I’d like to buy a business I helped build but can’t afford

C

christopherc

New member
A couple years ago, I started helping out a small business on the side. There were 2 people involved including the owner. They were doing fine, but on a tiny scale.

I joined them in the trenches for a couple months before we struck gold. I don’t want to get specific for privacy reasons, but I significantly contributed to that and the owner of the company became a huge influencer of sorts. I joined full time and the company ballooned up to 15 people and a large (rented) office space.

The company is now doing about $2M-3M in revenue. After a couple years I moved on from working there full time due to limited growth potential.

Now I am aware that the owner is moving on and looking at selling. I believe I could effectively pilot this business, but I don’t have the hundreds of thousands I suspect to be necessary for even a down payment on a purchase offer.

Do I have any options at all? An investor? Seller financing? Realistically speaking, how much money do I need to bring to the table to make this conceivably possible?
 
@christopherc Revenue is not profits. How profitable is it?

Your best option is seller financing. How much they are willing to take is hard to predict. It sounds like you worked with them for years, so they trust you and they know you can (I assume) deliver. That's worth a lot to a seller.
 
@phananh Op mentions “a couple years ago”

For it to balloon from tiny to $3,000,000 within a couple years and now the owner moving on so soon - sounds like he just wants a quick pay day

Not sure seller financing would be on the table - but like several have mentioned - OP gives us no real details to help - OP needs to hire a cpa who can analyze the business and put together options based on due diligence
 
@marilynliddell This might be true, but very little is lost in making an offer, and the owner might just be bored with the business and have a new "thing" they want to try... but don't have the time because of how quickly its growing... In that case a check for $x every month or every quarter is actually little different than a big payout and can actually be better for you depending on how you are handling taxes.
 
@christopherc Only the current financial statements for the business can give you the big picture. Assuming you have a good relationship with the owner, ask if the business is for sale and for how much.
 
@christopherc Impossible question. Without due diligence and actual numbers, anything anyone tells you on the internet is absolute bullshit.

You need to approach the owner about purchasing the business. Ask for all the financials. Calculate cash flow. And then and only then will anyone be able to answer your question. But a good accountant is probably the better place to start rather than random morons on Reddit.
 
@catslock1 Totally, I hear you. I guess my question was less so “should I buy this business?” and more, “if I did, do I even have any options to finance?” Thanks for the input.
 
@christopherc The answer is the same. Remember that banks are just interested in making money. If you can demonstrate that the business is making hand over fist, then every bank + the SBA will be more than happy to take a piece.

My banker has even seen some SBA loans go through for 100% financing for businesses that establish exceptional cash flow.
 
@catslock1 Interesting, I just did an SBA loan and I was under the impression there was no leeway on the bank side to write it 100% due to SBA requirements. I believe 10% is required down and up to 5% of that can be from the seller chipping in, but their 5% would be on full standby until the bank note is fully paid off.
 
@firsthandsemiuniversalist Only passing along what my banker has told me. I don't need or want 100% but it was offered as a potential option. He made it sound like it was something they've been doing recently. I do think it is dependent on a strong DSCR.
 
@christopherc You can take seller finance, for example if the business is valued at $2m, the current owner could give you $200k seller finance, which means you can buy the business for $1.8m upfront, and the $200k discount will provide equity which becomes your deposit for the loan to buy the business.
 
@christopherc You have to look at cash flow and then SDE or seller discretionary earnings that the owner actually benefits from owning the business that includes payroll taxes paid phone bonuses any other benefit that the owner gets as being the owner, then it's usually a multiple of that depending on the industry
 
@christopherc In my deal I did the above, except I added back in the salary I planned to pay myself and offered a multiple on that. If the owner is involved and not fully passive their salary still needs to be replaced. All of their excess compensation I paid a multiple on.
 
You must log in or register to reply here.
Back
Top