Some months ago, I asked a prospective buyer of a business for sale transaction “What liquid cash do you have to invest in a business.” The answer was, $200,000. The business for sale was priced well and likely eligible for financing with the right buyer. $200,000 would have been 1/3 down plus enough working capital.
As time went on, the buyer spent his time and the time of the seller, gathering facts and continuing to be very interested in the business. The business was as it was reported to be in the original marketing presentation.
The buyer, as it turns out, is wanting to borrow to the hilt to buy the business, offering considerably less than the business is worth…because he does not have enough to make a substantial down payment. In other words, the $200,000 is liquid and available but he does not want to use it. If he pays full price, or close, for the business and puts the routine 1/3 down, he will be cash short for working capital, living, a potential move, and other necessities.
Buyers, when contemplating a business for sale, think through, in advance, where money will go. Be respectful of your time, the time of the seller (and broker.) Do a cash flow for the business and your household. Consider whether cash income comes to the business every day, monthly or, perhaps, even longer. These are outgo areas you may have to consider:
1) Working capital, varies greatly from business to business
2) Move expenses, perhaps as much as $10K – $15
3) Dual house/rent payments and utilities
4) Routine living expenses
5) Professional fees to buy and organize the business
It is fairly easy to work the numbers in advance of exploring the business in great depth and, potentially save yourself and others the time.
When talking to prospective business-for-sale buyers, brokers (that would be me) should be more careful in pre-qualifying inquiries.
