Acquisition/Financing Business Purchase With Land And Liquid Assets
I am a novice to the "game" and this site has been an education thus far. Thanks for teaching me more in two weeks than I had previously learned in my life. Here's the skinny... There is a established business of 16 years with a single owner who wants to cash out and retire. The current assets are worth $300k (equipment, etc.) and the 1.5 acres of land have an appraised value of $500k-$600k. The business shows annual revenue of $225k (2000) to $300k (2004). The business owns all assets free and clear with no debt. There are three parcels of .46 acre (zoned commercial) and the business operates on one parcel with the other two vacant. There are so many questions I would like to ask but I'll try just a few for now. How would I get the financing for the deal if no private financing could be found? What pitfalls should I be aware of with a company acquistion deal as opposed to just a "dirt" deal? Can I finance the commercial property only and have the owner include the business or is this two seperate transactions? Can I just purchase controlling interest (stock) in the company and the assets and land come with the deal? Thanks in advance for taking time to view/help with my questions.
Deals like this, esp. if it's your first, should involve a good attorney experienced with commercial REI, and, in some cases, a commercial Realtor as a buyer's agent. There's a lot at stake here, and your relative inexperince could be exploited. There are lots of numbers to look at, as well as general industry conditions and economics. For instance, is it a small family run motel with a good track record over the years but three highly capitalized, big chain motels have just opened up and the owner wants out before she's lost all her business? Not an uncommon scenario these days.
That said, there are industry guidelines for what a going business is worth ( value = so many times gross annual income, for example). ****This URL Not allowed****.com has some decent listings for comp purposes, as a starting point. Do some targeted Googling using quotes and such, the info is probably out there. You may well find industry sites, some with forums, that can help with technical details.
For the owner to finance, he/she will have to be comfortable doing business with you (and you with him/her). There are lots of ways to present your offer to make it look good from a retirement income perspective. Why would the owner(s) want to cash out if they can see no other way to get the 7-8-9% return you could offer them on a CD? Few safe investments these days can offer that kind of return. It's up to you to convince them it would be a "safe" investment.
You might be able to buy into the company and/or work at the business awhile, perhaps eventually as a partner or even majority stockholder and earn an income in the process, but that's beyond my expertise to address. If you remember that your this is probably your seller's baby, and has been their life, so they probably want to make sure that 1) they get a good price and/or 2) they want it to end up in good hands so it isn't run into the ground. If the seller doesn't seem too interested in either, that is a red flag.