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Money and questions about buying the assets of a company.

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Money and questions about buying the assets of a company.

Old 10-28-2017, 07:27 PM
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Default Money and questions about buying the assets of a company.

I posted awhile back about a company I was looking to buy, well I will get the final Purchase Agreement from the seller's attorney early next week. Yesterday I spent several hours verifying the inventory to make sure the print out was accurate, no discrepancies found. The sell value of the inventory is about $70K and cost is about $48K. At this point I can't tell if any of the inventory is old or obsolete, or just junk. The price I offered reflected 15% off the inventory value to cover any bad inventory.

I talked to a local bank that we deal with about a business loan. In order to get a business loan I would need to get the last 2 years income tax returns from the owner and for the business. There is simply no way I will be able to get this info from Ricks widow, not going to explain why, I just know it's not going to happen.

The bank dude suggested I take out a home equity loan since our house is paid for. I am creating an LLC and I would much prefer the loan money be on the LLC and not me personally. Also, how do I go about setting up a line of credit? I think I will have the same problem as getting a business loan. The 3rd scenario is that I sell most of my MPC stock and pay cash for the company. Just not sure the best way to go at this point.

The company is a distributor of industrial heat products like thermal couples, band heaters, immersion heaters, etc. The biggest user of these products are plastic and rubber extruder companies.

What I am buying;
All inventory
All desks and computers (3 of each)
All tools, packaging materials, industrial vacuum bagger
And a statement on the Purchase Agreement that states: Anything that was required to run the business
Not buying or leasing the current building, they want $3,500/month to lease

I am going to make a company name change, I am changing the last word in the company name from Industrial to Thermal. This better identifies what the business stocks and sells. I wouldn't care about giving out the company website address but the current owner doesn't want me to give out ANY information until the purchase is final.

Looking for some advice from any business owners and/or people that have purchased a company.

Spare me the comments about posting these questions on a forum, I'm not revealing anything that I shouldn't and I like to hear comments from several people.

Last edited by RussH; 10-30-2017 at 12:25 AM.
Old 10-28-2017, 07:39 PM
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You can get a loan under the business but without any business credit you will have to personally guarantee it will be repaid- no way around that from my experience.

Also, I've done a bit of service in the thermal products industry, such as wiring multiple custom test cabinets with thermocouples for Bosch as well as electrical service in a company that sounds very similar to the one you are in, but that being said, I have no idea what kind of "inventory" you are purchasing, but only 15% off the value of it seems really really high. How much of that is stuff that you probably won't ever sell? Personally, and I'm no expert on this, I'd be hesitant to pull the trigger on offering 50% unless the stock was surefire ready to be sold at full retail.

Interested in what led you to the 15% mark. And lastly, good luck to you, one day I'd love to be buying companies. Starting one from scratch is hard haha
Old 10-28-2017, 07:42 PM
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Assuming you're going forward with this no matter what anyone says:

forget getting a loan to purchase the business without personally securing it. Could possibly be done with a well written business plan and audited company financials, but from what I know about this deal that's not going to happen.

Sounds like home equity or selling the stock are your 2 options. I'd sell the stock or depending on your relationship with your bank take out a signature loan and maybe have to sell less stock?

As far as a line of credit - again without solid financials and tax documents you wont be able to get a line of credit without personally securing it. Depending what kind of intro rates you can find it may make more sense to use a credit card to float the company until you get rolling. Can be a company card and will help with expenses/accounting but will still be tied to you.

Disclosure- I'm not a banker, m&a professional, accountant, or lawyer.

Good luck and keep us posted.
Old 10-28-2017, 07:44 PM
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Without financials for the loan underwriter to evaluate in an effort to determine the value of the LLC, it may be difficult to use the business as the collateral. You may have to go to plan B with an alternative collateral. Good luck.
Old 10-28-2017, 07:53 PM
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Russ - Congrats on getting this far. As far as getting a loan from a bank I’m afraid you are SOL. Based upon the options you presented, I think using the equity in your home makes,the most sense. Another option may be a SBA loan. I have no experience with the SBA, but I think they move at a snails pace and may not work for your situation.

Another option would be to use credit cards. I did this when I went into business 20years ago and no one would loan me money. Granted it’s an expensive option, but at least it’s an option.

It took us 5-7years before a bank would give us a LOC. We work with a local credit union and also a local bank that focuses on small business. Today we have a nice LOC and borrow money at the prime rate. Banks always want to loan you money when you don’t need it. Forget the big national banks, they won’t help you.

Good luck with your new business and keep us informed.
Old 10-28-2017, 08:12 PM
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Originally Posted by PXMAN View Post

Banks always want to loan you money when you don’t need it.
ive always joked with some other friends of mine who are in business that the main requirement for a business loan is to show that your company is in a position you don't need a loan.

Half joking of course, but it sure feels that way sometimes.
Old 10-28-2017, 08:26 PM
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I'm 3rd generation in a 49 year old family business and have shared ownership with my father for many years. I can get loans signed by the Corp (not me personally) but they require at least a 2 year detailed history of the company and even then they push hard trying to get me to personally guarantee.....I won't and they almost always cave. You're trying to use something with unknown value as collateral for a loan. As stated, it's simply not going to happen.
Old 10-28-2017, 09:37 PM
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There are many companies that do business loans outside of banks. Depending on the loan amount and your willingness to pay 8-10% int or higher you could find one. You may even find high rate unsecured funding.

My personal thought is that if your purchase of this business is only 50k dont bother with a loan unless that inventory can move super quick to build capital to pay off the loan fast. I also dont think buying a company with anything less than 100k in cashflow is worth the effort. Understand completely the nature of what youre getting into and start your own gig. This comes from my financial background and from being the owner of a 20 y/o company with 25 employees.
Old 10-28-2017, 10:00 PM
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Originally Posted by AsurfAholic View Post
You can get a loan under the business but without any business credit you will have to personally guarantee it will be repaid- no way around that from my experience.

Also, I've done a bit of service in the thermal products industry, such as wiring multiple custom test cabinets with thermocouples for Bosch as well as electrical service in a company that sounds very similar to the one you are in, but that being said, I have no idea what kind of "inventory" you are purchasing, but only 15% off the value of it seems really really high. How much of that is stuff that you probably won't ever sell? Personally, and I'm no expert on this, I'd be hesitant to pull the trigger on offering 50% unless the stock was surefire ready to be sold at full retail.

Interested in what led you to the 15% mark. And lastly, good luck to you, one day I'd love to be buying companies. Starting one from scratch is hard haha
I discounted the inventory by 15% but my final offer takes other things into consideration so I have added items of value such as the big vacuum packer, bunch of Snap On tools, computers, etc.
knowing how Rick worked & how smart he was I would be surprised if I find any inventory that doesn't have value. Rick didn't start stocking the larger stuff like the big band heaters until about 2 years ago so I am confident that none of the expensive stuff is bad inventory.

The price I offered for everything I am probably at half of current value so I made sure to protect myself.

Thanks for the well wishes & some excellent comments!
Old 10-28-2017, 10:06 PM
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Originally Posted by JCM 1420 View Post
Assuming you're going forward with this no matter what anyone says:

forget getting a loan to purchase the business without personally securing it. Could possibly be done with a well written business plan and audited company financials, but from what I know about this deal that's not going to happen.

Sounds like home equity or selling the stock are your 2 options. I'd sell the stock or depending on your relationship with your bank take out a signature loan and maybe have to sell less stock?

As far as a line of credit - again without solid financials and tax documents you wont be able to get a line of credit without personally securing it. Depending what kind of intro rates you can find it may make more sense to use a credit card to float the company until you get rolling. Can be a company card and will help with expenses/accounting but will still be tied to you.

Disclosure- I'm not a banker, m&a professional, accountant, or lawyer.

Good luck and keep us posted.
Yes I am going to do it, I never had an opportunity to buy a company & not likely it will happen again. I have confidence in myself to take the chance. I have always made a lot of money so now I want to do it for myself. I haven't failed in any of the jobs I have had so hopefully I will be as successful in this venture.
Old 10-28-2017, 10:27 PM
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Being concerned about the terms and price you are paying is important, but more important is what can you do with what you are buying.

Do you have a business plan that demonstrate how you are going to grow the business, how you can satisfy the debt and still make a decent living?

What is the value of your purchase in three years?

What are the funding requirements to grow the business?

Competitors?

Industry conditions?

I would imagine that there is not a line up of folks trying to buy this business, so I would go for vendor financing. Give the lady a decent down stroke and then pay the balance out over the next few years. She most likely needs income, not a lump sum. Bake in a decent interest rate and everyone should be happy.

Last word of wisdom as you look forward, cut your projected revenue in half and increase your fixed expenses by 50%. If the company will still make money, buy it, if not, walk away.
Old 10-29-2017, 01:04 AM
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Originally Posted by maitman99 View Post
Being concerned about the terms and price you are paying is important, but more important is what can you do with what you are buying.

Do you have a business plan that demonstrate how you are going to grow the business, how you can satisfy the debt and still make a decent living?

What is the value of your purchase in three years?

What are the funding requirements to grow the business?

Competitors?

Industry conditions?

I would imagine that there is not a line up of folks trying to buy this business, so I would go for vendor financing. Give the lady a decent down stroke and then pay the balance out over the next few years. She most likely needs income, not a lump sum. Bake in a decent interest rate and everyone should be happy.

Last word of wisdom as you look forward, cut your projected revenue in half and increase your fixed expenses by 50%. If the company will still make money, buy it, if not, walk away.
She doesn't need the money, her & Rick are loaded. Yes I have pages of strategies, competition, and working on a business plan.
Old 10-29-2017, 01:16 AM
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Look into an sba loan. As mentioned you will likely have to personally guarantee it but it will be through the business and not home equity.
Old 10-29-2017, 03:18 AM
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SBA laons are a nightmare. Can take 3 months at best. I sold my company and took a lower price to deal with a cash buyer as the previous one was SBA at a pain in butt.
Can you refresh my memory of financials ? This is the one where all the owners died?
Scaling possibility? Online presence?
Have you considered taking on dumb money?
Ebita?
Old 10-29-2017, 03:46 AM
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Borrow the $ from your HELOC, and lend it to your LLC. Set up a simple loan agreement between the LLC and you that is at a rate greater than or equal to the interest rate on your HELOC and at least the AFR. Give all of this documentation to your tax accountant.
Old 10-29-2017, 04:14 AM
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You take out the HELOC. Business fails. Will you lose your home over this? What is your plan to repay the HELOC if the business fails?

Selling stock means cap gains means taxes. Where is the money to pay those? Was this for your retirement? Why are you posting elsewhere about playing the market if you can't fund your business acquisition?

Business plan should have been done BEFORE walking into bank. Two years business finanacial statements is standard for a loan. You cannot get financial statements?

IMO, if you don't have $50k sitting around, you should not be buying a business.

To me, owner saying you cannot post URL is big RED FLAG. DANGER WILL ROBINSON, DANGER!

Based on your posts, this deal is best done with you wearing scuba gear...

Last edited by rickboat; 10-29-2017 at 04:26 AM.
Old 10-29-2017, 04:50 AM
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Its a thermocouple Russ, not a thermal couple. Better learn what your buying and trying to sell.

Good Luck
Old 10-29-2017, 04:50 AM
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Use the HELOC option. Cheapest on closing cost and documentation. Also will give you flexibility since its interest only payments.

As Crosenthal1 stated set up a loan agreement between you and the LLC. Also you may want to list your wife in the LLC docs if you aren't already. Better protection against future litigation if something goes horribly wrong.

Good Luck.
Old 10-29-2017, 05:00 AM
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Go for it. Borrow money personally from whatever source you can (sounds like it will be real estate). Then lend that personal money to your LLC. I prefer non single member owned LLC's as they are disregarded entities with the IRS. Also reduces audit risk.
Old 10-29-2017, 05:00 AM
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You mentioned seller does not need the money and is well off so it is too late to structure the deal with seller financing?

At this point this business is stagnant and more of a liability to the seller so leverage is on your side.

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