This article are provided for information purposes only, and are not intended as legal advice.


How much money do you need to buy a business?

September 7th, 2009

The amount of money that you need to buy a business is directly related to the size of the business, the profitability of the business, the amount of assets that the business owns and the financial health of the business.  If you only have a few thousand dollars, you are better off to start a home based business because the quality of what you may buy may be very poor.  The more profitable the business, the more money that it will cost. 

 

Financing is an issue when buying a company.  The more equity that you invest in the company, the better you will be looked at by your banker.  Bankers do not like all businesses therefore equity in a business does not guarantee bank financing.  For example banks to not like to finance the working capital of a small retail store  however, they may be willing to look at the assets of a larger manufacturing company.

 

The larger the company that you can afford, the greater the changes that it will be a more stable company with more customers, but this may not be always the case.  You can be a large company and only have two or three customers – such as in the automotive industry.   If you are buying a business, make sure that you look at the lease.  Is the company selling the business because the lease is expiring and cannot be renewed.  I have seen cases where the landlord has given notice that they are going to renovate for example a food court in an office building and not invite back the businesses currently in the food court.  In this case, they gave the tenant one years notice.  I have seen on several occasions when the landlord was renovating a mall, changing the lobby etc which could affect a business.

 

Is the company in poor financial health?  Is the accounting for the business up to date or are they missing material liabilities which have not been recorded?  Is the business undergoing a tax audit and they want to get out before the results come in?  Has the fire inspector stated that the business make a significant investment to comply with new fire regulations?

 

There could be many reasons for someone trying to do a quick sale of the business at an inexpensive price.  To me, if there is an urgent rush for the owner to sell the business, beware and look at the reasons for the deep discount of the business price and for the reasons why the business is for sale.


Filed under: Buying a business — Gary Landa @ 10:01 am


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