Description
Book SynopsisMost entrepreneurs interested in buying a business naturally assume they need large amounts of cash to work a deal. In fact, there are other ways to fund an entrepreneurial venture, particularly through seller financing. This simple, straightforward guide covers every possible source of financing available for wannabe business owners, how to deal with sellers, and how to use asset financing, selling equity, and asset protection.
Buy Your Own Business with Other People's Money shows that you don't have to be rich to buy a business; you just need to be creative in financing your new business. For everyone who dreams of owning a business one day, this book has the answers.
Table of ContentsINTRODUCTION xi
CHAPTER 1 The Good and the Bad of Owning Your Own Business 1
The Fictions and the Facts about Owning a Business 2
Fiction Number One: No Boss 2
Fiction Number Two: Short Work Hours 3
Fiction Number Three: You Will Have Lots of Money 4
Fiction Number Four: You Will Enjoy the
Prestige of Owning a Local Business 5
Do the Advantages of Entrepreneurship Outweigh the Disadvantages? 6
Decide on the Type of Business That Is Best for You 6
Determine Your Preference or Need as to Geographic Area 7
Consider the Hours of Operation 8
Experience and Knowledge Are Important 8
Pick a Business You Enjoy 9
Creating Your Experience 10
CHAPTER 2 How Much to Pay (Borrow) to Buy a Business 11
How Much Is the Seller Asking? 11
What Do Similar Businesses Sell For? 12
What Is the Value of the Business’s Assets? 13
Value the Assets at Their Book Value 14
The Book Value of Equipment 14
The Book Value of Accounts Receivable 15
Inventory 16
Patents and Copyrights 17
The Book Value of Other Assets 17
The Asset Called Goodwill 18
The Capitalization of Earnings 19
How to Determine the Real Net Income of a Business 19
Determine the Price of a Business Based on Its Earnings (Income) 24
Capitalization of Earnings and Return on Investment 26
The Sales Multiplier 28
Third-Party Information 29
Solicit Information from Employees of the Business 29
Check the Bank Statements 30
When Real Estate Is Part of the Business 31
In Summary, the Eight Methods of Valuing a Business 32
CHAPTER 3 Sources of Money for Your Business 35
Borrow the Purchase Price from the Seller 35
The “Business for Sale” Ads 36
The Seller’s Motivation to Sell 38
Enticing the Business Owner to Sell to You 40
Find Cash Inside the Business 41
The Equipment Owned by the Business 42
Intangible Assets 44
Accounts Receivable 44
Excess Inventory 45
Actual Cash in the Business 46
Personal Assets That Can Generate Cash 47
Obtaining Money from Commercial Banks 48
Choose a Bank That Is Small-Business Oriented 50
Have the Requisite Experience 51
Buy a Business That Has Loyal Customers or Clients 52
Buy a Business That Is in the Right Location 52
Prepare Projections of Income and Expenses of the Business 52
Your Presentation to the Bank 53
Loans from Suppliers 55
The Shortcut—Buy Out Your Boss Using His or Her Money 57
Buy a Franchise, but Not with the Franchisor’s Money 58
Friends and Relatives as a Source of Borrowed Funds 58
The Government—The Small Business Administration (SBA) 69
To Summarize 61
CHAPTER 4 Do You Want Partners? 63
Why You Might Have One or More Partners 63
The Partner Has Money 64
The Partner Has Expertise That You Lack 67
The Partner Has Contacts 67
The Partner’s Personality Complements Yours 68
The Seller of the Business Can Be Your Temporary Partner 69
The Part-Time Family Business Has Grown Up 70
Your Down-and-Out Relative Needs a Job 70
You Want to Include Your Best Friend in Your Deal 71
People Who May Help You Find Potential Partners 71
Stay Out of Trouble with the Government(s) 75
Companies in the Business of Being a Partner 78
Venture Capitalist 79
Small Business Investment Company (SBIC) 79
The Form That Your Partnership Should Use 80
The Business Form Choices 81
General Partnership 81
Limited Liability Company (LLC) 82
Corporation 83
What If You Go It Alone, without a Partner? 84
More Information on Forms of Doing Business 85
CHAPTER 5 Technicalities of Buying a Business 87
Buy Just Certain Assets of the Business 87
Cash 88
Accounts Receivable from Customers 88
Other Accounts Receivable 89
Inventory 89
Equipment 89
Bulk Sales Law 90
Assume the Liabilities of the Business When You Buy the Assets? 90
The Seller Takes on Risks, Too 91
Using the Business Debts in Your Negotiation 92
Buy the Business as One Package—A Corporation 92
APPENDIX A The Business Plan 95
What Is a Business Plan? 95
Why Every Business Needs a Business Plan 96
What Is the Format of a Business Plan? 97
Using Professional Assistance in Preparing a Business Plan 99
Help in Reading This Sample Business Plan 100
APPENDIX B Finding Investors and Navigating the Regulations 131
Securities and Exchange Commission Brochure 132
Active Capital—Frequently Asked Questions 149
What Is Active Capital? 149
Who Needs Active Capital? 149
Who Manages Active Capital? 149
How Is Active Capital Different from Other Internet-Based Investment Programs? 150
Can Any Investor Enroll with Active Capital? 151
Can Any Entrepreneur Enroll with Active Capital? 151
How Much Does It Cost to Enroll with Active Capital? 152
How Do Active Capital Fees Compare to “Go It Alone” Costs? 153
How Much Capital Can Be Raised Using Active Capital? 153
How Much Does Active Capital Itself Lend or Invest? 154
Do I Need a Lawyer to List on Active Capital? 154
If I Fill Out My Form but Do Not Post It Right Away, Do I Need to Sign Up Again? 155
After I Have Filled Out All My Forms, May I Change My Answers? 155
Must I Notify Active Capital After I Have Made a Deal? 155
Can I Use Active Capital If I Am a Canadian or Other Non-U.S. Company? 156
Can I Get Other Forms of Non-Equity Financing through Active Capital? 156
How Do I Learn When Potential Investors Read My Plan? 156
How Many Investors May Review My Plan? 157
Do All Investors Demand to Play a Role in Each Company? 157
How Can Lawyers or Accountants or Consultants Register on Active Capital? 158
Can I Register on Active Capital if I Have Filed for a Public Stock Offering with the SEC or
Have Not “Blue Skyed” in Every State in Which I Am Seeking Investment? 158
State Securities Regulations Administrators 159
APPENDIX C Small Business Administration Loan Programs 167
Basic 7(a) Loan Program 168
What SBA Seeks in a Loan Application 169
Eligibility Criteria 170
Small Business Size Standards 170
Eligible Businesses 173
Business Types and Applicants with Additional Considerations 173
Ineligible Businesses 176
Use of Proceeds 177
Ineligible Use of Proceeds 178
Availability of Funds from Other Sources 179
Character Considerations 179
Other Aspects of the Basic 7(a) Loan Program 179
Maximum Loan Amounts (Updated as of 10/1/2004) 180
Interest Rates Applicable to SBA 7(a) Loans 180
Percentage of Guaranty on 7(a) Loans 181
SBA Fees for 7(a) Loans 181
Fees Associated with SBA Loans 181
Combination Financing 182
Prohibited Fees 182
Prepayment Penalties 183
APPENDIX D SBA Forms 185
INDEX 217
