Business finance options

[User123]

Hello, first post on the forums so hope you guys don't mind. I've searched the forums but can't find specific answers to my questions.

Business purchase background: We are hoping to purchase a well established business that has been operating for 20 years. Location is the key as the business has no real competition. Business is tourism related. Consists of accommodation/ quality restaurant. My family have a good grounding in this business field.

Our assets: Very modest assets. Home value conservatively $450/$470k bank valuation. We owe $120k on the property. Zero other debt of any kind. No other real assets other than two small cars and the usual furniture. We lead a pretty simple lifestyle.

Business purchase will be $500k plus cap injection of funds of $70k approx so total of $570k loan approx required.

Business figures: EBITDA 2010 $208k, 2011 $307k, 2012 $276k, 2013 new mgr appointed and business went backwards to $81k, 2014 business is now back on track with old mgr reappointed and will produce $300k plus EBITDA again.

The business is very sound although there are further savings that can be made in numerous areas.

All fitout and stock included in the price.

That's the basics of what I'm looking at.

Question: We have had one business loan in our lives for $58k. Paid back in full pretty quick. We have had several housing loans over the years. No defaults.,

May I receive feedback on possible loan options please with a part security over our home.. Possible or not?

I am open to all possible ways to finance if the numbers stack up and are competitive.

I'm yet to run the figures past my accountant for appraisal...

All feedback most welcome.

Cheers.

 

[Aaron_C]

This is the realm of business banking so it would really depend on the business financials, your experience and your equity. You seem to be OK on all 3. You might be able to leverage your own home to fund this acquisition, so speak to your broker about it.

 

[User123]

Thank you Aaron. I should also add we will need to relocate so our home will be rented. Estimate of $480wk minimum by an agent last week

Can you recommend broker in Qld who we may approach? We have only dealt with one bank all our lives but they appear to not be the greatest with rates.

Thanks again.

 

[Shahin_Afarin]

Assuming you do not have enough equity to fund the whole deal - you could potentially do a business loan but LVR would be limited to max 50%, rates of 9'ish. and fees of around $3k-6k.

You will also need to see a proper business plan, full financials of the business you are purchasing, cash-flow forecasts and how the business will operate once you take over.

 

[Truly Exotic]

id be more concerned/aware that a bad manager can make your profits drop to that low, and its only 3 months in to 2014 and you are projecting record profits.

restaurant/accomodation can be quite volatile, especially the food side, but the drop is quite concerning

 

[User123]

The 2013/14 business year has 3 mths left..trading figures and current net are well on track... there are very clear seasons why the net dropped so much but won't detail that issue on this forum...for sure some tourism business outlets can be fickle but this business type is very rare and unique in its location. Hence why I am targeting it. Any further feedback most welcome on the finance issue or if you have had a similar experience with finance.

 

[Mick C]

Hi,

Business finance ( non franchises) - The funding + rate + terms will rely on;

1. Last 3 years tax return - If you can provide a good explanation and risk mitigation this will be suffice

2. Your experience - From the sound of your post it looks ok

3. Serviceability - Can be based on current cash flow of the business + forecast cash flow + any PAYG income ( from your partner etc..)

4. Security - Your property/cash/goodwill/equipment

5. Business plan - Doesn't sound like you have one yet

Looking at your post i would expect you to get a LVR of around 60-75% if your willing to use your house as security ( crossed, no need to do a cash out ) If you didn't have any resi security or didn't want to use any resi security and wanted to use cash/equity only than your LVR would def be below 50% ( this is where the cash out will come into play).

Rate, from the Big 4 roughly 7% give or take 1%, depending on how you present the deal.

P.s Your business plan is probably one of the most important docs ! due to the 2013 tax return drop.

 

[John_]

Hello, first post on the forums so hope you guys don't mind. I've searched the forums but can't find specific answers to my questions.

Business purchase background: We are hoping to purchase a well established business that has been operating for 20 years. Location is the key as the business has no real competition. Business is tourism related. Consists of accommodation/ quality restaurant. My family have a good grounding in this business field.

Our assets: Very modest assets. Home value conservatively $450/$470k bank valuation. We owe $120k on the property. Zero other debt of any kind. No other real assets other than two small cars and the usual furniture. We lead a pretty simple lifestyle.

Business purchase will be $500k plus cap injection of funds of $70k approx so total of $570k loan approx required.

Business figures: EBITDA 2010 $208k, 2011 $307k, 2012 $276k, 2013 new mgr appointed and business went backwards to $81k, 2014 business is now back on track with old mgr reappointed and will produce $300k plus EBITDA again.

The business is very sound although there are further savings that can be made in numerous areas.

All fitout and stock included in the price.

That's the basics of what I'm looking at.

Question: We have had one business loan in our lives for $58k. Paid back in full pretty quick. We have had several housing loans over the years. No defaults.,

May I receive feedback on possible loan options please with a part security over our home.. Possible or not?

I am open to all possible ways to finance if the numbers stack up and are competitive.

I'm yet to run the figures past my accountant for appraisal...

All feedback most welcome.

Cheers.

Make sure you don't end up buying a dud business, I have been looking to buy for last 6 weeks 90% of what is on the market is rubbish and just a tip if you are spending that much get a forensic accountant to check it all out, what is 10-15k compared to 500-600k investment.

 

[Aaron_C]

Make sure you don't end up buying a dud business, I have been looking to buy for last 6 weeks 90% of what is on the market is rubbish and just a tip if you are spending that much get a forensic accountant to check it all out, what is 10-15k compared to 500-600k investment.

Well the first question is if it's such a good business - why are they selling?

 

[John_]

Well the first question is if it's such a good business - why are they selling?

2 Main and believable reasons.

Retirement
Health

But as mentioned out of all business listings 90% are pure rubbish, with some vendors not even having last 2 years financials. I missed out on a business that was established for 24 years with the owner retiring at the age of 68, rare but it exists.

 

[Peter_Tersteeg]

Make sure you don't end up buying a dud business, I have been looking to buy for last 6 weeks 90% of what is on the market is rubbish and just a tip if you are spending that much get a forensic accountant to check it all out, what is 10-15k compared to 500-600k investment.

I don't like to be repetitive, but John's advice here is really important and worth emphasis. I've also seen so many cases of people wanting to buy a dud businesses. A good business will welcome a forensic audit (if you pay for the audit). A lousy business will push back on this process.

Well the first question is if it's such a good business - why are they selling?

Not everyone is in the 20s and looking to remain in their business forever because they're immortal. Passing it onto their children may be an option for some, but this often isn't a good option for the parent. A close mentor of mine has recently sold his business and is managing this process into retirement, despite that business having massive cash-flow. He's done very well out of the business over the years and is now doing well out of the sale.

My father is 72 and sold is business 6 weeks ago. He sold a very healthy business and got an excellent price. Already the new owner (half his age) is letting the business slip and it's only generating about 25% of what Dad says it should be bringing in. Dad spent the last 2 years teaching this guy how to run the business. I think Dad's biggest problem now will be figuring out what to do with his time.

The exit strategy in a business is very important. Like it or not it will happen one day even in the strongest business. You can either plan to manage the process and do well out of it, or you can let it die (probably unprofitably) on its own.

 

[Aaron_C]

I
Not everyone is in the 20s and looking to remain in their business forever because they're immortal. Passing it onto their children may be an option for some, but this often isn't a good option for the parent.

I accept that's the reason for many sales but I've seen too many duds trying to be flogged off that are losing money badly with the agent always saying the owner wants to retire.

 

[Peter_Tersteeg]

I accept that's the reason for many sales but I've seen too many duds trying to be flogged off that are losing money badly with the agent always saying the owner wants to retire.

No argument there. There's lots of failing business owners trying to get out and get as much as they can for it on the way.

 

[John_]

No argument there. There's lots of failing business owners trying to get out and get as much as they can for it on the way.

What industry was your fathers business in ?

 

[MarkA]

I've been looking at a business purchase recently. Purchase price 340k, established 27 years - current owner looking to retire after buying in 2004. Have the last 7 years financials and profits very healthy. From 2004-2009 the business was run under management with no active role from the owner, NP over 250k from available financial statements for all years. From 2009 to present the owner has been running the business on limited hours, still generating high net profits but with extended hours profits could increase substantially.

The business is located in a large regional centre, population around 30,000.

I've been looking for a career change, so this would be my first venture into business. I have 2 investment properties that have some equity in.

In regards to finance, would a bank consider someone who has no experience? And if so how much am I looking to have to contribute?

 

[Aaron_C]

Most important thing is the business financials and your equity.