Why You Should Buy a Business

As someone who helps prospective and existing business owners for a living, I am heartened by all the media attention aimed at helping people find employment and survive this difficult economy. I'm concerned, however, that there isn't more discussion about the option of buying an existing business.
In the business brokerage industry, we equate buying a business with "buying" a career or profession. For the unemployed and those worried about their job security, buying a business is just as viable an option as a traditional job search or starting a business from scratch.
Though it requires a larger upfront investment compared to starting something from scratch or conducting a traditional job search, buying a business can provide you and your family long-term security while paying you an immediate salary, covering your bank debt and providing a small cushion to grow the business. It's also one of the best investments you can make, as evidenced by its history of outperforming both the stock and housing markets even during periods of double-digit growth rates. When you buy the right business, you're building something that has real value and can be resold later--potentially for a profit. But those aren't the only benefits. Here are six more:
1. Immediate cash flow: Taking on a business with existing customers can be extremely beneficial. With a properly structured acquisition, the business revenue should enable you to cover the cost of any bank loan, take a reasonable salary and have a slight cushion for growth. This scenario is a stark contrast to starting a business from scratch with no immediate revenues, clients, employees or cash flow.
2. Brand recognition: There is a significant advantage when you acquire a business with existing marketing, advertising, client contracts, trained employees and third-party relationships. The business is established within its trade sector and known throughout the community. This is an intangible benefit that's almost impossible to create with a start up.
3. Bank financing: Financing the purchase of an existing business can be easier than raising money for a start up. The bank can see historical performance and not just rely on pro forma financials or projections. If you have industry experience to go with the business acquisition, the banks know you have the business acumen to successfully operate it.
4. Trained employees: One of the most valuable assets in a business acquisition can be the existing employee base. With the right team in place, business owners can focus on growing the customer base or developing new products and services. The work of finding, hiring and training new employees has already been done, and you can use this as a springboard for future growth. Plus, the entire business doesn't rest on your shoulders, which gives you peace of mind should you decide to take a vacation or a break from the action.
5. Systems and infrastructure: Many businesses will have systems that range from operating manuals to complex IT platforms. Existing systems support the company's operations and should be the foundation for future expansion. You also have the outsider's point-of-view to spot and improve weaknesses in the system.
6. Training and transition: Sellers can be invaluable in helping you transition into the business, offering guidance ranging from specific training, introduction to key clients and suppliers, supplying an employment contract for future services, and in many cases, seller financing for the business purchase.

Top 10 Reasons to Start a Business in a Recession

Regardless of what people around you (including the media) may say, right now is the best time to get into business. Just go back and look at the economic slowdowns throughout history. Most recessions in the post-World War II era last an average of 10 months, followed by growth cycles that last an average of 50 months.
What this means for the startup is there's no better time than right now to get going and start pursuing your business dreams--in anticipation of the next period of growth.
1. Everything is cheaper.
Let's face it: There is great value right now in this and in world markets. This is the right time for fantastic deals in virtually every category, from land and equipment to commercial office space, personnel and labor. As asset prices have been knocked down, there is no better time to get into the real estate or financial markets, or even heavy equipment and construction. Some people have waited years to find value in these markets--and now that time has come.
2. You can hire more and better-qualified people.
In an era when even Microsoft is laying off, you can find great resources at affordable rates. Thinking about getting your high-tech startup off the ground? There are plenty of engineers waiting to be hired.
3. People are looking to change suppliers.
From a cost perspective, everything is on the table for most companies. Even if your prices are higher, if you can come in with greater value, you have a good chance at winning new business. You also have the advantage of being the new kid on the block when it comes to pitching your products and services. Many companies are desperate to find new partnerships with new companies that have a different, better or more innovative way of delivering those products and services.
4. Ownership equals tax incentives.
Business ownership offers a variety of tax benefits that aren't available to employees. While taxes should never be the sole reason to go into business for yourself, it should be one reason to add to you "benefits of business ownership" list.
5. Suppliers are giving better credit.
Because the credit markets have virtually shut down, the B2B credit flows are keeping money circulating out of sheer necessity. That means a bullish outlook for companies looking for good terms on stock and/or inventories. The main advantage is that all parties have more incentive than ever for finding true win-win situations that allow for cash and stock flow. When everyone is looking to survive, great deals can be had.
There's no better time to start than the present, especially if people around you are more comfortable with their own list of reasons why they shouldn't start pursuing their own business dreams right now. It only means you'll be facing a lot less competition.

LIQUOR STORE
High volume liquor store located in Marion County, situated on a major intersection with great visibility. Both cash registers and all liquor are secured behind glass. Approximate sales are 50% Beer and 50% liquor. Lottery machine, ice cooler and pop vending machines are on site. No check cashing but this could easily be added. 217 package liquor license - A safe and very clean store! 2008 revenue was approximately $940,000. Asking $500,000 plus Inventory

CARWASH - N829
This 10 year old carwash is located in a fast growth suburb on the east side of Indianapolis. The carwash is situated on a major state road with high traffic count and visibility. Opened in 1999, there is no competition for this wash. There are (2) automatic bays, (7) self-serve bays and a total of (10) vacuum/shampoo bays. The carwash is well maintained with the top of the line equipment installed. Recession proof business!
For 2008, the business had gross revenue of $333,000 with over six figure owner cash flow. The real estate is owned by the seller of the business and included in the sale. There are approximately 1.6 acres of land. The building is 5700 square feet with another 2700 square feet of vacuum area.

CARWASH - N816
Carwash located in northern suburb of Indianapolis. This is an express carwash built only a few years ago, excellent equipment, brush type tunnel, 3 self serve bays, coin-operated vacuums, approximately 1 acre in a great location! Gross revenue is around $450k with a cash flow of just under $200k.. Real estate is included in the sale. MAKE AN OFFER

SPORTS BAR - CASTLETON - N822
This sports bar opened in 2006. It is housed in a 3000 sq. ft. building. It seats 150people with additional patio seating for 50. It carries a 3-way (209) liquor license. There is a kitchen and smoking is allowed. For 2008, the business had gross revenue of $480,000. Sales are 80% Liquor and 20% Food. Asking $165.000

UPS STORE - N823
Hamilton County - For 2008, the business had gross revenue of $235,000 and cash flow* of $41,000. Asking $84,000

SBA Loans and Programs

There are number of advantages to an SBA loan, including longer terms, no points and no balloon payments.

Who is Eligible for an SBA Loan?

Most for-profit small businesses are eligible for an SBA guaranteed loan. This includes manufacturers, wholesale, retail and service businesses as well as independent or franchise businesses.

Loan Qualifications

Retail and service businesses with sales (3-year average) not exceeding $6 million to $20 million, depending on the industry
Wholesale businesses with employees up to 100 regardless of sales volume
Manufacturers with employees up to 500 depending on the industry, regardless of sales volume.

SBA 7(A) Loan Size $25,000 to $2.0 million

Use of Proceeds

Commercial real estate (purchases, construction, or refinance)
Leasehold improvements
Business expansions
Machinery, equipment, furniture or fixtures
Business acquisition
Working capital (offered in conjunction with same of the above)
Start-ups (ALL Franchises, Motels, Restaurants Gas Stations and C-Stores)

Other Credits Considerations

Business must have adequate historic cash flow to cover the proposed debt
Business debt to net worth must meet industry averages
Borrowers must be actively involved in the day-to-day operation of the business
Satisfactory personal credit histories are required for all principles and guarantors
No past bankruptcies or felony arrests

SBA Rates

1. SBA Express Program (typically used for smaller lines of credit and term loans, lender can obtain 50% guarantee): Maximum rate is Prime + 4.50%, however, if the loan is $50K or less, lender can charge Prime + 6.5%. The Patriot Express program falls under this category as well.

2. SBA 7a Program (used for larger transactions or deals short on collateral, the lender can obtain up to 90% guarantee): Maximum rate is the lender option of Prime + 2.75% or the 30 day LIBOR + 5.7%

3. SBA 504 program: The lender will set the terms and conditions on the 1st mortgage, the term of the loan must be at least 10 years and can have repricing targets during that time. The 2nd mortgage rate will be set at the time of the bond issue, so we never really know the rate until the bond is funded. The March 2009 rates were 5.604% for a 20 year fixed and 5.072% for a 10 year fixed.

Today, Prime is 3.25%. The 30 day LIBOR is reset at the beginning of each month, that rate is currently 0.50%

ROCK BOTTOM?

Stocks rebounded higher Thursday (4-9-2009) after banking giant Wells Fargo & Co. surprised the market with an early profit report that blew past analysts' expectations thanks to a strong pickup in its lending business. Investors have been grasping at any sign of improvement in the crippled banking industry, and Wells Fargo's report Thursday that it expects first-quarter earnings of $3 billion provided an encouraging sign that a deep freeze in borrowing activity may finally be thawing. Wells Fargo said it benefited from its January acquisition of Wachovia and an increase in mortgage applications.
"The fact that Wells Fargo can have record profits despite the troubles facing the banking system tells you something," said Rick Campagna, chief investment officer at 300 North Capital in Pasadena, Calif. "It's very good news."
Wells Fargo jumped 27 percent Thursday and several other major banks also rose smartly, including Citigroup Inc., up 10.7 percent; JPMorgan Chase & Co. up 12.7 percent, and Bank of America Corp. up 31.2 percent.

Implementing the American Recovery and Reinvestment Act of 2009

The American Recovery and Reinvestment Act will have a significant impact on small businesses and on the credit crunch, providing tax incentives and financing opportunities that will help them create jobs.

The American Recovery and Reinvestment Act makes SBA part of the solution, providing it with specific tools to make it easier and less expensive for small businesses to get loans, give lenders new incentives to make more small business loans, and help unfreeze the secondary markets to boost liquidity in the credit markets.

More details on implementation will be coming over the next few weeks.

The bill provides $730 million to SBA and makes changes to the agency’s lending and investment programs so that they can reach more small businesses that need help. The funding includes:

$375 million for temporarily eliminating fees on SBA-backed loans and raising SBA's guarantee percentage on some loans to 90 percent. The elimination of fees, announced on March 16, will remain in effect until the end of the calendar year or until the funding is exhausted. The elimination of fees is retroactive to the day the Recovery Act was signed into law.

$255 million for a new loan program to help small businesses meet existing debt payments

$30 million for expanding SBA’s Microloan program, enough to finance up to $50 million in new lending and $24 million in technical assistance grants to microlenders

$20 million for technology systems to streamline SBA’s lending and oversight processes

$15 million for expanding SBA’s Surety Bond Guarantee program

$25 million for staffing up to meet demands for new programs

$10 million for the Office of Inspector General

SBA Policy Notice - Section 502 of the Recovery Act

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) (P.L. 111-5). Section 502 of the Recovery Act authorizes SBA to guarantee up to 90 percent of a 7(a) loan except for SBA Express. SBA Express remains at a 50 percent guaranty. The purpose of this Notice is to announce the implementation of the increased guaranty percentage on eligible 7(a) loans.

The Recovery Act did not change the maximum SBA guaranteed amount which remains at $1,500,000. Therefore, for those loan programs that have a maximum loan amount greater than $500,000 (Standard 7(a), CLP, and PLP), in order for the loan to receive a 90 percent guaranty, the loan amount cannot exceed $1,666,666 ($1,500,000 divided by 90 percent).

For loans greater than $1,666,666, the maximum guaranty will be calculated as follows: $1,500,000 (SBA guaranteed amount) divided by the loan amount rounded down to the second decimal. For example, if the loan amount is $1,680,000, then the guaranty percentage would be $1,500,000 divided by $1,680,000, which equals 89.2857 percent, rounded down to 89.28 percent.

The increased guaranty percentage of up to 90 percent is offered in conjunction with the fee eliminations announced today. These terms will be available until the aggregate dollar amount of 7(a) loans made under this authority exhausts the funds dedicated to that purpose. We currently estimate that program level will be approximately $8.7 billion. Depending on loan volume in the 7(a) program, SBA estimates that the increased guaranty percentage will be available through approximately December 31, 2009.

Questions regarding this Notice should be directed to Gail Hepler, Chief 7(a) Program Branch, at (202) 205-7530 or by email at gail.hepler@sba.gov.