We offer a free consultation that allows you to share with us your interests such as geographical preference, type of business, industry groups, cash flow, required down payment, financing options, etc. You will be asked to complete a Buyer Questionnaire form. Your information will then be added to our buyer database. When we locate a businesses that matches your desired criteria, we will contact you.
When you find a business, we will be able to answer many of your questions immediately or will research them for you. Once you get your preliminary questions answered, the typical next step is for the buyer to prepare an offer based on the price and terms you feel are appropriate. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered. There isn’t much point in continuing discussions if you and the seller can’t agree on price and terms. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you.
The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer. You can decide to accept the counter proposal from the seller or reject it and move on to consider other businesses.
If you and the seller agree on the price and terms, the next step is for you to do your due diligence. You may choose to bring in other outside advisors or to do it on your own. Once you have checked and approved those areas of concern, the closing documents can be prepared and your purchase of the business can be successfully closed. You will now join many others who, like you, have chosen to become self-employed!
We encourage a lively dialog between the business owner and the buyer. Due to issues of confidentiality however, we require that any discussions with owners, management, suppliers, etc. be done with our coordination. This process is critical to understanding the business in depth, but must be handled with delicacy.
Yes! We believe that a buyer can only make an informed judgment as to his/her potential interest in a business if they are in possession of all the relevant facts. You can get the majority of the information you need after executing a confidentiality agreement. Of course, this information can only be shared with certain professionals like your attorney and accountant. After you meet with the seller, additional information such as tax returns and expense details may be provided at the seller’s discretion. Once an offer is accepted, the process enters the due diligence phase where you will receive complete, detailed copies of all necessary requested financial records.
We take many elements into account when determining the price of a business. We review historical financials, cash flow, asset and equipment values, condition of the premises, lease terms, location of the business, competitors and the general economy before deciding on the sale price. We also consider recent transactions of similar companies – both ones we have represented and transactions outside of our brokerage through paid data sources.
Business transactions typically entail a mix of buyer’s equity, seller financing, and third-party financing. Which mix is right depends on your personal investment capability, the specific dynamics of the business, and economic trends. Small Business Administration (SBA) loans are frequently used, as are retirement funds. Many people don’t realize they can use their retirement funds such as 401ks, IRA’s, company pension plans, etc., without penalty, to start a business.
This varies with each seller. Some are willing to finance a portion but most sellers are reluctant to finance much of the sale price. The terms or length of the financing period also vary. With that said, most transactions below $5.0M will generally apply for an SBA-backed loan to assist in the purchase of a business. This is a loan that is government-backed and offered at competitive rates. Think of it like a mortgage when buying a house – most people make a down payment and then mortgage the majority of the total cost.
Absolutely! Backed by the Small Business Administration, SBA loans are offered on 10-year terms, which is very attractive when compared to a real estate loan, which is usually around 25 years. SBA loans also provide reasonable down payments of 10%-20% and come with fixed interest rates of 6% for the entire ten-year term. SBA loans can help just about any buyer finance a new business venture while maintaining financial flexibility.
The buyer has an opportunity to make business growth decisions with tax deductible investments in their future while they build the value of their business. Upon purchasing a business, the business’s “goodwill”, fixed assets, and building purchases all will provide depreciation benefits while the buyer builds their new company. Usually you can take a tax deduction for depreciation on the fair market value of all furniture, fixtures, and equipment at a much faster rate than real estate. Non-compete agreements and the value of training are tax deductible, frequently at high levels. We always recommend that buyers seek the professional guidance of a CPA prior to and after purchasing a business.
Goodwill is the difference between the total value of a business and the value of other “hard” assets, such as inventory and equipment. All prospering businesses have goodwill and the price of goodwill is calculated based on how engaging the business is and the financial aspects of the business such as cashflow. When you hear discussions of “multipliers” involved in business valuations, usually the multiplier is for the goodwill and is based on cash flow, net income, or in rare cases, based on revenue.
Another way to look at it is that goodwill is essentially everything that’s left once you strip away the physical “stuff” such as equipment, inventory, real estate, etc. The most common examples of goodwill elements are the value associated with repeat/recurring revenue, the company’s brand, the value of the existing employees, marketing lists, website/internet assets, proprietary software and any other “intangible” assets.
Generally speaking, the profit of a business is the amount of money that is left over after all expenses are accounted for. This is reflected in the Profit and Loss statement (“P&L”). Cashflow is the actual amount of money being transferred into and out of a business. It shows how much cash the business is producing. Discretionary earnings reflect the true cash benefit to the owner for having the business. It should be noted that expenses shown on the P&L of a business may include expenses that will not be applicable to the new owner. For instance, the existing owner may currently have a more expensive office than you plan to have, or may be leasing a vehicle that you do not plan to use, or incur other expenses that are not applicable to you should you buy the business.
At Insight Acquisitions Group, we make it a standard practice to re-cast the financial statements for all businesses that we market to buyers. The re-casted financial statements clarify the differences between the P&L amounts, total cashflow and discretionary earnings of the seller. This allows for an “apples-to-apples” comparison of the business compared to others in the same industry and provides an accurate representation of the basis used to calculate the sale price of the business.
Many small businesses fail within the first year or two after starting up. By purchasing a business that is already up and running, you are eliminating many of the risks associated with a failing business. An established business has a proven track record, a proven/vetted business model, a customer base, trained and experienced employees, and most importantly, positive cash flow for the new owner. The risk is lower and often times the growth is accelerated with these fundamentals already in place and with a new owner coming in with fresh ideas and new energy. Plus, you’ll start off in month 1 with a positive cash flow and able to draw an income, whereas most new businesses take a while to build up enough business to generate a substantial income for the owner. Additionally, existing businesses are typically easier to finance due to existing and historical cashflow.