a new business, let these tips guide you.
Our company can help you out so that you can find the assistance that you need.
For more information on buying a business on your terms, stay tuned and get in touch with us for more help.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Tips on How to Buy a Business and Entrepreneurship Through Acquisition
Generally speaking, buying an established business is considered less risky than setting up your own business from scratch. As an entrepreneur, you won’t necessarily need to come up with a unique business idea, sell investors on an unproven concept or incur the costs & risks of building a business up from the ground level. This practice of acquiring an already established business is known as entrepreneurship through acquisition.
Generally speaking, buying an established business is considered less risky than setting up your own business from scratch. As an entrepreneur, you won’t necessarily need to come up with a unique business idea, sell investors on an unproven concept, or incur the costs & risks of building a business up from the ground level. This practice of acquiring an already established business is known as entrepreneurship through acquisition.
It’s Still Risky To Buy a Business
buying something that is already stable, and profitable doesn’t mean risk won’t still be a huge issue as with any form of business ownership and entrepreneurship. The large majority of businesses out there publicly listed for sale are riddled with issues you’ll have to find, fix and tweak to grow the business and determine the right price to buy a business. In 2019, we’ve seen a huge surplus of small business owners out there hoping to sell under-performing or unprofitable businesses, or businesses that have not yet been optimized for sale and to encourage new ownership. This can be a great opportunity to acquire and grow an existing business, but as an investment, the operational risk is absolutely still there.
So how do you buy a business? To avoid getting married to a bad deal, you need to investigate thoroughly the business opportunities you’re thinking of pursuing. And a well-thought-out approach is necessary for you to find and secure a good business. To help you buy a profitable, well-managed business at the right price, think through the following steps.
Identify What Interests You
Entrepreneurs hoping to buy a business typically focus on existing financials and current cash flow, but it’s equally important to align yourself with a target company’s culture & lifestyle goals. You’ll be considerably happier if you purchase a business that’s already aligned with your ideal work culture, and in an industry with which you care about and already have experience. The more informed and fluent you are with the model of a particular business, industry trends, products, or services, the more inventive and successful your expansion plans will be. Ultimately, it boils down to embracing your passions, skills, experience, and interests, and throwing yourself in head-first the moment transfer of ownership occurs.
Determine Whether It Will Succeed or Not
Other than money, you’ll be spending time, energy, and hair follicles. Take into account the time and energy requirements you intend to take on for the day-to-day management of your new business. Some managers would rather be “grinding” all time, with their employees, but most investment-focused buyers will favor delegation and putting a capable management team in place, while they can focus on oversight and growth through acquisition. The number of resources you’ll need to invest will be influenced by the people and procedures already in place on the ground, and your prior understanding of the industry & relevant players.
Think of Why the Owner Is Selling the Business
If you’re about to purchase an enterprise, you’ll need to know precisely why the business is no longer working for its recent owner. There are many reasons why a company owner might want to sell a business. And you must get an honest outlook of how the operation is doing—without the seller’s influence.
Keep an eye on the existing business debts, condition of the equipment, competition, location problems, inventory problems, and any brand problems. Also, ensure you are updated on the current business’s achievements, failures, future opportunities, and possible challenges. Apart from speaking to the current owner about these issues, also engage employees, existing customers, neighboring companies, residents, and any relevant person you can think of.
Find a Business That Meets Your Budget and Personal Needs
Strategies to find the right business on the market that fits your needs include classified newspaper ads, online business-for-sale websites, and working with a business broker. Bear in mind that business brokers representing existing businesses for sale lawfully represent the seller. For this reason, be careful about passing on sensitive, potentially compromising information to them. Nevertheless, a business broker can help you decide on the kind of business you need, screen companies to eliminate businesses that are unlikely to sell, and assist you with the paperwork and help with negotiations to get a deal done.
Take into account that, if you involve a broker, a commission of 8%-15% will typically be required (paid by the seller), which can be well worth it for a business broker who works hard to facilitate an optimal, pain-free transaction… As a buyer, you’ll want to hire a good accountant to appraise business financials and make sure the cash flow number you are negotiating is accurate. It’s also critical to have a competent business transaction, M&A-focused lawyer to represent you in negotiations and keep you informed about how the transaction will be executed, and how the delivery of the purchase price will be paid out over time.
Do Your Due Diligence
Assemble as much data as you can before buying an enterprise. This is one of the most critical steps on your way to becoming a business owner. In this period, work with your lawyer and accountant to guarantee you get all the facts and figures you need before proceeding. This will help you ascertain that the business owner isn’t out to sell a startup for the price of a well-established business with a track record of reliable profits, revenues, and paying customers. Be aware; the seller will most likely require you to sign a non-disclosure agreement. This safeguards the seller should you decide not to buy the business after reviewing the documents. Below is a buy a business checklist of the materials that the seller should have prepared for you:
Contracts and leases
Business permits and licenses
Business Financials
Environmental regulations
Zoning laws
Certificate of good standing
Condition of the inventories
Organizational chart
Letter of intent
Code
Signing the Sales Agreement
After due diligence, comes the final verdict; whether to buy the business or not. In case you decide to go ahead with the purchase, the sales agreement is the “strap” that binds it all together. The agreement will spell out the final buying price, and every item you are buying, including intellectual property, tangible assets, intangible assets, and customer lists. Make sure you have a good legal representative to help you piece this list together.
Value the Business
Whether you do it yourself or hire a professional accountant or certified valuation analyst (CVA), being aware of how businesses are valued is important for any buyer. Note that, before a business is transferred to the buyer, both the seller and the buyer have to settle on an agreed-upon price based on revenues & cash flows of the business. Often, buyers and sellers have their own unique processes for zeroing in an agreed-upon financial value, and this forms the basis of their negotiations. Some of the most common models of valuation for an existing business include the market approach, asset approach, and earnings approach.
Raise Funding Needed to Buy the Company
As soon as you’ve settled on a price, the next phase is to get the money. There are numerous distinct channels through which you can access the cash you need to buy the business. Are you aware of the different means of financing a new business acquisition? Some common financing options to business buyers include:
· Personal financing
· Debt financing
· Search fund
· Seller financing
Closing the Deal
It doesn’t matter you’ve reached an agreement on the terms of sale and price; the transaction could still be torpedoed based on terms, and how compensation will be distributed over time. A buyer can walk away from a negotiation at any time if a deal isn’t working for all parties, or if a seller decides to get greedy or back-track on previously agreed upon negotiation items.
Transitioning the Acquired Business
Typically, the seller will help you for a period of time as a consultant while you get up to speed with the day-to-day requirements of running the business. Make sure you clearly outline the responsibilities of each party in a written contract, and how the training will be conducted. Transitioning to new ownership can be a rough time for existing employees, and you want that to go as smoothly as possible. As a new owner, put mechanisms in place to make sure the business transition goes smoothly for all parties involved. Create time and speak to key personnel, suppliers, and customers before assuming day-to-day leadership. Let them know your plans for the company’s future, and pay close attention to existing stakeholders’ feedback and opinions as you move forward with the business and make incremental changes to the model, processes, and team.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Why you need seller financing to buy your next business
If your broker is telling you that seller financing isn’t an option to buy an existing business that you like, I recommend you test that with the seller of the business personally.
If your broker is telling you that seller financing isn’t an option to buy an existing business that you like, I recommend you test that with the seller of the business personally.
What is seller financing?
It’s when the seller of a business acts as your bank. More often than not, when somebody is selling their business, they expect to lend you up to 50% of the business value in the form of a note, carrying interest and being paid off through the cash-flows of the business over a period of five to seven years after the purchase of the business.
In his blog, business broker guru Richard Parker explains:
While the terms can vary including interest rates, length and percentage of the total deal being financed, a general rule is for the seller to carry thirty to fifty percent at current interest rates plus a few percentage points over three to seven years.
The dilemma for many buyers however is never getting to the point of presenting sellers with an offer because they are often stonewalled by brokers or the seller’s legal/financial representative, or family members trying to dissuade them from carrying a note.
I can certainly understand a seller’s trepidation, but the reality is that if they truly want to sell their business, they have to participate in the financing. End of story. Otherwise, their business will be another one that remains on the market forever.
–Richard Parker, author of How to Buy a Good Business at a Great Price
How common is seller financing?
Most sellers start out cold on the idea of seller financing because of the risk involved for them when it comes to the buyer actually paying them back for the loan, but it’s a great move for everybody involved when you consider the fact that this tool helps the seller attract potential buyers, and may even help the seller achieve a higher final price for his or her business. Seller financing can also help lead to a faster closing, which increases the probability of a transaction successfully closing.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.