TIP: FUNDING & FINANCE
Two of the biggest mistakes people make when acquiring a business are that they either: 1. Underestimate the total investment required. 2. Overestimate the amount that they have available to invest. To avoid these two basic errors you simply need to be aware of them, and calculate the total amount you can afford to invest, and the total cost of every business that you look at. It is often more than 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, 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 great 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. Remember also, to calculate the “working capital” required.