Why is Confidentiality so important in the business buying process?
If employees, customers, suppliers or lenders hear about a business being for sale it could cause issues for the seller even if the buyer doesn’t buy the business. The buyer can move on to the next business but the seller has to deal with the fallout. Employees and business buyers have a common interest. Buyers usually want the employees to stay and employees want the buyers to keep them as employees.
Why Buy an Existing Business?
The main advantage of buying an existing business, versus starting one from scratch, is that there are customers generating sales in place on day one of a business purchase. Beyond that, there are existing processes, trained employees, suppliers, a business name known in the market and other valuable factors. Finally, an existing business with positive and provable cashflow is generally easier to get financing for than a startup business with no proof of success.
What does “Cash Flow” mean?
Cash flow as used when buying a business is usually not the same definition of cash flow as used by CPAs, and accountants. In buying a business Cash Flow most often is defined as “Earnings (profits) Before Interest, Taxes, Depreciation and Amortization (EBITDA) PLUS Current Owner’s compensation. So if EBITDA is $50,000 and the owner took out compensation (salary, non-business expenses, other benefits) of $150,000 then the Cash Flow would be $200,000,
What Kind of Financing is Available to Purchase a Business?
The primary lender for this market are banks who offer Small Business Administration (SBA) backed loans. For qualified buyers and businesses a rule of thumb is the buyer needs approximately 20% down payment from their own funds. Speak to your broker for more details and which banks are active with SBA loans for business acquisitions.
How long does it take to buy a business?
As you might imagine there are many variables but, in general, in todays market once you make an offer on a business it takes about 75-90 days to get your SBA financing in place and close on the purchase.