Most entrepreneurs believe that buying a business is less risky than starting a business from scratch. The risk is lower because buyers can examine the company before making the purchase decision. This article discusses 15 red flags that buyers should be aware of when acquiring an existing company. 1. Owner’s reason for selling Owners have […]
Frequently Asked Questions
What is Seller Financing? How Does it Work? (Business Acquisition)
Seller financing is a common financing component of many business acquisitions. It’s a type of loan that the seller of a business offers to the buyer. The loans are privately negotiated between the participants and usually have competitive terms and rates. In this article, we discuss: What is seller financing? Advantages to the buyer Advantages […]
What are Add Backs? (Buying/Selling Businesses)
Add backs are specific business expenses that can be added back to the seller’s discretionary earnings (SDE). Consequently, add backs can increase the SDE. Add backs are important in small business acquisitions because they affect the SDE, which ultimately determines the company’s valuation. In this article, we cover: What is an add back? Examples of […]
What are Seller’s Discretionary Earnings (SDE)?
Seller’s discretionary earnings (SDE) is a metric used commonly by business buyers and sellers to determine the market price of a small business. This article describes how this metric is calculated, how it works, and its importance in small business acquisitions. We cover the following: What are the seller’s discretionary earnings? SDE and small business […]
Should You Buy an Existing Business?
New entrepreneurs are often torn between buying an existing business and launching a new company from scratch. The decision is not simple because buying an established business has both advantages and disadvantages. Advantages of buying an established business In most cases, buying an existing business is a safer option than starting a new company. Furthermore, […]
Buying a Business? How to Pay for it
Buying an established business is a common way for first-time entrepreneurs to get into business ownership. It’s a strategy that has lower risk because buyers can review past performance and, consequently, be better able to forecast performance. When executed correctly, this strategy can help the buyer acquire a company with solid potential. However, buying a […]
What is an Equity Injection?
The equity injection is the funds that a buyer contributes to a business acquisition. Equity injections are commonly required in transactions that use lender financing. In this article, we cover: What is an equity injection? How are equity injections calculated? Why are they required? Can the equity injection be financed? Common equity injection sources Exceptions […]
How Much Money do You Need to Buy a Business?
This question is common for entrepreneurs looking to buy their first business. The answer depends on how you plan to pay for the acquisition. In most cases, buyers use financing – since few people can afford to pay for a business in cash only. We think that buyers actually have a different question in mind. […]
Advantages & Disadvantages of a Leveraged Buyout (Small Business)
Leveraged buyouts (LBOs) are a popular way to finance business acquisitions by using debt financing. This article focuses on the pros and cons of using an LBO to buy a small business. We discuss the following: Advantages of using an LBO Disadvantages of this strategy Common misconceptions For a detailed explanation of LBOs, read “What […]
Can I Get a Business Acquisition Loan with No Collateral?
There are many misconceptions regarding business acquisition loans and their need for collateral. This article explains the collateral requirements in clear terms and puts you in a better position to negotiate this requirement with lenders. The article covers: What is collateral? Why do lenders ask for collateral? Why is personal collateral required? Can you finance […]