ELI5 buying a business
April 22, 2023 10:54 PM   Subscribe

I would like to buy a Specific Widget business that is for sale. I have the skills to run the Widget Business, but don’t know about buying Widget Businesses, or any businesses. Please explain the steps to buying a business, including getting a loan, how to figure out how if I can even afford to buy the widget business, and so on. I welcome reputable links (I’ve found lots of ads and “enter all your info and then we’ll try to sell you things” sorts of websites in my googling) and simple explanations; I am good at widgets, less good at banking and bureaucracy. Please give me step by step process from step one to closing. Thank you!
posted by anonymous to Work & Money (4 answers total) 1 user marked this as a favorite
 
You will need a business plan first - something you might be able google how to do without getting so much garbage. The business plan outlines, among other things, the projected financials for the business. Since this isn't a start-up, you should be able to get details about the existing business as as a starting point and then adjust based on what you think will be different when you take over. This will give you an idea of both the profit and cash flow of the business. Make sure you understand how much the previous owner was taking out of the business as salary and owner's draw (profit).

Once you understand this, you can see how much money would be available to pay off a loan or make payments to the owner. You will need this to get funding - the lender will want to see number that make them confident you can afford to pay them back. At this point you can start to research funding options - investors (maybe family members), bank loans, or maybe the current owner will allow you to pay him over time so you can use the business profits to help fund the purchase.
posted by metahawk at 11:32 PM on April 22, 2023


The U.S. Small Business Administration offers free/low cost counseling based on your location (district directory). Online resources. SBA Business Plan primer.
posted by Iris Gambol at 12:55 AM on April 23, 2023 [3 favorites]


SBA 7(a) is a great solution if the business purchase is $500k or lower. You’ll need a 25% down payment if you don’t own real estate with equity. If the price is a higher than $500k you have to be either buying real estate or own your own real estate to secure the loan.
posted by MattD at 8:30 AM on April 23, 2023


I once bought a small retail business, and later sold it. The previous owner used a business broker who did almost nothing except collect a fee. I was approached by a broker who was shockingly incompetent. I did not use a broker to sell it.

Is there a Widget Business Association? with a website, blog, publication? They would be the most useful. I sold my bookstore (pre-WWW) to a sales rep; sales reps gossip like crazy. I planned to put an ad in the trade magazine, but found a buyer before I needed to. Is ther an annual Widget Trade Show? Go.

SBA free help was quite useful when I bought the business. i did a pro-forma profit/ loss statement. The research I did for that helped me come up with my offer, and was great education. I talked to an accountant; he was useless and did not give good advice.

Go to Widget Buisinesses in your area, talk to owners and staff.

Owning a small business was such an education, fun a lot of the time, so much work, and, overall, profitable. Good luck.
posted by theora55 at 8:44 AM on April 23, 2023


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