I’ve recently been presented with an opportunity to purchase a local business. The business is a very popular restaurant & bar with additional revenues from recreational sport leagues and an event pavillion on property.
Income each of the last 2 years (all ive been shown so far) is in the neighborhood of 1.5m a year with about 3-400k in profit after cogs and other expenses.
Owner and I have settled on a purchase price of 750k for the business with a 10k monthly lease paid to him as he will still retain the land the business sits on. (The gist of his want to sell is hes getting older, doesnt want the daily stress anymore, but wants what he built to continue on without getting bulldozed)
I am very familiar with the business and confident with my personal experience in logistics management and S&OP to maintain profits and grow this business. Problem is i have zero idea as to how to begin securing the captial for the purchase, some minor immediate improvments, and inventory buyout.
Those of you that may have similar experience, where did you start? Banks? Private investors? What advice would you give to someone with an opportunity like this.
SBA is probably the best route for you. Seller financing and a loan should be enough to get you started.
Get an audit done of the financial statements. Ask your CPA to look at the last five years of the tax return as well.
Probably expensive, but worth it. :)
(most of the business value is likely in the land value.)
Contact SCORE and see if you can get paired up with a mentor that has bought and sold businesses before. It’s free and could be a great resource. More information is needed to know for sure if that valuation is fair, but on the surface it seems reasonable, especially if you are already comfortable with the idea of running that business. As others have mentioned, you might be able to negotiate owner financing for all or some of it. That will depend on what the sellers goals are. If it’s primarily cash flow rather than reinvesting, they might go for it. There is definitely risk there to them though, so they would have to be very confident in your ability to successfully run and grow the business.
You should do more due diligence with the zoning and licensing side of things. The changing of ownership will trigger many inspections. There could be a long list of things that need to be done to comply with newer regulations. Things that the previous owner was grandfathered into, but a new owner will not be.
I’d engage a restaurant consultant that has experience preparing opinion of value letter report.
This would include analysis of financial history, market analysis, property inspection, and calculation of market value.
update - spoke with owner about seller financing and his response was about what i expected… to sum it up his thoughts were why would i pay myself with my own money.
Back to the banks i guess ans exploring an SBA.