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
Saturday, May 29, 2010
Thursday, May 6, 2010
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.
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.
Tuesday, May 4, 2010
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.
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