subject: Business For Sale Valuations And Financing [print this page] When you plan to initiate into a new business, you would like to make use of the existing business opportunities or at least to have a look at them. You might be required to make choices from among the different business models and types of businesses. You might prefer scouting for these opportunities in the classifieds of the newspapers or the internet based directories. Most of the times, it is the business for sale or the franchise opportunities which are on offer in these mediums. Opting to buy a business for sale might not be an easy thing to do but is nevertheless desirable when it fits into the strategy of your business. Two of the key areas which are of considerable importance for this type of business are the valuations and the financing of the deal.
The business for sale valuation is done keeping in mind many factors. You might be required to consider the market value of an identical property in the area. Further consideration could be the size of the business, the sales range of the property, industry to which it belongs and similar criteria. The assets of the business can be valued on the basis of liquidation value method or on the basis of the income capitalization method. The next step is to calculate the finds flow and the cash flow statements. This would require a hard look at all the heads of accounts and an analysis of the flow of funding into and out of the business. You shall keep an eye on the unreasonably high inflated incomes or the understated expenses. All the liabilities shall be considered in detail.
After doing the valuation of the business for sale, you might be required to negotiate a final price for the business. The terms of payment could be either on the cash basis or on the financing basis. For the sellers insisting on the cash, the final purchase figure could be less than the ones who are ready to work on the financing basis. However, even if a purchaser is able to buy the business with cash, it is still advisable to take the seller financing route for funding the deal.
There are many obvious benefits of the same. With seller financing of the business for sale, the seller is required to arrange for the funding of the business at the mutual agreed price with the buyer. Usually, the banks can finance the deal to the extent of 30-50% of the purchase price or it could even be more. The benefit for the buyer is that the risks of the business for sale deal can be minimised by keeping the seller involved. The seller validated the viability of the business in this way. This also helps the buyer in that he does not have to cough our all the money in one go and would be happy to pay a small instalment. Even lumpsum balloon payments can be negotiated with the financers. The seller also gets a good number of interested parties if he advertises that he is willing to go for seller financing of the deal.
