WonkoTheSane
WonkoTheSane GRM+ Memberand SuperDork
5/9/21 10:19 p.m.

An opportunity may be coming along and I'm trying to get a solid bit of research in on what it takes to acquire a decent chunk of capital to buy a business.   I haven't seen the exact numbers yet, but based on what I know the appraised worth was in 2000ish (last sale date) vs now, it seems to be a long-term growing venture.  The owner is looking to retire and we've been chatting a bit.

What I'm trying to figure out is which direction to go for good information, which is why I turn to you, the GRM brain trust!  I've seen references to contacting a business broker to handle "everything," to only having them handle the late stage paperwork.  I've seen recommendations of pursing owner financed vs. banks, etc.

I've never bought a business before, so any pointers anyone can give me would be appreciated. 

Who would you talk to, and what kind of references would you be looking at?  Obviously, "Lawyer up" is a good one first step, but how do you even find the initial lawyer?  Word of mouth?

I've been on all sides of a small business, but never owned one.  Picture someone who has raced on a track as part of a team, been to track days via word-of-mouth invites, but has never discovered motorsportsreg.   That's near where I am :) 

Thanks!

CrustyRedXpress
CrustyRedXpress GRM+ Memberand Reader
5/10/21 6:12 a.m.

I tried to buy a high-end auto repair shop and Real Estate a while back. The deal fell through but I did  learn a bit. 

First step is get in touch with your local SCORE group. It's a non-profit group of mentors who have experience in business and want to give back. The guy I spoke with was very helpful and they will be able to give you info on SBA lending (which is often used to buy a business). 

Appraisals are more art than science, but you could look at the local business listings and see what other businesses like the one you'd like to buy are selling for. For example, a auto repair shop in my area usually sells for 2x owner benefit if the owner is an active manager. In other words, if the owner goes to work 5 days a week and he's making 75k per year the business can usually be purchased for 150k or so. If there is management in place (usually a larger business will have this) then that figure is generally higher, if the industry is under regulatory pressure, that figure might be lower, etc.

I'd avoid brokers if possible-their fees always seemed high! Ask SCORE about lawyers, I think you want them to draw up the paperwork unless you find one who is very experienced in this type of sale and can advise on the health of the business. Hope this helps-some other smart people will be along shortly to pitch their 2 cents.

Toyman01 + Sized and
Toyman01 + Sized and GRM+ Memberand MegaDork
5/10/21 7:26 a.m.
CrustyRedXpress said:

First step is get in touch with your local SCORE group. It's a non-profit group of mentors who have experience in business and want to give back. The guy I spoke with was very helpful and they will be able to give you info on SBA lending (which is often used to buy a business).

This is where I would start. 

 

docwyte
docwyte PowerDork
5/10/21 8:35 a.m.

You need to get an attorney and an accountant that are well versed in business transactions.  You also need a good banker that's willing to give you a loan that doesn't bend you over.  I HATE the SBA and refuse to deal with them but they do allow you do buy businesses with minimal down payments.  Just be careful with the pre payment penalities and all the additional fees that they tack on.

A broker can help with the paperwork but if you have a good attorney/accountant, you won't need one...

Robbie (Forum Supporter)
Robbie (Forum Supporter) GRM+ Memberand MegaDork
5/10/21 8:38 a.m.

SCORE is a great option. You want to strike the basics of the deal before you get lawyers involved. Here are some ways to access capital:

  1. business bank loans (this will be a lot of work to get if you don't already have business 'credit')
  2. "friends and family" (this is super common language in the small business and startup world, but it means you have to ask your friends and family for money and make agreements to pay them back - something that I think is really uncomfortable and unlikely for most)
  3. get a partner or partners (this is usually a good option, because there are people out there with money and they want to make money and diversify, but they don't want to do the work - but you have to be very careful picking this person)
  4. SBA loans (small business administration - similar to #1 but maybe slightly easier to secure)
  5. loans against your personal assets (home equity, 401k, etc etc you can usually loan against)
  6. Credit cards and personal loans from credit card companies (smaller amounts of money, but REALLY easy to get the capital)

Also, remember that this doesn't have to have a prescribed way to work. Say you can only get the capital to buy 75% of the agreed business value. You could make an agreement with the seller that they owner finance the rest, and you pay them off slowly. For many going into retirement, this is a great option because they don't suddenly go from monthly income to nothing. 

WonkoTheSane
WonkoTheSane GRM+ Memberand SuperDork
5/10/21 8:48 a.m.

Thanks for the tips on SCORE guys, as well as outlining the steps.

 

I should have mentioned ththis before (but I was trying to avoid writing a novel), but I've known the owners for years, and we're on really good terms.  Owner finance (at least partially) has already been very lightly discussed and they seem open.   I trust them implicitly, but we both agree that doing anything without a considerable amount of paperwork would be stupid :)


I'll get in touch with SCORE and let you know how it works out.

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