Two of the biggest mistakes people make when acquiring a business are:
- They underestimate the total investment required
- They overestimate the amount they have available to invest.
To avoid these two basic errors, you simply need to be aware of them. Use the following information to calculate the total amount you can afford to invest, and the total cost of every business you look at.
It is usually more than just the asking price plus stock.
When buying a business you need to allow for the following acquisition costs:
- Purchase Price
- Stock At Valuation (Wholesale Value)
- Stamp Duty (varies from state to state)
- Assignment Charges (franchise, lease, other)
- Legal Fees
- Accountant’s due diligence and advice
- Loan establishment fees
- Set-up costs (stationery, uniforms, signs, advertising) Capital improvements
- Computer hardware & software …… and more.
These are often broadly referred to as “working capital”.
To avoid overestimating your financial capacity, it is wise to start off by arranging to meet with several finance brokers or bankers to determine what your limit (or budget) should be. Once you have set your budget it makes it easier to find the right business and move forward with the acquisition without delay.
Remember that most experienced bankers and financiers will be aware of what to look at when buying a business. They are therefore a useful source of free advice and assistance in appraising a business and its value. After all, they won’t lend you the money if the business is not going to be able to repay the loan.
Contact a Benchmark Business Broker to ensure that you enter the acquisition process with realistic expectations.
Benchmark Business Sales and Valuations
