Loan to purchase existing Business

3892ben10

Hello,

I have my eye on a business that is for sale @ £150k.
The business employs 2 people as well as the owner and has sales of £400k with a gp of £95k net profits of £35k. Stock is valued at £60k.

The numbers seem pretty reasonable to me (I am a director for a similiar sectored company)

I believe I could do a lot with this business and although I havent seen the numbers in depth I do believe with my background I could bring in new sales avenues and increase margins in such a business (I know they all say that:cool:)

Anyway my question is FINANCE!. Where do I start? who should I contact? How much of a deposit would a bank be looking for?

I have an excellent credit record and I am a home owner although my mortgage has only been running 8months witha little over 30% equity.

Thanks in advance

Ben

paddyrg

Often the best lender will be the guy selling the business - they've got most to gain by it after all, and may consider a staged sale.

£35k Net profit - so 4+ years before you can reinvest or take a salary? Seems a long time to sit out if you're still paying a mortgage etc. Stock is often overvalued - companies tend to accumulate cruft - lines bought but which haven't sold well.

3892ben10

paddyrg

I'm not sure that’s an option I would like to go down. I think I would prefer to use a proper lending institution.

As for the stock value I couldn’t agree with you more - Obviously the business would have room for negotiation in the overall asking price

Thanks for you input

colino

You really need to have an open book look at the business. I understand you want to be cautious about details, but a business with roughly a grand a day in sales, does it need two months of stock taking up valuable space and company finance? Does the business own its premises or any substantial assets? Are the other two employees an asset or a liability? Why is the owner selling?
Speak to you local (small) business bank manager and ask for their involvement, but most banks are lending against solid assets (bricks and mortar) and at best, 70% of their value. Stock will be valued at fire sale prices and only then will they do any due diligence on the accuracy of the books.

Seanymph

when I bought my business I raised my capital on my residential - it was much cheaper than commercial borrowing.