re: Buying a business

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I'm not sure what you're bank will want or need, but I am sure you must purchase assets, and not stock or member units. If you're forced to purchase stock, etc., you'd better look into tail coverage. It depends what type of business, and there are easy fixes. A good bank knows this. If the bank isn't concerned with this, it's not a good bank, and the banker is incompetent.

Situation specific, the loan is probably a seven year term if it's smaller (maybe $1.5MM or less), the tail situation is potentially the rest of your life. I'd think for $1.5MM, you wouldn't need a down payment. At least I've never had to come up with one other than pledge some assets.

$1.55MM and less, find a smaller bank. Endeavor to make your banker, accountant, tax attorney, attorney and insurance person your friends, and part of your team. Do not throw a dart at the yellow pages picking these people out, and do not price shop them if they are good and add value.

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Some great info here.

I'll add as ive been through some buyouts, and am closing on a business next week for me and the wife.

- Key Employees. Find out who REALLY runs the show when current owner/boss is gone. Find out asap. Take them to lunch, interview them, etc. as soon as you can. They will make or break the transition. Are they underpaid? Do they follow the rules? Most of the employees under that person will follow what they do. My advice is always give that person a bonus for helping w/ transition period, then a raise.

-Add backs. Find out what in the hell the owners ran through the expenses that should be reclassed as personal income. NOTHING is wrong with doing it, they all do it, just make sure you identify how much that was per month and year.


Also, make it an asset purchase. Start a new corporation, do NOT buy theirs. Absolute disasters can be waiting that even the current owners are unaware of.

I could go on for hours, but theres a start. I do this type of thing for a living, more or less.


edit: one more thing, check out SBA if its smaller. some great opportunities for 10 year paybacks, but at a cost. high barrier to this loan right now is experience in the industry, and they've raised the down payment a little. Conventional is better for most folks right now.