Saturday, January 1, 2011

Take over (purchase with borrowed money)

One of the best situations to purchase a business occurs when you have been running the business you wish to buy. You have earned a position of trust, you have taken the reigns, you've been the responsible party. In this situation no one is going to just give you the business, but if you have run it for 3 years and increased the profits, they will often give you a good deal on financing. Expect to pay the normal price, but you should know best what has been taken out of it, and you will get your own chance to improve it. You should expect to take a pay cut of a sort to build up equity.
Here is an example. Say you are running a small restaurant without property, but a reasonable rent that will stay close to the same. Let us say it does about 600,000/year in sales, with about 90,000/year going to the owner while you really do the work, and get about 60,000/year. It might sell for around 450,000 on the high side, depending on numerous factors, such as equipment quality and age, last update of the interior, etc. (consult a business broker for more exact figures of actual sales) At 5% interest on a 5 year note, your payment would be 8500 per month, or 102000 per year. Cut your own pay by 12000 per year, and after 5 hard years you will have paid off your loan, and built up equity. Then, you could hire an assistant and still make up for the loss of pay. Further, you now own it!

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