buying a business

[stockhatcher]

Hi all,

Can someone give me some advice about raising the capital to buy a business? (around £250k). I presume that if I get a bank loan, it would be secured against my house? Could I just release the equity in my house (not sure about this with interest rates at the mo), what do banks look for in the business, I guess that the books show a profit? Any advice from any one who has done this would be good. I have about £15k cash I can put in now, and borrow probably another £15-20k from an investor (family) – I am assuming that a bank would not take on the whole risk (of the loan).

I guess also that the buyer (me) needs to have relevant experience.

FYI - I am looking to purchase a motor trade based business e.g. car sales outlet or mechanical repairer.

[VX Foxy]

In my recent experience the bank will not take any risk. Any facility/loan will need to be secured in some way and supported by a viable business plan. There are no 'tricks' or 'quick fixes' unless you start looking at venture capital You could reduce your capital requirement by factoring your invoices (do your sums first and not suitable for retail type business), but OD will be cheaper.

ETA - keep a tight rein on your cash. OD will probably suit you better than a loan.

Edited by VX Foxy on Thursday 29th May 12:09

Edited by VX Foxy on Thursday 29th May 12:11

[srebbe64]

The banks will ignore profits and will only lend against tangible assets - especially in the current climate.

[stockhatcher]

ok, as i thought, the balance would have to be secured against an asset.

what else will i need to provide/know in order to secure funding, due dilligence... taking a look at the books, how do you ascertain a value on a business..

[srebbe64]

stockhatcher said:

ok, as i thought, the balance would have to be secured against an asset.

what else will i need to provide/know in order to secure funding, due dilligence... taking a look at the books, how do you ascertain a value on a business..

Your original post said: "I guess that the books show a profit?" This is the most telling statement! If you don't know this basic fact then discussions on funding and DD are highly premature.

Get the basic facts from the vendor (tunrover, gross profit, operating profit, net assets, etc...) and then make an objective decision as to whether it's a goer or not.

[stockhatcher]

i am merely looking to understand what i need to do to go to a bank and ask for money, but equally i need to know what to look for when consulting with the vendor. its a catch 22 really, what do i need to know to be a credible buyer, what do i need to show to be a credible borrower. but mostly how likely is it that i can raise 250k.

[anonymous-user]

Forgive me if i'm wrong but your questions sound a little naive for somebody looking to borrow that kind of money.

Do you have any experience in business management?
Do you have experience in the motor trade?
Do you have assets to borrow against (i.e. a shedload of equity in your home)?
Are you prepared to risk losing your home?

If you can answer yes to the above then get a copy of the latest accounts and get a good accountant to look at them, he will tell you roughly what the business is worth.

[stockhatcher]

your not wrong i am naive in the sense of going about buiying a business, but yes i do have motor trade experience,i have around 200k equity in my home, i have 10 years business management experience, am i comfortable about borrowing the money.... ? that's what i am trying to find out.

[wattsm666]

You really need to speak to an accountant

[srebbe64]

stockhatcher said:

your not wrong i am naive in the sense of going about buiying a business, but yes i do have motor trade experience,i have around 200k equity in my home, i have 10 years business management experience, am i comfortable about borrowing the money.... ? that's what i am trying to find out.

I seem to spend my entire life looking at company's accounts and weighing up their value, strengths, weaknesses, etc.., I looked at two today in fact. If you want to email me the company's accounts, once you've got them, I'll happily give you an objective view. Needless-to-say, I'll be happy to sign an NDA.