My wife and I have been approached about buying a local business from the current owner.

The business is currently doing very well and the only reason that he is looking for a path out is because of his age and that he does not have any children or family members who are interested in taking over the business.

We need help understanding what we don't know.
We need to figure out what the best path is to acquire financing.

The current owner has the business divided up between the book of business and operational workings, and the second part of the business to be sold is the actual building and property. He is willing to owner finance the building and property, but he would like to get as much money as possible upfront for the book of business.

My wife and I do not have any significant cash reserves to go into this endeavor. We have recently purchased a home and we have some non-trivial amount of student loan debt, and some cash in the bank but nothing more than a little cushion on top of our emergency fund. The main thing that we bring to the table is our education and knowledge that would be very useful for running a business of this type. I am sure that we may be biting off more than we can chew, but I believe that we could be successful in the business if we take over what is currently operating and make improvements in the coming years.

What is the first step that we need to take to see if there is an institution or someone who would help us with financing?

I probably need to have a couple of phone conversations with someone to help fill in the gaps of what I have missed in this post. I'm a complete newb when it comes to "business" so forgive me if there are some important things I left out.

Any help is greatly appreciated.

Located a little east of San Antonio.

Thanks!

It's going to be difficult to get financing for the new business.

I'm not very familiar with SBA loans/financing. That may be the best place to start.

After that, I would try the bank where the current business does business with. They probably have a good idea of the cash flows.

It would be very helpful if you are currently working in that same industry. This would help show that you have the expertise to take on this business.

You will likely need some sort of partner/backer.

Some questions/comments:
- Are you and your spouse working full time? And if so, will one of you quit to take over the business?
- Are there employees? If so, who will handle payroll?
- Starting out a business cash strapped is not good. Make sure that you have operating cash. Depending on the clients/business, it can take a while to get paid. During that time, you will be spending to keep the business going.
- It may be easier to finance the building and property through the bank (as there is a hard asset to secure the note to the bank). Is the current owner open to financing the book of business instead?
- What kind of business is it and how long have you known the current owner?

Black Tooth Grin said:

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Some questions/comments:
- Are you and your spouse working full time? And if so, will one of you quit to take over the business?
- Are there employees? If so, who will handle payroll?
- Starting out a business cash strapped is not good. Make sure that you have operating cash. Depending on the clients/business, it can take a while to get paid. During that time, you will be spending to keep the business going.
- It may be easier to finance the building and property through the bank (as there is a hard asset to secure the note to the bank). Is the current owner open to financing the book of business instead?
- What kind of business is it and how long have you known the current owner?

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Both working full time. One would quit to run the business while the other keeps their job to maintain insurance, etc.

There are 20+ employees. The current owner and his wife keep the books/handle payroll currently.
Cash-flow would seem to be more of an issue pertaining to the business itself rather than our own personal finances, correct??

I don't think he wants to owner-finance the book of business because there's more risk for him doing it that way. If we run the business name in the ground, it will be hard for him to recover its value.

Without giving away too much about the business I can tell you that it is a retail grocery/food market with gas pumps that also includes a significant food processing area that operates separately with additional retail and wholesale business.

Thanks for the good info

SBA is probably going to want 20% in equity for the book of business. Do you have that kind of cash? I've seen SBA programs go at 10% but not less than that.

Put together a business plan. 12-months by month then 2 years by year for a total of 3 years. You'll need this for SBA anyway. Use the existing financials of the business and extrapolate from there. Don't project outrageous growth to justify the sale, just assume you can keep it going and grow at a rate similar to what it's growing at now. When you get to the Net Income at the bottom can that number service both the bank's loan against the business and the owner's loan against the Real Estate?

Own the business and real estate in different legal entities. That's how he currently holds it all and there's a reason for it. Keep this structure. Create a lease between operating company and real estate company.

What is he paying himself and is that an amount worthy of you or your wife quitting their day job?

I THINK you said there would be other tenants in the real estate. if so that's additional revenue into this new universe. Can you use that to cut your rent and still service the real estate note? If so this might help make the numbers work.

Have you worked in this line of business before? Could you work for the current owner for 6-8months?

I'd reach out to the current bank of the company and someone like Bizbroker97 and have a conversation. I manage a couple small family business that I helped my dad start.

We tried going the SBA load route to launch another company that would allow us to be vertically integrated and much of what he says is correct. Each participating bank appears to be able to call the shots and the terms will depend on the situation and their defined risk score for the loan. We were told 10-20% down depending on review of all the things mentioned here with lots of documents submitted (experience of owners, business plan, cash flow, etc.). Our primary owner and would be GM had all the exact experience possible as they had started this exact manufacturing for another company. Things like inventory and labor costs at start up had to be under a different loan with different interests rates.

The kicker for us that gave us pause is they also required us to give our main business as collateral which seemed to defeat the entire point of the SBA loan. We might as well just went to our current commercial bank and got a traditional loan. In essence the process seemed to stop the entire point of the program for us (create more small businesses without traditional loan requirements).