Before diving into business ownership, be sure to ask the questions listed here to ensure you are making the right decision.

What Are the Business’s Biggest Challenges Right Now?

Before getting into a new business venture, you need to be aware of all the possible minefields you may encounter. For example, if you plan to purchase a company that requires $1 million in capital improvements, you need to know this upfront so you can negotiate the purchase price.

What Would the Current Owners Have Done Differently?

This is a question that can encourage the current owner to talk about the opportunities they failed to pursue or that they would have liked to pursue. It will help you learn the amount of growth potential that the business owners – from additional product lines to untapped markets and even new marketing opportunities.

How Did the Seller Come Up with Their Asking Price?

There are many situations where a seller is going to base their price on arbitrary factors, such as the amount of money they require to move on with their life. Be sure you ask about the quantitative information they have that can back up the price they have requested. You want to be able to understand their thought process and get a better sense of how much bargaining power you have. If the seller arrived at the price arbitrarily, there is probably more room for negotiation.

If the Owner Can’t Sell, what will They Do Instead?

Finding out what the business owners plans are if they are unable to sell their business is another smart way to figure out what type of bargaining power you have. For example, if the owner would be willing to give the business to a worker or if they would close it over time if they were unable to sell, you probably have more wiggle room to get a lower price for the purchase.

How Are You Going to Document the Business Financials?

You need to ensure that there is a clear paper trail for all financial data for a business. Make sure the current owner will provide you with access to the tax returns and any other documents that will be able to back up the assertations made by the owner regarding the losses, profits, income sources, and revenue. If the seller has any type of unrecorded income, what do they have to prove this in writing?

If you want to ensure that you make the right decision when you are buying a business, it is a good idea to use the services of a business broker. This is going to help ensure that you get the right business for the right price.

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Becoming Your Own Boss

Many people may wonder what they should look for when buying a business. Of course, the first thing you might consider is if it is even something you have a marked interest in or a field in which you already have experience. Being specialized in sales may be a huge advantage to use when you are stepping into your business adventure, but if you have more time invested in creative endeavors, you may want to consider a partner to aid in the more complicated aspects of your new company.

Having the flexibility to work whenever you want, planning for a vacation in the summer without worrying if your employer will approve your time off, or just taking a personal day when you aren’t feeling the bustle of the morning can be some of the greatest luxuries of working for yourself. In addition, you have the control over the company, so employees will usually be required to do exactly what you want them to do in order to ensure the best possible results from your business. Some find the power of running things their way can be one of the most rewarding aspects of being your own boss.

Through a reputable business broker, you can find out all of the ins and outs that come with obtaining a company. Whether you are looking to purchase a business or sell one once you are ready to retire, there are plenty of helpful resources available for when the time comes.

Those who are interested in pursuing this adventure may find the rewards far outweigh the risk when it comes to taking over a company. If you would like to learn more about how the process works, please take a look at what we offer. From buying to selling, we are happy to help you fulfill any dreams you might have of being a financial success.

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Know Your Why

It’s a significant investment to buy a business. Why would you like to purchase this existing business? Ask yourself these questions:

• Why is it for sale?
• Will I benefit from this purchase?
• Am I experienced in this industry?
• Do I care enough to make this work?
• What will I need to run a successful business?

Have You Done Your Research?

After you understand your “why,” research businesses that are for sale, ask friends, speak with local business owners, and consult with a broker. Be wary of online bidders. Scammers are waiting for an opportunity.

How Much Will It Take?

The United States Business Administration (SBA) is offering SBA-assured advances of up to $5 million. Such loans, which are accessible from a wide range of money lenders, also follow rates and charges similar to standard bank advances. Such advance plans go hand in hand with the needs, so check in with the bank you prefer to work with before going forward.

Work with a Broker

Business brokers work in a similar way to real estate agents in that they usually charge you a commission, so they’re paid only when you buy a business. So while a broker’s assistance can be worth the cost, be careful, and don’t let yourself be forced into a rushed decision.

If you have done some research of your own and have not found the company you desire, consider hiring a business broker to help identify your areas of interest, and negotiate the terms of your eventual purchase.

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Brokers Know Which Businesses are for Sale

If you’ve been considering purchasing a fully operational business to launch as your own, it may make sense to do so through a professional business broker. These agencies have their finger on the pulse of the business market and are extremely aware of what is coming up for sale. It’s likely that you can contact a local broker, explain to them what you’re interested in purchasing, and receive a recommendation about a business that meets your needs. The broker can then help you through the entire purchasing process so that it’s as simple as possible to get started.

Brokers Can Assist You with Legal Requirements

There are certain legal requirements for purchasing a business and getting it up and running. A talented brokerage firm can help you with these requirements, or can refer you to a legal professional that can assist you. Many of the best firms have legal assistance on staff, so that they can walk you through the legal requirements of making the purchase.

Brokers Thoroughly Screen Businesses

If you’re considering purchasing a business, it’s important that you know precisely what you’re getting.  If you buy a business from a classified ad, for example, you can learn more about it after you’ve made the purchase, and it might not all be pleasant. Business brokers carefully screen the businesses and properties that they handle the sales, for, however, so that their clients are satisfied with their transactions. This means that you can rest assured that you’re getting precisely what you pay for, and that you have all of the information that you need to make a well-informed purchase.

Brokers Can Help Secure Financing

Individuals who need to secure financing before they purchase a business, but aren’t sure how to begin, may find that their broker can help with this, as well. This can make the entire process much more simple, as it means that you may not need to look as hard for outside funding. A broker near you may be able to recommend a financing agency, or may even be able to provide you with in house financing. If this is a service that you’ll need in order to make your business purchase, let your broker know so that they can assist you with this process, as well.

If you’re ready to consider working with a business broker, contact us today. We’ll assist you with the basic steps that you need so that you can get started with the business that you’ve always wanted.

The post Benefits of Using a Business Broker to Make a Purchase appeared first on P&L Business Brokers.

Retirement

Retirement is a common reason for an owner to sell his business. Once he has reached a point in his life that he no longer wants the responsibility of running a business, and want to take it easy, retirement is an option for him. If he cannot find someone to take over the company, the next best thing is to sell it. Selling the business due to retirement provides ample time to plan an exit strategy.

New Opportunities

New opportunities or interests also represent another common reason for a business owner to sell.  However, oftentimes, the pursuit of new opportunities may mask the underlying cause for selling the business. For example, perhaps the owner doesn’t want to admit that he is burned out. On the other hand, new business ventures come up, and maybe the owner genuinely want to go down a different path in their career.

Declining Revenues

Reasons out of the business owners’ control, such as economic downturn and the high jobless rate, could contribute to why the owner wants to sell the business. Most owners recognize the challenges and choose to push through for a period of time, while others feel he or she can’t handle it and decide to sell the business. Declining revenues results in enormous amounts of stress.

Negative Industry Changes

Buyers often depend on sellers to disclose all information about the business before jumping into the venture; unfortunately, this isn’t always the case. Perhaps the seller knows that imminently or further down the road, the industry, customer, or other dynamics will change and negatively impact the company; hence, the company may face strong headwinds. For this reason, the buyer won’t tell the seller everything to make a sell. Therefore, it’s up to buyers to perform comprehensive due diligence before agreeing to acquire a business.

Partner Disputes

The start of a partnership begins with lots of hope and ambition to make the business a success. Similar to a marriage, business partners eventually have disagreements; some of which may lead to pursue dissolution of the partnership. Common reasons for the disputes include financial and operational conflicts. In many situations, the agreement between partners is to divest and part ways. Partner separation could present an excellent opportunity, but the buyer should still understand driving force(s) of partnership dissolution.

Having your own business is a tremendous accomplishment, but perhaps now you’ve decided to sell your business. There are many reasons to pursue a sale of your business. Regardless of the reason, be honest with yourself and potential acquirers.

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We will lay out five primary ways to finance a business acquisition for small to lower-mid-market businesses.  Additionally, we will highlight why planning for the financing component before issuing an LOI is crucial.

Let’s explore the five primary methods to financing a small business acquisition.  No single method needs to be considered in isolation.  Instead, a potential purchaser should consider all the relevant methods and determine the best path forward for their unique circumstances.  It is important to note that most small business acquisitions are structured utilizing a combination of multiple financing methods.

1. Your Own Funds

If you have the available funds including savings, retirement accounts, home equity, or other liquid investments, you may consider the “all cash” purchase method.  As with any major purchase, the buyer must assess the alternative uses of such funds and determine whether they can sustain the lifestyle as well as meet their current and future obligations should they deplete these resources fully, substantially, or partially.

It is an uncommon practice for even small businesses (up to $10M) to be acquired for cash only.  Most buyers will use their funds in conjunction with seller financing, a business loan, or loans from family, friends or partner(s).

1. Loans from Family or Friends

We do see loans from parents, other family members, and friends in start-ups as well as business acquisitions.  These tend to be for the purchase of businesses on the smaller size.  While this method has its advantages (i.e., quick access to cash, faith in your capabilities, etc.), mixing money with family and friends has the opportunity to damage relationships.

When considering taking a loan from a family member or friend, it is important to seek legal guidance to ensure that all parties are fully aware of, and in acceptance of, the terms of the loan.  In addition, the loan must be developed in accordance with regulations including, but not limited to, IRS requirements, and legal entity and state regulations.

1. Partner(s) or “Angel” Investors

Maybe the idea of owning the business without complimentary skills and financial resources leads you to consider bringing in a partner or partners.  You may have people within your network that can provide value to the transaction whether through financial resources, skill set / experience, connections, or other contributions.  It will be crucial for you to seek legal guidance to properly develop the operating agreement and ensure each partner clearly understands the ownership split, responsibilities, and decision making authority.

Another alternative, angel investors, are typically wealthy individuals who are looking for opportunities to provide capital to profitable endeavors whereby their return will be substantial.  When thinking of approaching an angel investor, your pitch must be extremely solid, even more so than what you would need in your business case for a lending institution.  However, keep your pitch to the point.  Angel investors value their time as much as they value their financial resources.

1. Seller Financing

Another common approach to finance an acquisition is through use of seller financing whereby the seller provides a loan to the buyer.  The percentage of the overall purchase that is financed through a seller’s note is often around 10% – 25% for small business acquisitions, although there is great variation highly dependent upon the parties involved and the unique circumstances. The loan is amortized over period of time under terms and conditions mutually agreed upon between you and the seller.  While SBA guidelines have changed as of January 2018 (and are subject to change), most banks would like to see that the seller has the confidence in the success of the business going forward to extend seller financing.

The advantages of seller financing include, but are not limited to, not having to meet stringent underwriting requirements, the seller possesses institutional knowledge of the business and its future prospects, potential for greater flexibility in terms and conditions, and a desire to see the business continue to succeed along with strengthening the business case for a lender.  There is also an incentive for a seller to ensure a smooth transition and potentially offer on-going training and support, whether formally through a consulting agreement, or informally by way of availability by phone to address a purchaser’s questions.

As addressed in the opening paragraph, considering the financing methods are important before submission of an LOI.  In the case that an LOI had been submitted without discussion of seller financing upfront, it may be more difficult for the buyer to negotiate the seller to hold a note.  The general outline of the seller financing will also have impact on the financial projections of debt servicing as well as any potential bank financing.

While the seller may not have established underwriting policies or have experience in seller financing, a buyer should keep in mind that the seller wants to know they can trust you to repay them whether from the operations of the business or otherwise.  As such, it is important to develop a solid rapport with the seller as well as present your personal financial statements and credit history.

1. Bank Loans and SBA Loans

Bank loans for business acquisitions can be broken down into two primary categories:

1. Conventional Loans – these loans are difficult to secure from a commercial lending institution to finance a small business acquisition. Conventional lending standards are set to decrease the risk of loss for the lending institution.  Therefore, you must be able to demonstrate near flawless credit history, substantial personal assets, and congruent experience within the specific industry.  Additionally, the need for collateral (i.e., hard assets that can be sold in the event of default to minimize the lender’s losses) is greater.
2. SBA Loans – loans offered through lending institutions where the Small Business Administration (SBA) guarantees a portion of the loan to minimize the lender’s exposure in the case of default by borrower. There are different levels of banks that offer SBA loans with some allowed greater flexibility than others in determining which loans they extend.  The most common SBA backed loan is the 7a loan which can provide funding up to $5M for a singular person or business.   While these loans account for the majority of small business acquisition loans, it is important for a buyer to understand that the SBA is a governmental authority and, as such, the process may be long and the requirements extensive.

Regardless of the loan, conventional or SBA loan, it is important for the buyer to be able to demonstrate capability to the lender.  This will be done through discussions, but will also covered in the Business Case, a subject to be addressed in greater detail in a subsequent article.  The “sniff test”, done before submission to the lender, is to have a trusted family member, friend, or business advisor deliberately poke holes in the business case to allow for the buyer to adequately address areas of risk by providing clear mitigation strategies.  Last point here is to also build conservative-leaning financial projections.  Very few lenders, or any at all, will believe that new ownership will automatically bring double digit growth rates over the next decade.

The use of proper valuation techniques for determining the purchase price is also critical.  Take for example, a buyer who offers a purchase price that is 50% greater than an acceptable valuation that a lender will secure from a qualified valuation firm.  The buyer’s original combination of own funds and seller financing would be significantly impacted as the lender will not exceed the underwriting standards based on a legitimate valuation.  The deal, based on this example, most likely would not close unless the purchase price was reduced significantly, the buyer produced additional funds, or the seller provided greater seller financing.

As seen from above, there are many methods for acquiring a business.  The optimal solution varies by buyer and targeted acquisition. To learn more about financing a pending or future transaction, contact P&L Business Brokers, LLC to gain insights from decades of transactions and relationships with qualified lenders.

Additionally, the financing costs associated with the aforementioned small business financing methods include the ongoing repayment over life of the loan, but very likely will include significant closing costs that should be planned for between 10-20% of the purchase price.  In some cases, such closing costs may be required to be covered from your own funds or may be rolled into the loan.

In addition to developing a solid estimate of the loan costs, a buyer must also consider the working capital (ongoing cash needs) of the business.  Many times, a buyer will forget to properly plan for the working capital needs of the business and will find him/herself with cash flow issues early on.  We will cover working capital requirements in a future article.

Editor’s Note:

We make every effort to impart our vast experience and keep up-to-date with the latest small to mid-market business transaction trends and all peripheral topics.  We do not, however, guarantee the accuracy of the information above nor the indefinite life of the above information. 

The post Financing a Business Acquisition appeared first on P&L Business Brokers.

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Business brokers understand all aspects of running a business including accounting, operations, and commercial activities.  They have a firm grasp on industry and market dynamics.  Additionally, business brokers can develop the valuation or most probable selling price (MPSP) based on years of experience, extensive training, and access to comparative transactional data.  While a large majority of business brokers do not have ESQ or CPA after their names, their deep experience with purchase agreements and other legal agreements along with the tax implications of business transactions allows them to work seamlessly with such professionals.

Why Do I Need a Business Broker To Sell My Business?

Time – Selling a business is a time-intensive endeavor.  Experienced business brokers have developed processes, tools and enablers that allow for the process to be streamlined.  They are adept at identifying potential risks and challenges and developing mitigation strategies to avoid transactions not closing. Additionally, brokers have proprietary databases of potential buyers which can shorten the time to find a qualified and interested buyer.

Focus – A business owner’s focus most likely would be compromised with the time and attention taken to prepare the business for sale, market the business, and engage with potential buyers from initial contact through the deal closure.  The broker will seek to minimize the impact of the sale on the continuity of business operations.

Skill & Experience – Lessons are often learned through experience.  Whether they are leading practices or challenges faced, a business broker will provide you with invaluable guidance from initial contact through after the transaction closing.  Costly mistakes are often made not by ill intentions, but by lack of knowledge and experience.

Attributes of a Qualified Business Broker:

Experience: Selling a business can be a relatively complex process. Just as you wouldn’t hire someone to remodel your kitchen without the requisite skill set and experience, business owners and buyers should look for business brokers that have significant experience in closing transactions.  Experience in both sell-side and buy-side representation is also important factor to consider when choosing a business broker as having a balanced perspective often enables the broker to predict and mitigate potential risk.  Many brokers will combine experience with education (i.e., MBA, etc.) and pass comprehensive tests to become certified as in the case of Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA) or other industry certifications.

Problem Solving: Every deal has its own nuances and challenges.  A highly qualified business broker has experience in all facets of transactions and often brings a problem solving capability to address any obstacles faced.  While the broker will serve as your primary advocate, you want a broker who is able to provide solutions to deal compromising aspects.

Storytelling: Selling a business is a combination of art and science.  The art is found throughout the transaction lifecycle – from the development of marketing materials to getting to the closing table (and everything in between) – and requires supportive science added in.   Finding a business broker who puts in the effort to develop professional grade marketing materials is critical to grab the attention and interest of a larger pool of potential buyers.  With the more qualified brokers, you will find the story of the business is told in a concise and engaging manner.

Negotiations:  Experienced and qualified business brokers are also very adept at managing the negotiations between the parties.  Acting as the agent for the business owner (the principal), the business broker understands the sticking points that may be relevant on both sides and expertly deploys negotiation tactics that will maximize the value of the transaction for their client while not pushing the other side to abandon the deal.

Preparation: Many business owners come to a point where they just want out of the business.  They want to list the business for sale as quickly as possible.  The problem with this approach is that value may be lost and deals may not close from lack of preparation.  A qualified business broker will work with business owners to develop an exit strategy and prepare their businesses for sale.  A good business broker will not list the business without having collected the appropriate documentation and information to enable a smooth diligence process.

Confidentiality and Integrity: Confidentiality is not simply having a confidentiality or non-disclosure agreement executed.  Qualified business brokers will spend the time to steer clear of “tire-kickers” or competitors looking to gain a competitive advantage.  The marketing materials may have to be creatively scripted to not give away the company’s name and intentions of sale.  A business broker who maintains confidentiality and integrity throughout a transaction would be a foundational expectation.  However, conflicts of interest do arise and the business broker’s character and the character of its firm may be put to the test throughout a transaction when their commission is impacted.  Find a business broker who is committed to being your trusted advocate for the sale and life after the sale.

Established Team of Advisors: Qualified business brokers have established their “go to” team of professionals (i.e., attorneys, accountants, financial advisors, banks, etc.) to support the transaction.  Working in unison with other advisors allows for the team to be on the same page to structure the deal appropriately, manage negotiations effectively, and achieve the objectives of their client.  Many times a business owner or buyer will wish to use a professional of whom they have maintained a long-standing relationship with.  It is important to know that not all professionals have transaction experience and the lack of experience can derail the best transactions.

If you are looking to sell your business or acquire an existing business, the time is now to talk to a qualified business broker.  Take advantage of a free initial consultation with Michael Lannie, CBI, of P&L Business Brokers, LLC to understand your exit options and begin to formulate your exit strategy roadmap.

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When launching a business, owners are most often laser-focused on growing the business. Seasoned business owners may be absorbed with sustaining the business performance as it reaches the maturity stage along the typical business lifecycle. What most business owners are not thinking of is the inevitable transition out, or exit. So, how much effort and attention should be directed to planning the exit? Well, like most things in life, the answer is it depends.

Let’s explore through two examples:

In the first example, we take 32 year old Bethany who started a digital marketing firm after holding two previous jobs since graduating from a top tier undergraduate program. She was a rising star and saw the opportunity to branch out on her own and further her brand and capabilities. She was recently married and is expecting to start a family within the next few years.

Before starting her business, she envisioned that she would maintain the business until her future children are old enough to have gained sufficient experience to take over the business. She would be her children’s safety net and ease into retirement. She hasn’t given much thought to any other avenues of exit nor has she considered the changing, competitive landscape of digital marketing.

With a thriving business, she plans to put away the maximum threshold into a SEP IRA, but initially will limit contributions until the business’s cash flows are adequate to support hiring additional employees and contribute to the SEP IRA. Additionally, she and her husband have worked with the family’s financial advisor to project the family’s retirement balances for which they are confident will provide them with a comfortably secure retirement.

Should Bethany be concerned with exit planning with such an extended runway until her planned transition? The short answer – yes.

Why should Bethany be concerned with exit planning?

• Personal Circumstances – Bethany’s personal circumstances will change in the relatively near future based on her plans to start a family. Juggling the demands of operating a business and that of a young family is often difficult to manage. Bethany cannot fully predict other life events she may encounter. Namely:
  • Her health or that of her family
  • The health and retention of key employees
  • The strength and survival of her marriage
• Market Dynamics – the Digital Marketing industry has been an extremely hot industry for the past 5-10 years, but there is no guarantee that it will be so indefinitely. Consumers, especially those of the younger generations have grown up with technology at the forefront and may be more inclined and capable of managing their own digital marketing needs.
• Her initial plan to transition the business to her future children may conflict should they find different career paths. This could leave Bethany without an apparent succession plan. Expressing her intent to pass along the business to her children to key employees or customers may also impact the ability to retain top talent for fear of inexperienced leadership.

Before exploring the key attributes of solid exit planning, let us now turn to our second example. Our second scenario is business owner, John, whom never considered retirement or a business transition. Despite being 66 years old and having faced recent health issues, John has not thought through what to do with his niche manufacturing business if he becomes unable to continue running the business. The business has experienced the swings of the economy which has been strong over the last several years. However, his health issues have distracted him significantly and the business is showing early signs of the effects the lack of focus.

His two adult children have successful careers in unrelated fields and have expressed no interest in the business. In addition, his management team is aging and John’s controlling management style hasn’t allowed his management team to assume critical responsibilities. The relationships with customers have been built solely, or primarily, through long-term contacts of John.

John’s personal circumstances (e.g., recent health challenges) may be motive enough to consider a business exit. However, effective exit planning is almost never achievable when a business owner is forced to sell. Had John planned for his exit, he might have been able to ascertain that he very much needed to provide more challenging roles and responsibilities to his management team. He may have also realized the importance of the customers building trusting relationships with his team. As a result of John’s health and lack of an exit plan, John has most likely has squandered value in what may be one of his largest financial assets – his business.

As you can see from the two examples, business owners come in diverse packages. However, regardless of the business or personal circumstances, a business owner should respect the inevitable.

Two primary ways to maximize value through exit planning that any business owner should consider are:

Plan Early, Revisit Often – It is true that every business owner should establish both short and long-term objectives. Accepting the fact that goals often change for personal and business reasons over time, they should be revisited periodically to assess performance towards achievement as well as the relevance in the context of the present. Critically analyze, or engage a qualified professional to assess, the value of the business and determine the gap between exit expectations and current valuation. Develop actionable plans to increase the value of the business.

Achieve Business Independence – Many businesses are run by an owner that is heavily involved in all aspects of the business. Too scared to let go of control, these business owners make the business highly dependent on them. From customer and vendor relationships to oversight and delivery, no other employee or person inside the organization has been provided the opportunity to assume critical roles and responsibilities and make the business less dependent upon you the business owner. Thus, making the business less attractive to the buyer population as the goodwill is more attributable to the owner than the business.

The post Exit Planning For Business Owners – Preserving and Maximizing Value Upon Exit appeared first on P&L Business Brokers.

What if I told you that you could be your own boss – ridding your life of the boss who doesn’t show appreciation, maximizing your knowledge and experience, and growing your income and net worth – is within reach?

Being a business owner may not be for everyone. However, there is no denying the abundant rewards that business owners experience. Is buying a business right for you? Let’s take a moment and explore the diverse benefits and potential drawbacks of owning a business and help you decide whether or not this path is right for you.

As with any major life decision, careful consideration must be made within the context of the advantages and disadvantages. Acquiring a business is no different and will often become one of the biggest decisions you will make. It will impact your lifestyle in many distinct ways.

Some of the major advantages of acquiring an existing business include:

• Lower Risk / Higher Success Rate – with an existing business comes a history of performance. The financial and non-financial data can be evaluated to assess the ability to continue generating profits and cash flows. If a longstanding business, it has surely been through different economic cycles having weathered any storms and prospered through challenging times. Startups, on the other hand, have an exceptionally high failure rate.
• Immediate Revenue Generation – with an existing base of customers and ongoing sales, the financial foundation has been established, thus allowing positive cash flow to service any debt, draw a salary from, or finance growth initiatives.
• Brand Recognition – existing relationships with customers and vendors
• Qualified Employees – inheriting competent employees provides immediate institutional knowledge without having to recruit and hire new employees. Existing employees may have perspectives on growth opportunities from which to draw from.
• Seller Knowledge / Relationships Transfer – the Seller can be an extremely valuable source of knowledge and can facilitate the introductions to key customers, vendors, and employees. Tapping into the Seller’s experiences, you can potentially avoid pitfalls based on the Seller’s lessons learned and perspectives.
• Assets – the business will often come with existing assets from which the business can continue to operate the business without having to make large capital outlays which can impact cash flows.
• Seller Financing – in more than half of the lower middle market transactions, Seller’s often carry a hold back or promissory note. This additional source of funding can demonstrate the Seller’s faith in the business continuing to achieve financial success which also strengthening the case to a lender, SBA, conventional, or otherwise.

Some of the major disadvantages of acquiring an existing business include:

• Upfront Costs – to acquire an existing business, you will need to invest and / or finance a large amount immediately which includes the purchase price of the business along with professional fees (i.e., legal and accounting, etc.).
• Employee Disruption – employees may be extremely loyal to the Seller and may fear change of ownership may impact them negatively causing loss of productivity or the employees
• Business Environment – no business is completely immune to competition or external factors that may affect the ability to maintain performance. The business may also have been poorly managed or have lost key customers and vendors due to personality differences or other damaging experiences / factors.
• Additional Investment – after significant capital outlay to acquire the business, there may be substantial investment required to optimize assets or pursue growth programs
• Relationships Transfer – many small businesses rely on the owner’s relationships. While the Seller may help facilitate the introductions to key customer, vendors, and employees, trusting relationships are often built over time. You will need to recognize the need to nurture and grow existing relationships while expanding relationships.

Is business ownership for you? Let P&L Business Brokers help in deciding if being an Owner is right for you.

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