Buying a business

Make sure there is no pending litigation.

Check the last 5 years of P&L and Balance Sheet to make sure it’s steady and stable.

How diverse is the customer base? A bunch of good customers or one big one?

How involved is the current owner? Do most sales and relationships flow through him?

How stable are the vendor relationships?

How well do you know the business and can you add to revenue?

Make sure you have plenty of cash on hand and be prepared for every possible aggravation imaginable.

Edit: It is incredibly rewarding and a great idea to invest in yourself. Good luck!

I work for a local bank in Baton Rouge. You will need at least three years of business financials, three years of personal financials, personal financial statement.

Do you have any hard collateral? The bank will want some hard collateral. We have a product where you can use your house as collateral.

Let me know if you need anything else

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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How involved is the current owner? Do most sales and relationships flow through him?

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If the current owner is one of those people who has a great personality and everyone knows and likes - Business may suffer if they are no longer around.

Some of their customers may only be using that business because they know/like the current owner.

Certain things that I buy can be bought from a hundred different sources. I buy from who I like.

Certain things that I buy can only be bought from one source. I buy from them, even if I hate them.

Identify WHY the customers are buying from THIS business.

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Make sure there is no pending litigation.

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Research what kind of litigation other (same/similar) businesses are facing.

I sent you an email if you want to take your email address down.

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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.

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Also, make it an asset purchase.

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Good suggestion

Is company cash basis now have contingency for unrecorded liabilities maybe.

Escrow 10% of purchase if possible

Key employee retention bonus?