It is not uncommon for a business broker Orange County to recommend buyer financing. This is the option in which the seller of a business agrees to give the buyer a loan that enables the buyer to easily purchase the business. This is not essentially a loan but rather an option that allows a buyer to pay a down payment and settle the remaining balance over a period of time. When done correctly, seller financing benefits both the buyer and the seller. But should you consider it?
When does it make sense?
Securing a loan that is needed to buy a business can be hard more so when the buyer has a bad credit or lacks a good security. In this case, the seller of the business can agree to favorable terms where he allows the buyer to pay for the business over an agreed period of time. To benefit, the seller can either impose a higher interest rate or set the price of the business a bit higher. Business brokers Orange County recommend this option because it enables a buyer to get financing easily and allows the seller to sell fast and make profit.
What the seller expects
Apart from cashing out, the seller wants to be sure that their business will be in the right hands. As a result, they are very picky on the buyer they sell to. A seller will want a buyer who has significant experience in the industry, a buyer with a solid business plan, and a buyer with great working capital and roots in the community. The seller knows that if the business fails before the buyer clears the payments the seller will incur a loss. The interests of the seller are thus tied to the success of the business.
Business sellers treat the loans as seriously as the banks do. They will require a credit check, ask for collateral and also request for life insurance. This is very important when you consider that the loan terms can extend for 10 years.
How to vet the deal
As a buyer, it is not enough for you to grill the business owner. You need to scour the financials right from bank statements to cash flow and tax returns. You also need to inspect the business to make sure all the inventory, equipment as well as assets are well accounted for. The best thing is that a good business broker Orange County can help with this.
What to negotiate
Buyers can negotiate the terms given by the seller. Typically, a seller will lend you between 5 and 15 percent of the selling price. This does not, however, mean that you cannot get 90% seller financing. You can also negotiate the terms on loan repayments and interest rates.
It is not uncommon for a business broker San Diego to recommend that you purchase a cheap business. This is because a cheap business gives you the advantage of additional affordability and potential for high return on investment. But what exactly are the pros and cons? Business broker can give you the real truth and also help you find the right cheap business to purchase.
Why should you buy an existing business?
This is obviously the first question you will have to answer even long before you contact business broker San Diego. As you may have already learnt, there are many benefits that come with the purchase of an existing business. The main ones include the following:
- The groundwork has already been done to get the business up and running
- It is easier to obtain finance as the business has a proven track record
- It has already established a market for its products
- There is already an established customer base
- Business plans and marketing methods are in place
- There are existing employee
- Many business challenges have been discovered and solved.
Even so, you should not rush into the purchase of an existing business without first looking at the disadvantages.
An experienced business broker can help find the best performing business for you to purchase. He will also enlighten you on the drawbacks of investing in a cheap business. The broker will also make you aware of the disadvantages that come with the purchase of an existing business. The main disadvantages of a cheap business include the following:
- You have to invest a huge amount up front to purchase it
- You must have at least several months of working capital to boost the cash flow
- If the business has been neglected you will have to spend a lot more to revive it.
- You may have to renegotiate outstanding contracts
- The owner might not be selling for the best reasons
- There is a chance not all current staffs and customers will be okay with a new boss.
All in all, buying an existing business is worth it. It is even more attractive when going for a cheap business. Buying a cheap business will not just help you invest in an established business but will also help you purchase it at an extremely discounted price.
The best thing is that most cheap businesses still have an established reputation and location, great employees in place, a good customer base, vendors, cash flow and the facilities and equipment that you need.