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Struggling with crippling uncertainty, how can a clueless newbie navigate the complexities of purchasing a small business and confidently usher in a new chapter in their entrepreneurial journey?
The Small Business Administration (SBA) recommends budgeting 10-20% of the business's purchase price for additional costs such as legal fees, advisors, and working capital.
According to a study by BizBuySell, the average sale price of a small business in 2023 was $320,000.
The most common type of business sold is a restaurants, accounting for 12% of all sales in 2023.
A study by Forbes found that businesses with a strong online presence and recurring revenue streams sell for a premium.
The due diligence process typically takes between 30 and 60 days, but can take longer if issues are discovered.
In 2023, the most common reason for selling a small business was retirement, accounting for 40% of all sales.
The SBA offers loans specifically for buying a small business, called SBA 7(a) loans, with low interest rates and long repayment terms.
A "letter of intent" (LOI) is often used in the process of buying a small business to outline key terms and conditions before a final purchase agreement is reached.
According to a study by NerdWallet, the average time it takes to buy a small business is 6-12 months.
It is common for sellers to require a "non-compete" clause in the purchase agreement, restricting the buyer from opening a similar business within a certain radius for a certain period of time.
"Earn-outs" are a common way to structure the purchase price of a business, where a portion of the purchase price is paid over time, based on the business's future performance.
An "asset sale" is a type of sale where the buyer purchases the business's assets, but not the business entity itself.
This is in contrast to a "stock sale" where the buyer purchases the entire business entity, including its assets and liabilities.
According to a study by BizBuySell, the average small business generates annual revenues of $830,000 and pre-tax profits of $152,000.
A "goodwill calculation" is used to determine the value of intangible assets such as reputation, customer base, and trademarks.
It is important for buyers to review and understand the tax implications of the sale, as they may be able to deduct certain expenses such as legal fees and due diligence costs.
SBA loans typically require a down payment of at least 10% of the purchase price.
According to a study by Forbes, the most successful business buyers are those who are able to find a business that aligns with their skills, interests, and goals.
It is common for buyers to use a "holdback" provision in the purchase agreement, which allows them to retain a portion of the purchase price in case of any undiscovered liabilities or issues.
According to a study by BizBuySell, the average small business has 6 employees.
It is important for buyers to review and understand any restrictive covenants in the purchase agreement, such as non-compete clauses, non-solicitation clauses, and non-disclosure agreements.
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