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When buying a business, there are two areas of methodology that will assist with your purchase.<\/p>\n
First things first. Don’t buy a business you cannot afford and don’t waste a seller or broker’s time with trying to steal a quality business for nothing because you heard some YouTube video say that you can buy businesses with $0 down.<\/p>\n
Maybe there’s an example of such. But 9 times out of 10, you will upset the seller and the broker with that approach.<\/p>\n
This is like buying a house. You have to have cash or a partner ready to go, to move on it, or someone else will.<\/p>\n
To be serious, you want to focus on acquisitions that are within a reasonable multiple, and you want assistance on the deal.<\/p>\n
Instead of trying to buy a $2mm business with limited cash down, buy a $800k business, with 20% down, use some traditional lender financing, and get some seller financing involved as well.<\/p>\n
There are many ways to get a deal done.<\/p>\n
Earnouts are part of the equation.<\/p>\n
Most buyers are looking to come in with 50% cash and are hoping for the other 50% to be made up in another way.<\/p>\n
Most deals get done when the buyer has closer to 90% cash.<\/p>\n
Bridging the gap can be difficult.<\/p>\n
There’s a lot of ways to bridge the gap but the quickest way is to understand there is an earnout and financing.<\/p>\n
Earnouts can be based on a guaranteed monthly or quarterly or annual payment over X number of years or performance based, based on % of sales or EBITDA.<\/p>\n
EBITDA is much harder to track than sales, so our suggestion is sales, if we are representing the buyer.<\/p>\n
Financing can be done from the form of the seller in the earnout, or traditional loans.<\/p>\n
SBA is a promising route. They have requirements such as a minimum credit score, and will need to see certain financials on the business including tax returns and P&L’s.<\/p>\n
SBA will only allow for a certain % of seller financing in addition to the loan.<\/p>\n
That’s where other lenders come in to play.<\/p>\n
We have a lot of options to help you with the acquisition.
\nIf you would like to hop on a call with us to go over things related to acquisitions and general business overview, please schedule a time here. We do a one hour deep dive where we go over your needs as it relates to acquisitions & business expansion, and then we go on the hunt for you to line up a business that fits.<\/strong>
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