How to Buy a Business: A/R vs A/P

How to Buy a Business

It’s likely that the business you are looking to buy will have customers who owe that business money for services already rendered or goods already purchased. The money that customers still owe the business is called “Accounts Receivable” or A/R.

Smaller businesses with A/R usually give their customers 30 days to pay once the goods or services have been delivered.

In most small business sales (where the selling price is less than $500,000) the seller typically keeps these accounts receivable.

From the buyers perspective this may seem like an unfair situation. After all, the selling price is usually based on the yearly performance of the business. But if you don’t get to collect the existing A/R, than in the first year you will only receive 11 months of revenue.

Here is the thing you need to keep in mind. In most small business sales, the seller delivers the business to the buyer “free and clear”. This means that, while you are not entitled to collect the A/R, you are not responsible for the debts or liabilities of the business either.

Just as the business will have accounts receivable that they have yet to collect, they will almost always have accounts payable – expenses they have incurred but have yet to pay.

How to Buy a Business

The key benefit to selling the business “free and clear” is simplicity. If you insist on including the A/R in the sale price you will have to negotiate the value of those accounts with the seller.

After all, you are not going to pay full face value for those accounts receivable. While most businesses give 30 days for customers to pay, almost every business will have some A/R that are 60, even 90, days old. So in addition to all the other details you and the seller must agree upon, you will have to agree on the value of those 60 and 90 day old (past due) accounts.

Then, you will have to invest the time and effort to collect those past due accounts.

Also, if you want to receive the benefits of the account receivable, you will have to assume the liability for accounts payable.

So, if you find a business that you really want to buy, your best chance of negotiating a deal with the owner is to simplify by removing any discussion of account receivable and accounts payable. Let the seller collect the proceeds from existing sales and let him worry about paying all the existing bills.

Startup capital

Hilarious video on how to find startup capital. Watc this whether you are chasing venture capital or angel capital.

How to Buy a Business Course

How to Buy a Business

Do you want to buy a business? Don't have enough money? Where does the money come from when you want to buy a business? Some will try to tell you that it will come from the SBA via banl loan guarantees and such.

Fuggetaboutit!

If you want to leran how to buy a business and pay for it, forget about the SBA.

How to buy a business course.

How to Buy a Business With No Money down

How to Buy a Business With No Money Down

You learn something new everyday. If you wondered how it is possible to buy a business with no money down, wonder no more.

How to Buy a Business With No Money Down

Good reading if you are learning how to buy a business.

How to Buy a Business

How to Buy a Business Course

Many are the benefits of purchasing an existing business over starting one from scratch. Let's consider a few of these to help you decide which route to go.

- Tangible assets tend to be very essential when you're purchasing a company. Whenever you price a small business, assets are usually an essential component. Together with purchasing a company, you're obtaining essential property which allow you to carry out business as usual. As a owner, a person will not lose time or cash establishing a company. With the purchase of a business, stock has already been in place as well as the employees and customers.

- Financing is another factor. A existing business is looked upon more favorably by lenders such as banks than a new start-up because it's easier to determine a valuation for it. This improves your chances of attracting money.

-Attractiveness, When going with the option of buying a business that is for sale, the buyer can select one that appeals to his or her interests. Despite the fact that you purchase a new company already in existence, it may nevertheless be treated as a start-up since you will bring your unique talents vision to the existing business.

- Variety of choice. Buy a business offers a range of opportunities from very small mom and pop businesses to big corporations. business franchises are yet another option. Whichever purchase business route you take, conducting a business valuation is important. When you value a business, you can be assured that the price you are paying to own a business is fair.

An established business has a verifiable track record of historical data on its past financial performance, market, competition. This helps the buyer and lender to set a value for it. You can buy business as is and incorporate your ideas for improvement.

- True Value. - True Value. A company for purchase offers present affluence . The actual enterprise consists of everything you need to continue on seamlessly with the business. The business valuation is an important step to ensuring you are getting a profitable enterprise. When you value a business, other factors beyond it being financially sound need to be taken into consideration, including tangibles and intangibles included in the sale. When you purchase a business, you also have to make up your mind whether it's a stock or asset purchase. All of these issues should be covered in the business valuation phase.

In contrast to a new business, whenever an individual buys a business, they are don't have to worry about finding the best location, it's already been found for them. Furthermore, the equipment & supplies, vendors, licensing & permits, staff & employees, brand recognition, and marketing & promotions are all in place already for the new owner. However in the event that you've want to start a new business yourself and suffer all the headaches that go with it, then buying a business is not for you. If you prefer own business that you create yourself, then a startup most likely best suits your entrepreneurial persona. Nevertheless, in the event that you have always wanted to operate a business, then a company for purchase is your finest choice.

That is what I have learned so far.

How to Buy a Business: Creative Financing Using an Earnout

How to Buy a Business: Creative Financing Using an Earnout

On So-called Creative Financing

There's two basic types of creative financing. The type that works and that type that doesn't. If you keep your eyes and ears open, you will continue to be astonished by new discoveries. I recently completed a 140 page lesson on creative financing that works in contrast to the kind that doesn't. The lesson consists of the proven financing techniques, I have seen used over 20 years.

Then last night I come across something quite audacious. There was a conversation about how earn-outs work. Several people tried to explain the tactic. Then one gentleman, Mark Makuta, stepped in and gave two personal examples of how he used earn-outs to buy two businesses.

Read the rest here: http://dealflow.typepad.com/my_weblog/2009/09/how-to-buy-a-business-creative-financing-using-an-earnout.html

How to Buy a Business

This is right up my alley.

Looking for CEOs who Want to Buy a Business

Business Capital Partners is a private investment firm that partners with talented operating executives to invest in small and middle-market businesses. Target company revenues typically range from $10 - 100mm with a minimum EBITDA of $2mm.

The core of our Capital investment philosophy is a long-term partnership with talented operating executives. These relationships are formalized through the Business Capital Partners Management Partnership Program. To continue to expand the Management Partnership Program, Business Capital Partners is looking for operating executives who have a track record of success and an investment thesis for the type of business they would like to acquire.

Qualified candidates should have:

Track Record of Success
Management Partners must have a verifiable track record of success with P&L responsibility as CEO, COO, President or General Manager of a company or division with revenues of at least $25 million.

Investment Thesis How to Buy a Business
Management Partners must have developed an investment thesis, based on their experience and knowledge of their industry. The investment thesis should describe the type of company or companies to be acquired and why it would be an attractive investment. A list of specific acquisition targets is a positive but is not required.

How to Be a Billionaire: Mark Cuban

The guys at Guerrilla Billionaire interview billionaire Mark Cuban. Very cool. Loaded with good advice. Mark can show you how to buy a business.

http://dealflow.typepad.com/my_weblog/2010/05/how-to-become-a-billionaire-mark-cuban-shares-his-secrets-part-1.html

How to Buy a Business: SBA Loans

Today I have learned the following

9 Tips on getting your listings SBA financed:

1.) Find a lender who is seasoned, has common sense, doesn’t have a large and bleeding portfolio, and will entertain the industry of business you are selling.

2.) When taking a listing, set expectation with your seller that they will have to carry a piece (10% to 30%) of the deal. At present, many lenders are requiring a seller carry-back in most transaction.

3.) Expect greater than historic down payment (20% plus) requirements than were previously demanded. Fact is, there is likely less real estate collateral available from your buyer than in the past. As such, the off-set or mitigant is often a larger cash investment from a buyer.

4.) Price a business to yield greater than historic ROI’s so as to improve the Debt Service Coverage Ratio (DSCR) calculated by the lender. When valuing the business, weigh 2008 and the interim period cash flows significantly greater than 2006 and 2007, especially if trends are declining.

5.) Answer the question before it’s asked! Package (sell) your listing better by providing detailed explanations and supporting documentation of any changes, downward trends, concentrations, one-time and/or recurring add-backs, salary savings/reductions, recent affiliate closures, rent concessions, etc. The most successful brokers do their homework, know their listings, and have answered the question before it is asked.

6.) Be realistic of your expectations from a lender. Ask yourself if you would personally finance the deal, as it is structured, with the proposed collateral, the buyer(s) experience, and is the buyer's credit acceptable.

7.) Don’t get mad at an SBA lender for quickly declining a deal. Consider it a favor. Time kills deals and a good lender will decline a deal quickly and allow you to move on to another. In fact, a good lender who declines a deal will often refer you to someone he or she thinks might be able to do that particular deal. Not all lenders finance all business acquisition deals.

8.) Help keep your lender in business! As much as you might not want your buyer to go SBA, in many cases it is the necessary-evil. By allowing lenders to properly structure financing to best suit what fits their portfolio, you are helping to preserve the lender's ability to continue operations. If lenders make enough bad loans they will be out of business. Help preserve those few left standing by treating the lender as a team member and by aiding in the structure of a deal (buyer’s down, seller’s carry-back, and lender loan amount have to at a win-win-win).

9.) Get your listings prequalfied by an SBA lender. No offense but many business brokers take listings to market at unrealistic prices. Whether it’s due to the pressures of a seller to gain a listing, off tax return sales, or shear naiveté on the part of the broker, listing prices are often unrealistic for financing purposes. Let a lender help you back into the price by prequalifying the overall debt servicability of a business, determining an acceptable loan amount, an acceptable seller carry-back, if any, and the resulting borrower cash investment. Those three items (loan, down, seller carry) generally total a reasonable sales price.

My First Step in How to Buy a Business: Education

I have ordered books and courses on the topic. The plan is to devote two months to bringing myself up to speed on the subject. Then I will start talking to owners and brokers.

How to Buy a Business

After twelve years in the corporate world I have decided to buy a business. This will be my journal of the process. If you are on the same journey please stop by on a regular basis.