Serving clients nationally from offices in Fairhope, Alabama and Baton Rouge, Louisiana. Contact William at Will@WilliamBruce.org or by phone at 251-990-5934 (Fairhope) or 225-465-5799 (Baton Rouge). We look forward to hearing from you!
Women-owned companies now account for 40% of all privately held businesses in America. This comes as no surprise to Sherman Blosser who is program director at the Women’s Business Center in Mobile, Alabama.
Blosser said “that between 2007 and 2011 when the total number of new businesses increased by 34 percent, the number of new women businesses increase by 50 percent.”
Meg Whitman, CEO of Hewlett-Packard
“Actually,” Blosser continued, ” women own 60% of all companies that are classified as small businesses. There are currently over 8 million women-owned businesses in the U.S.” she emphasized “that employ 7.7 million people.”
No doubt, women are attracted, just like men, by the flexibility of being their own boss which includes the advantage of setting their own hours and controlling their own career.
Then there is the issue of unemployment. As the founder of Sunbelt Business Brokers recently said, “There is no more job security. The only job security you’ve got now days is the person looking at you in the mirror.”
Many women, along with the other sex, have come to the realization that owning their own business is a viable alternative to the vagaries of the employment marketplace.
But the expanding presence of women is not limited to privately held businesses. It may surprise you to know that the chief executive officers in each the following public corporations are women: Kraft Foods, PepsiCo, Archer Daniels Midland, DuPont, Xerox, Hewlett-Packard, Campbell Soup, BAE Systems, Sunoco Oil, A&E Television, Sempra Energy and Guardian Life Insurance.
Impressive list, eh?
Speaking of women in business and also politics, Golda Meir, the former female prime minister of Israel, always the politician, said, “Whether women are better than men I cannot say – but I can say they are certainly no worse.”
And always the idiot, the Right Reverend Pat Robertson has said, “Feminism is a socialist, anti-family, political movement that encourages women to leave their husbands, kill their children, practice witchcraft, destroy capitalism and become lesbians.”
What a jerk.
Note to Pat: I hear there is an opening for a sales person at Honest Abe’s Used Car Lot. Since your televangelism empire is crumbling, you might want to check it out. It’s right down the street from your “church.”
A new Rasmussen Reports national telephone survey finds that 47 percent of American adults say they are going out to eat less often than they were six months ago. While that finding shows little change from January, it’s down 10 points from November 2008. Only 10 percent say they are dining out more often compared to six months ago.
An overwhelming 72 percent say they enjoy a good home-cooked meal more than one at a fine restaurant. These findings show little change since October 2009.
The survey of 1,000 adults nationwide was conducted on July 21-22, 2011 by Rasmussen Reports. Forty-seven percent of Americans say, in a typical week, they go out to a restaurant for dinner rarely or never, while 32 percent do so once a week. Eighteen percent dine out two or three times a week. These findings show little change since 2008.
But while most Americans aren’t going out often for dinner, 87 percent say they’re at least somewhat satisfied with the service they get when they go to a restaurant. Just 9 percent are not satisfied.
When out at a restaurant, a plurality of adults (43%) consider 15% a standard tip for a waiter. Twenty-five percent feel 10% is enough, while 22 percent say 20% is about right. Eight percent think less than 10% is normal. These findings, too, show little change for years now.
The survey confirms that Americans ages 18 to 29 are more likely to be eating out more frequently than their elders.
When polling results are broken down by income, a majority of those making under $75,000 annually are dining out less often than they were six months ago, while half of wealthier Americans are eating out about the same number of times as before.
When it comes to frozen treats, Americans prefer to keep it simple. Twenty-three percent of adults who eat ice cream at least occasionally say vanilla is the best, while the same number prefer chocolate.
American pizza-eaters rate Pizza Hut number one among pizza chains, closely followed by Papa John’s. But nearly one-out-of-five adults say they rarely or never eat pizza no matter who makes it.
In a showdown among the top three fast-food hamburger chains, Americans prefer Wendy’s over McDonald’s and Burger King.
So what is a restaurant business worth in today’s economy?
In my business brokerage practice, we know that a full service restaurant with liquor license is worth approximately 35 percent of gross annual revenue. Some very profitable fast food chains are valued at up to 50 percent of annual revenue.
Bars will average between 35 and 40 percent of annual revenue in appraised value. Coffee houses will appraise for about 40 percent of revenue.
These valuation estimates assume, of course, that the business is earning the bottom line net profit of its peer group. That’s a big assumption in this economy.
Those in the restaurant business can verify that it’s hard work. The hours are long, and the work is never ending.
So let’s all take a pledge to support our local restaurateurs and bar owners. They’re hard working local business owners who deserve our support.
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William Bruce is business broker, appraiser and Accredited Business Intermediary. He is available nationally to advise on matters of restaurant valuation and transfer of ownership. He currently serves as president of the American Business Brokers Association.
He may be reached at (251) 990-5910 or by email at WilliamBruce@bellsouth.net.
Inc. Magazine contained a recent article on current business trends. Interestingly, the small business sector with the largest increase in revenue from 2009 to 2010 was fitness and sports centers, up 14 percent.
The sector with the largest decrease in revenue for the same period was car washes, down 12 percent.
The increase in the sales of trucks and cargo vans—considered a useful indicator of small business activity—in the fourth quarter of 2010, compared with a year earlier was up 24 percent.
The state with the lowest overall tax burden for small business was South Dakota. The highest: New Jersey.
William Bruce is a business broker and appraiser assisting buyers and sellers of privately held businesses. He may be reached at (251) 990-5910 or by email at WilliamBruce@bellsouth.net.
Records preservation is of critical importance in a natural disasters.
With all the natural disasters of the last decade, I thought this article would be of interest. This advice was written in 2005 by Ward Wicht, a Biloxi, Mississippi business broker whose office was destroyed by Hurricane Katrina.
Thanks Ward for your permission to use this valuable article!
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A recent 20/20 television program reported that Bland, Utah is the ideal place to live if you want to avoid natural disaster. Bland has probably never had an earthquake, a tsunami, a hurricane, or a cataclysmic ice storm. Since we don’t have a Sunbelt office in Bland, Utah, and every other office has some exposure to natural disaster, the Sunbelt Biloxi, MS office wanted to share some of our experiences and thoughts about preparing for natural disaster. Credit goes to Andy Cagnetta of FL for inspiring this article after we saw his shared thoughts.
If your office is like most brokerage offices, you have increased your dependence on the use of computers and technology. You use one or more computers in the office, you have voicemail, you have internet service. What is your plan for losing one or all of these dependencies? You know that you can’t possibly prepare with perfection for a natural disaster like Katrina. No matter how many preparations a business broker makes to prepare his/her office for disaster, some things will be lost or destroyed. Having recently gone through Katrina, we will however move forward through our next disaster with some experience on how to preserve the core office through technology so that it can be quickly restarted. Some of the things we were doing pre-Katrina did help us weather the storm. You can use some of these thoughts to prepare for computer meltdown, lost phone service, and save some cost on overhead, etc.
1. Listing agreements – Ouch! We had 65 listings for our small office when we lost our office and all of our files to the ocean.
What we do now: We now scan all of our listing agreements. They go into computer file folders organized by business name. All documents pertaining to that particular business, including listing agreements, tax reports, FF&E lists, etc. are stored there. When we back up our computers we are backing up our listing agreements along with all other important documents. We use a multi-function printer/fax machine/scanner that auto-feeds to speed up the process of scanning. Some offices like to use specialized PDF scanners, which automatically save in PDF, a condensed size format. After a storm, you can help your neighbors! We have received several calls and have been able to produce scanned documents for some of our clients who had documents destroyed at their place of business. Added bonus: Assume you’re ready to seek financing for one of your client’s businesses. Instead of mailing the financial packets to your banker contacts – email them. You now have all of the business information on your computer and you can email 10 bankers at the same time – with no mailing or copying costs.
2. Reduce your costs and convert your fax line to a paperless fax line
Option 1. You need a fax modem in your computer to do this, but you can receive your faxes into a computer instead of into a standard fax machine. We were doing this before the storm and have been able to go back in time and recover listings and other important papers that were faxed to us. If you prefer paper copies, you can set your computer printer to print out when a fax is received, so you have both a digital and a paper copy. Hand the paper copy out, but now you have a copy saved in your computer that can be recalled at anytime.
Option 2. If you really want to reduce cost for a fax line and become more paperless at the same time, you can go completely digital with a service like efax. We now use efax.com to receive and send faxes. Our cost for the fax line is $12/month. Here’s how it works. For receiving faxes, they can give you a local fax number (with no exorbitant Bell Company set up fees!). Once a fax is received it is forwarded to you instantly via email. It comes in digital! You can print it out if you want or simply store the document for later use. Delete the $99 health plans and trips to the Caribbean without wasting paper or ink. For sending a fax, you scan the document and email it to the fax number. The receiving party never knows that you actually emailed instead of faxed (the quality of transmission is actually higher since there is no phone line noise). Since we are scanning all documents now anyway, this is no less convenient than standing at the fax machine. There are also no long distance fees. We now try to email as many documents as possible, but when we do need to fax through the email service, they charge us $.10 cents per page for low usage, or you can buy a program for heavy usage if you have a large office or if you are more of a “faxer” than an “emailer”. But remember there are never any long distance fees with email. And since we’re only spending $12/mo on a fax line, we can afford to spend a little money at $0.10 a fax page to send out faxes. One unexpected advantage: Using this method requires discipline, and will force you and your brokers to scan (i.e. save) all important documents into your computer. For large offices, it’s a great way to make sure everyone is following the office method and organizing and preserving all communications. The disadvantage to this method is that someone has to receive the email fax and print it out or forward it.
3. Email is important
When Katrina slammed into us, we lost all utilities including power, water, land line phone, cell phone, everything.. remarkably the cell phones and land line phones were working intermittently within a weeks time. Since we had a laptop, and a generator, we were able to email! It felt strange to sit down in our flooded kitchen with trees down all around us and have the ability to email. Since the cell phone was breaking up and we couldn’t dial out to talk, email became the number one means of communications for us and for people trying to reach us. We were also able to send out messages to “groups” of friends and family at the same time. We lost our high-speed internet at the office, but fortunately, we had a dial up service that we were able to fall back on. If you want a back-up for your high speed internet at no cost, there are several free dial up services that you can use. We use Netzero at netzero.net which offers 10 hrs per month at no charge. They pay for their service through advertising that runs across a banner on your browser.
4. Forward your phones
Katrina destroyed our building, but it did not destroy the telephone switching station. We had forwarded our phones to a cell phone that we took with us. Remarkably, even though our location was a pile of rubble, we were receiving business calls on our business phone number via our cell phones.
5. Who am I?
Some of the saddest moments of our Katrina experience continue to be finding people that have lost every single little piece of their material life to Katrina. FEMA and the Red Cross have come to help, but they want to identify and record who they are helping. Ironically, the people most hurt by the storm have no documents to prove who they are! You need to scan your important documents like IRS tax forms, birth certificates, social security identification, marriage certificates, drivers licenses, etc. please do it! Less importantly, we wonder how the IRS is going to treat businesses that have lost all documentation. Are they going to base taxes on last years numbers, or are they going to ignore this year? We fortunately had most of our IRS documentation stored in the attic of our home, the only place we own that didn’t get wet! A paperless change that we have made is to try to convert all of our tax related documents from postal delivery to email delivery. Our banks email us our bank statements instead of mailing paper copies. Not all banks have the capability to do this, but we now have all of our bank statements backed up. Many banks can reproduce a lost paper bank statement for you – but at their price.
6. Paperless Accounting System
This subject needs more room for discussion, but our one year old paperless accounting system has saved us tens of hours of tediousness and recordkeeping, and will save us hundreds more moving forward. We can produce a P&L at any point in time with accuracy. You can make the transition to paperless accounting with some minor groundwork. We use Quicken Books to organize our P&L and perform our financial recordkeeping. Quicken has the capability to download your office spending and deposit information from your banks and credit card companies. That single capability is a huge time saver! We never have to record information on who we wrote a check to or how much a deposit was for, the transactions are automatically loaded into our P&L! You will need to categorize the transactions for the P&L, although Quicken does have a smart feature that tries to categorize them for you. After Katrina, the SBA wanted to know that we were a viable firm with the ability to pay back a loan. We were able to produce a P&L accurate to Aug 29, 2005, the date Katrina hit. More on this later!
Bonus tips to prepare for disaster:
– use steel or metal file cabinets for important documents – When Katrina’s tidal surge took our building out, it crushed the wooden Office Depot file cabinets that we stored our listing agreements in. We were however able to find one of our metal file cabinets and recover some damp but readable documents. Use metal.
– What kind of backup? Everyone knows that we’re supposed to back up our computers on a regular basis, but what’s the right kind of backup for a business brokerage? If you’re like me, you have unfortunately become very dependent on your computer. If you lose email, files on your computer, important programs, etc. you step back 12 months in progress. We recently bought a computer program and are installing a program called “Norton Ghost”. Another manufacturer makes a similar product called “True Image”. This software allows us to create a carbon copy computer. This sounds expensive, but if our main computer goes down, for whatever reason, we can instantly switch over to another computer that is an exact carbon copy (maybe a home computer). Same programs, same information and files. We can’t afford to wait for Dell computer support to help us figure out why our computer won’t work while business is passing us by.
– Take your computer backups with you. When Katrina hit our coast, she had no prejudice for her targets. She took out banks, housing projects, museums, hotels, etc. People that thought their valuables were safe in safe deposit boxes returned to the coast to find the entire bank crushed. We were fortunate enough to be able to make limited computer back-ups and take the back-ups along with other valuable with us before the storm hit.
Hopefully these tips will be helpful to your office. If you have any questions you can reach Ward at wardw@sunbeltnetwork.com.
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William Bruce is a business broker and appraiser. He consults nationally on issues involved in business transfers and valuation. He may be reached at WilliamBruceOnline@gmail.com or (251) 990-5934. His business brokerage website may be viewed at www.WilliamBruce.net.
Until recently there is no question that financing has been the most difficult hurdle in buying a business. With the collapse of the financial markets in late 2007 and the onset of the Great Recession, traditional sources of funding pretty much dried up.
But as I update this article, the situation is much improved. Consumer and business confidence are up and banks are lending money again.
So let’s review the current available options for financing. There are five places to find money for the purchase of a business. We’ll discuss each below.
FAMILY
Many times the older generation in a family will loan the down payment or the entire amount needed to a promising member of the family’s younger generation. If your family is willing to loan you the money, one word of advice is in order. Have a very clear understanding as to how the debt is to be handled and put it in writing in the form of a legal note.
And even though it is family, I also suggest that the note carry a market rate of interest. The written note with a reasonable rate of interest will not attract the attention of the IRS who otherwise might try to reclassify the loan as a taxable gift or income. Also, a legal note that earns interest might help keep peace in the family, particularly among other family members who might be a tad jealous.
BANKS
Although most people seeking a loan to buy a business will think first of banks, I can tell you from years of business brokerage experience that banks generally do not make business acquisition loans.
That statement will surprise most people. Once you’re in business, banks will compete for your patronage, but most will not stick their necks out in the beginning to make you a business acquisition loan. Bank advertising would lead you to believe they would do so, but in more than 90% of the cases, they will find some reason to decline the business acquisition loan application. This is particularly true in today’s economy.
The exception might be if you have a strong, years-long relationship with a bank and you can offer some other collateral such as Certificates of Deposits. Or if the bank participates in the SBA loan program, they might be able to approve a SBA guaranteed loan (see SBA below).
So if a bank turns you down, don’t take it personally. And don’t take it as a reflection on the business. It’s just the way things are.
Now this is the humorous part of the situation. It’s ironic but it has happened more than just a few times. After you’ve been in business for a number of months or a year or so, the same bank that turned you down for a loan to buy the business may come calling on you soliciting your banking business! One of my clients in this situation said to the banker in an air of seriousness, “Well now Mr. Banker, we’ll be happy to consider your application for our business. Let’s see, we’ll need your financial statement and a list of references and your business plan for five years into the future. Once we have your completed application, I’ll be glad to take it before my committee and let you know of our decision.”
The banker was taken aback. I thought it was funny.
SBA
The SBA, through its approved lenders, provides business acquisition loans. The SBA generally does not make direct loans, but rather guarantees a portion of the loan that is made by the approved lender. It’s known as the SBA 7(a) program.
The SBA list of approved lenders includes many banks. If you go the SBA route, try to use a SBA designated “Preferred Lender.” The preferred lenders have more local authority and can sometimes cut through the bureaucracy. Some of these lenders will include an amount for working capital in addition to the price of the business in the loan amount. Down payment requirements range from 20% to 25% plus there are usually up-front fees involved for various requirements. Interest rates are competitive with the marketplace.
The SBA guaranteed loan requires a lot of detail and documentation. If you go this route, be patient. And stay on top of the SBA requests for information. The quicker you can get the information and documentation to the SBA underwriter, the quicker your loan will close.
The SBA route for a business acquisition loan is sometimes frustrating because of the time and detail that is involved. However, keep in mind that the SBA will approve loans that others have turned down and will usually approve them with a smaller down payment. In most cases, it’s worth the wait.
THE SELLER
In the majority of the business transfers that I have handled, particularly over the last three years, the owner of the business has financed a portion of the purchase price for the buyer. Some sellers cannot offer owner financing for a variety of reasons, but when they can, it conveniently solves the problem of financing.
The fact that the business owner is willing to finance the sale of his company provides more than a convenient finance plan. More importantly, it provides a strong validation of the owner’s belief that the business will support the owner and earn enough cash to pay back the loan. You can’t get any better recommendation on the business than this.
Owner financing also keeps the owner “in the boat” for the duration of the loan. If the new owner experiences any problems, the seller has a vested interest in assisting.
The normal down payment for owner financing ranges generally from around 25 to 50 percent of the purchase price of the business. Interest rates are generally market driven but there is more flexibility here than in other forms of financing.
Of course, the owner is going to want to know a little about you before making a commitment to finance. If you’re going to ask him to finance the business for you, be prepared when you meet him to give him some background information on yourself and your business or work experience. Remember, you need to sell him on your qualifications as much as you need to be sold on his business. In future meetings with him, assuming you are seriously interested in buying the business, it would be an act of good faith on your part to give him your personal financial statement, a list of references and a copy of your credit bureau report (if it’s good). That shows professionalism.
Most owner financing – though not all — is in the form of a balloon note. The balloon note solves two opposing desires. The buyer of the business wants to keep his payments low; however, the seller usually wants his money as soon as possible. By amortizing the note (calculating the payments) on, say, a 12-year payback schedule, the payments are kept low. But the inclusion of a 5-year balloon requires that the balance be paid off at the end of five years. After the new owner has been in business for five years and has built a track record for himself at this bank, he should have no trouble going to the bank and refinancing the balloon. In the low interest rate environment of recent years, I’ve seen new owners refinancing the balloon even before it came due to save money. The balloon note has been a win-win vehicle for both buyers and sellers.
401(K) FUNDS AND IRA ACCOUNTS
The use of 401(k) and IRA funds to buy a business, without tax penalty, is a fairly recent development. Several national CPA and attorney groups have developed a plan, approved by the IRS, which allows you to use your funds for business acquisition.
There are legal and accounting fees involved in setting up the arrangement, but the fees are a small fraction of the tax penalty that would be assessed for cashing in these accounts. For additional information on this option, call your CPA, attorney or business broker.
In my business brokerage practice, we have developed a relationship with a couple of firms that specialize in this area and we can make a referral for you.
A Trifecta
The above five sources of financing are not exclusive to each other. I recently handled a transaction in which three of the five sources were used to buy the business.
It’s called creativity!
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William Bruce is a business broker and appraiser. He currently serves as president of the American Business Brokers Association. He may be reached by phone at (251) 990-5934 or by email at Will@WilliamBruce.org.
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Lets suppose you have carefully considered the advantages of business ownership, and decided that you definitely want your own business. You’re ready to start your search for the right business. What’s next? Where do you look to find a business for sale?
The First Place to Look
The first place I’m going to suggest may surprise you. You may never really have thought about it but probably the first place you ought to look is within your own family. Do you have a family member, close or extended, who owns a business? Do you think they might, for one reason or another, consider selling it to you? Are they approaching retirement age? Do they appear “burned out”? Are health problems limiting the amount of time they can devote to the business? Do they want to travel? You never know until you ask.
Lets say your Uncle Ben has a convenience store that you might consider operating as your own if it was for sale. Call Uncle Ben and make an appointment. Tell him over the phone that you want to “come by and talk about something important when he has a few minutes.” This puts Uncle Ben on notice that this is not just a casual visit. When you visit your uncle, be completely “up front” by telling him you have decided to go into business for yourself and you were wondering if he “had ever considered selling his business.” Then be quiet and listen. If he has been considering getting out, you may have hit pay dirt. If he is not interested, he may know of other businesses for sale. Or he may actually offer to help finance the purchase of a business when you find one! Stranger things have happened. You can’t lose by talking with him.
However, some words of caution are in order when dealing with family members. Don’t take any short cuts just because you’re dealing with family. Go through all the remaining steps that I’ll describe in additional postings on this site. Of particular importance when family is involved, is the “due diligence” phase. Take a hard, critical look at the business just as you would if a complete stranger owned it. Make sure it is the right business for you.
The Sunday Newspaper
Although less productive than it was a few years ago, another place to look for businesses is in the Sunday newspaper. Sunday is traditionally the day that businesses for sale are advertised. Look under the classifications of “Business Opportunities” or “Businesses for Sale”. Some newspapers have both classifications.
Some are pretty “scammy.” There will be ads for vending routes (with grossly overpriced vending machines) and home based businesses including medical billing (with grossly overpriced computer software and no clients). But don’t despair. With just normal smarts, you’ll be able to tell the difference between the “scammy” and the legitimate local businesses that are for sale. One quick way: local businessmen use local telephone numbers, not toll-free ones that are answered half way across the continent.
The Internet
A third place to look for businesses for sale is on the Internet, which is now the most popular venue for business-for-sale searches. Just go to any search engine and enter “Businesses for Sale”. You’ll get hundreds, perhaps thousands of sites. To narrow down the sites to ones you can use, you might want to enter: “Business for Sale in Kentucky” (or whatever state you want). One of the largest and best national sites on the web is www.bizbuysell.com. Another is www.BizQuest.com.
And my website at www.WilliamBruce.net lists over 20 quality businesses for sale. (Hey, you don’t mind an occasional blatant commercial, do you?)
A Business Broker
And speaking of commercials, the fourth way to find an array of business for sale — advertised and unadvertised — is my favorite. It is through the use of a qualified, knowledgeable business broker. (It’s my favorite because that’s the way I make my living. I’m a business broker!)
An experienced business broker is familiar with the local market and he usually has a considerable number of businesses listed for sale at any one time. He can assist you with everything from focusing your search, preliminary screening of several offerings, visiting the businesses, buyer-seller meetings, cash flow calculations, pricing rationales and strategies, offers to purchase, negotiations, contingencies, and closings.
If you choose to use a business broker, plan on spending some time with him. He needs to get to know you and your requirements. And you need to get to know and trust him. To insure that you receive the maximum benefit from his experience, be honest with your broker about your needs. Let him know what kind of income you need and what you have in investment capital. Give him any limiting conditions that will influence your decisions.
The assistance of a knowledgeable, trustworthy business broker can be invaluable. He can save you time and money. He can steer you clear of the common pitfalls in the business buying process. And he can make sure you get what you paid for.
But as I said above, I’m prejudiced. I’m a business broker!
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William Bruce is a business broker, an Accredited Business Intermediary and a business appraiser. He may be reached at (251) 990-5910 or by email at WilliamBruce@bellsouth.net.
by William Bruce, President, American Business Brokers Association.
Let’s assume that you’ve already done the soul-searching about your future, considered the advantages of business ownership, and decided that you definitely want your own business. You’re ready to proceed with all deliberate speed. You’re probably asking yourself, “What’s next?”
What Type of Business Should I Buy
You may already have a pretty good idea. If your family or some of your friends own a business, you probably have some familiarity with that type of business. Is it the kind of business that you can see yourself operating?
What are your preferences on hours worked, management of employees, physical labor, and interaction with customers? Do you prefer to stay in one place, or would you rather be on the road in your new business? Would you prefer to stay indoors, or are you the outdoor type? Are you a people person? Are you service-oriented? Your preferences in these and other matters will give you some direction as to the category of business.
However, the decision really boils down to this question that you should ask yourself as you consider any type of business: Can I see myself happily and successfully operating this particular business? If the answer is “yes,” then that may be the business for you – assuming, of course, that the company checks as you take a closer look at the steps that are explained in subsequent articles.
Some more words of advice: Keep an open mind as you look at different businesses. Don’t become so inflexible as to type of business that you would automatically rule out an excellent business for sale in your price range producing the income that you desire.
An interesting statistic from my business brokerage practice is that about one-third of my clients wind up buying a business in a category other than the one that they initially contacted me about. So, stay flexible as to type with your eyes wide open for a jewel of a business of a type that you may not have considered.
What Size Business Can I Buy?
The answer to this question is dependent on the amount you have to invest. The lowest down payment requirement for buying a business is about 20 percent of the purchase price of the business.
For the sake of an example, let’s say you have $60,000 to invest in the purchase of a business. I don’t advise my clients to use their total available investment as a down payment because they are going to need some of it as working capital in the new business.
The amount of working capital needed depends on the necessary monthly operating expenses of the business. Let’s say the business you are buying has operating expenses of $5,000 per month, which includes rent, insurance, utilities, payroll, and the other items needed to keep the doors open.
If you have determined that the business has good cash flow and there are no major problems, you could probably get by with one month’s expenses figured in as working capital. However, to be safe, I usually recommend two months of expenses held back for working capital. In this example, that would be, of course, $10,000.
After deducting the two months of business operating expenses (working capital) from the available $60,000, we have $50,000 to offer as a down payment on a business.
Which brings us back to the question: What size business can I buy?
The answer is a matter of arithmetic. With the $50,000 and the fact that some businesses can be bought with a 20% down payment, this would project a maximum price for a business of $250,000.
And from my experience as a business broker, there are lots of attractive businesses out there of this size that produce a very nice profit for their owners.
Your job is to find them!
Here are some other articles I’ve written that might be of interest:
William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA), assisting buyers and sellers of privately held businesses in the transfer of ownership. He currently serves as president of the American Business Brokers Association. His practice includes consulting services nationally on issues of business valuation and transfer. With offices in Fairhope, Alabama and Baton Rouge, Louisiana, he may be reached at (251) 990-5934 (Fairhope), 225-465-5799 (Baton Rouge) or by email at Will@WilliamBruce.org. The firm’s most recent closings can be viewed here.
