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5 Steps to Financing a Business Purchase

Business financing options are important whether you’re ready to buy a business you’ve been part of for years or want to acquire a competitor to expand your market share. Buying an existing company is often a smart move. You’re able to build on the branding, products, and customer base that the company has established, while improving operations through your own ideas and efforts. Financing the purchase of an existing business may be more complex than starting a new company, but a number of options are available to you. Here are five steps to help you navigate the world of business financing options.

Work with a business broker

Start your process by establishing a relationship with a business broker. According to Inc. Magazine, the best brokers will be members of the International Business Brokers Association and hold the Certified Business Intermediary (CBI) designation, or be members of the M&A Source with the M&AMI designation. Experienced brokers can help you manage the buying process from identifying the right business to securing funding. Brokers have wide networks within the financial world, and the experience to help you find the option that’s right for you. If the broker you’re working with represents the business seller, it’s important to consider that and make sure you have adequate representation.

Know your valuation and do your due diligence

Your broker will help you manage the valuation process. Plan to get second opinions from your attorney and CPA. Ensure that you understand how the business is being valued. For example, the Cash Flow Method looks at future cash flow to see what kind of loan the business can support. The Tangible Assets Method values a business based on its assets on the balance sheet. Different methods are acceptable and appropriate for diverse business models, but should be supported by your own due diligence. Most businesses are valued as a multiple of earnings (earnings before interest, taxes, depreciation and amortization, or EBITDA). Review at least three years of financial records, tax returns, contracts and leases, customer data, marketing materials, HR information, and any other facts you can gather.

Consider owner-financed purchases

According to the International Business Brokers Association, seller financing is becoming more common than other methods. Seller financing is an alternative to commercial bank or small business loans. Typically, the seller holds a note on the sale of a business for a period of up to ten years. Smaller monthly payments are generally arranged and one or more balloon payments pay off the majority of the debt. Seller financing demonstrates that a seller is invested in helping the new owner succeed. This can be very persuasive to banks when a buyer needs multiple funding sources to complete a deal. A business broker can help negotiate and structure an owner financed deal.

Evaluate loan options, especially Small Business Administration (SBA) programs

Regular bank loans may not be available to finance a small business purchase. Instead, buyers work with an SBA lender using an SBA 7(a) business acquisition loan. The SBA works with approved lenders (such as qualified banks) to offer SBA loans. The government backs these loans, lowering the risk for participating banks. Programs under this umbrella range from microloan initiatives offering under $50,000 to the Certified Development Company 504 Loan Program which helps businesses buy land and buildings.

Connect with angel investors and other high net worth people

Depending on the type of business you’re purchasing and its financial potential, an angel investor or venture capital firm might be the option to consider. Angel investors are high net worth individuals that offer money in exchange for equity in the company. High net worth people (and some private equity groups) sometimes offer private, unsecured loans called mezzanine financing. These loans often have higher interest rates. For individuals with a leaner credit history that don’t qualify for other options, angel investors are worth exploring. Business brokers often have a network of individuals in the market for specific deals; if your history and company meet their requirements, they can facilitate an introduction and structure a transaction.

Working with a business broker dramatically simplifies the process of financing a business purchase. From managing the due diligence process, to identifying the right funding options, the road to expanding your business investments will be easier with a brokerage firm.

Why Use A Business Broker When Selling Your Business?

When a person decides to sell his or her own business the first thing on their mind is to enhance the value of their business as much as possible so that they can get the maximum returns from it however, anyone who has tried selling their business knows that most of their time goes in trying to find potential buyers and screening them, also in the process of selling and other small tasks that go with selling a business which is quite counterproductive at that crucial time. This is why most of the business owners opt to sell their businesses through an experienced broker who manages all those aspects that the business owner really does not need to take care of, saving a lot of crucial time.

There are many benefits of hiring a business broker when one decides to sell their business:

  • Using a business broker saves from the unnecessary stress of the employees and the competitors becoming aware of the process. Once the word gets out, it is inevitable that the employees will start looking out for other jobs; the lenders will start demanding their money as they will be worried that their money may not be returned, and the competition will definitely move in stronger. The business brokers keep the identity of the company confidential and only use the details instead of the name.
  • Business brokers are in the business of selling a business and have better contacts than a business owner would. Using a business broker definitely increases the chances of landing a better deal and finding a reliable buyer who will provide for a smoother transaction.
  • Business brokers also have tools to better evaluate a business. It is not as easy as evaluating a piece of estate since a business has many and more complex aspects that need careful assessment. With the use of these tools, a business broker can easily estimate a better and more accurate cost of the business and eliminate the chances of missing out on evaluating many minor assets that may seem unimportant to the untrained eye.
  • Business brokers understand how to present a business in the most appealing manner; they know what points or features will make it more buy-able and are skilled at making a good sales pitch to potential buyers. This ensures that a business owner not only gets the best price for their business but also finds the best buyers in the market.
  • A business broker not only makes sure that you get to focus on the business while they go out and find the buyers for you but he/she also knows how to reach the right buyers. Their contacts, their experience, and most importantly their access to various databases makes it possible for a sale to be made in the right way and faster than it would have happened without them.
  • Employing a business broker to evaluate to price your business and find the best buyers for you while you take care of the functions not just ensures the chances of a good deal but also saves the grievance of employees and other involved parties approaching you with questions and doubts as the word gets out, it gives you the time to address the situation in a more organized manner and saves everyone a lot of speculation and worry.

Advantages Of Hiring Business Development Consultants

People looking to start a new business have a lot to consider. They need to develop a good marketing strategy, start attracting clients, and put together a host of other things. This is where a business development consultant can help immensely. These consultants can help a business get off the ground and flourish. There are many benefits to hiring business development consultants.

What is a Business Development Consultant?

This type of business consultant specializes in aiding new business owners. They help in a variety of ways including client development and business start-up. As a consultant, these individuals can also formulate a good marketing strategy and help to market a business’s brand.

Overview of a Consultant’s Services

New businesses have a lot of challenges they must overcome. Development consultants can guide these businesses to success by formulating plans that cater to their specific needs.

Getting new clients can be very difficult for a new business. Consultants can help a business create an effective marketing strategy to bring in a lot of new clients.

Increasing Professionalism

Businesses that utilize websites or that have any sort of printed materials can benefit from the guidance of a consultant. The consultant can look over the writing on the website and fix mistakes or make changes to it that will increase the professionalism of the writing. Error-free, proper writing helps attract clients because they are more likely to trust a business that’s professional and capable.

Lead Generation

Business consultants are able to fulfill the needs of any type of business. For instance, a business that sells products needs to be able to effectively generate leads. A business development consultant can generate leads and also show employees how to do the same. Under the guidance of a consultant, any type of business can flourish.

Closing Deals

Another way a consultant can help a business is by teaching its employees the valuable skill of closing a deal with a client. Many employees may already have one good strategy to help close a deal, but business consultants can reveal several ways to do it effectively. Every client is different, so a strategy that works for one client may not work for another; business consultants have several strategies that will work for most clients, and they can teach businesses all about each one.

Branding Assistance

Another great way business consultants can be an asset to a company is by helping them with branding. Some businesses make the mistake of changing their slogans or logos. This is a bad idea because it can confuse clients. A consultant will help a business avoid these potentially costly mistakes.

Consultants also help people decide upon a logo or slogan that will let potential clients immediately recognize the services they are offering. A good slogan and logo can make all the difference, and consultants will help businesses create the best ones possible.

Consultants can even help a business decide upon a good name. A business name needs to stand out and catch people’s attention without being confusing. Business consultants are very creative and have a lot of experience, so they can be a fantastic asset to any company that needs help deciding upon a name, too.

With so much experience and knowledge, business development consultants can help any business flourish and also avoid costly mistakes.