How to Buy a Business with Jordan Kelliher
Introduction
In our latest episode of the Josh and Jordan Podcast, we delved into the intricacies of buying a business with Jordan Kelliher. This episode serves as a masterclass on evaluating and purchasing businesses. From understanding business valuation to navigating the complexities of SBA loans, we cover it all.
Understanding Business Valuation
A key point discussed was how to determine a business's worth. Jordan explained that a common method involves using revenue multipliers, such as calculating 200,000 times four to estimate an 800,000 business value. Multipliers usually range between two and five, depending on various factors, including industry and business performance.
When looking at example listings on platforms like BizBuySell, it’s crucial to understand the numbers. For instance, an established scrapyard in Texas priced at 800,000 with a 200,000 cash flow is using a four multiple. Business valuation isn’t one-size-fits-all and often depends on recent sales, business performance, and other intangibles like owner involvement.
Factors to Consider
Before diving into a purchase, you should understand the different elements that impact a business’s value. For instance, recurring customers or high customer concentration could significantly affect a business’s sustainability. Jordan pointed out that businesses with a primary owner highly involved in operations might struggle to sell without a solid transition plan.
Additionally, potential buyers should lean heavily on experts like CPAs and attorneys. These professionals can help navigate the financials and legal aspects of the transaction, ensuring everything is in order. Avoid going solo; it’s about creating a robust support system around you.
Financing Options for Business Acquisition
Financing is another major consideration. Jordan highlighted that SBA loans are the most common financial tools for business acquisition. The SBA can lend up to 5 million, requiring a 10% down payment and the rest financed over a 10-year term.
There are creative financing methods too. Seller financing can sometimes be used as part of the down payment. While getting 100% seller financing is rare, mixing it with other financing options can provide more flexibility.
Process of Buying a Business
Jordan broke down the typical process of purchasing a business. It often resembles real estate transactions, including phases like inquiry, negotiations, and due diligence. The entire process generally takes around six to nine months from start to finish.
A crucial part of this journey is due diligence, where you scrutinize the business’s financial health and operational dynamics. This includes assessing profit and loss statements, understanding the organization chart, and checking customer concentration.
Qualifying for an SBA Loan
To qualify for an SBA loan, Jordan emphasized certain requirements. Prospective buyers need a good credit score, liquid funds, some collateral, and industry experience. Experience doesn’t always mean direct; transferable skills from other managerial roles can also count.
The application process is thorough, including writing a business plan and financial projections. This ensures lenders see applicants understand the business and its potential for growth.
Choosing the Right Business Broker
Selecting the right business broker can make or break the deal. Jordan recommended talking to several brokers to compare fees and validate their trustworthiness. Good brokers will offer realistic valuations and have your best interests at heart.
Consider vetting brokers from boutique firms. These smaller outfits might offer more dedicated service compared to large firms with numerous clients.
The Seller’s Role
In the process, sellers play a significant role, though most communication goes through brokers. You’ll have an introductory call with the seller to determine compatibility and discuss the business. Due diligence involves the seller providing various financial documents and ensuring timely communication.
Finding Business Listings
Jordan suggests using platforms like BizBuySell for business listings. Although competitive, these platforms offer a broad spectrum of opportunities. Occasionally, high-demand businesses are offered off-market through brokers’ networks.
Conclusion
Buying a business involves multiple steps and careful planning. From understanding how to value a business accurately to securing financing and selecting the right broker, each step is crucial for a successful acquisition. Jordan Kelliher’s insights provide a comprehensive roadmap for anybody looking to venture into the world of business ownership.
This masterclass reinforces the importance of doing ample research, creating a strong support network, and staying patient through the process. Remember, the work you put in today will pay off in the future. If you're serious about buying a business, start building your knowledge base and connecting with professionals who can guide you through each step.
