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Financing Your Business Acquisition Should Be the Least of Your Concerns – Think About Choosing One
At this point in the article, you should feel confident about entering a new business without using your own money. Then comes the obvious question: “Where will I get the money for the rest of the purchase price?” Figuring out how to cover a $100,000 down payment on a $500,000 business seems relatively easy once you know all the options and possibilities. However, getting the remaining $400,000 may be a more difficult task to accomplish. Much to your surprise, it didn’t. As with the cashless settlement process, balance payment methods should not be a concern. Let’s start with this simple thought: If you think of money as a commodity or product, it will be easier to find, ask for, and receive from those who can afford it. Many people have these resources to lend you. All you need to know is how to ask for it the right way.
Question: Whose door should I knock on first?
Answer: You may have already entered through that door. This is because, as I mentioned before, the most likely source could be the seller. In fact, before you consider any other source of financing, discuss it with the seller. (Several other financing methods will be discussed later, in case the seller is uncooperative with your pitching techniques.) Borrowing from the seller usually offers some key advantages:
1) Sellers are not fanatical about earning interest. Their goal is actually to sell their business at the price they consider the most acceptable. The seller wants to get rid of his business for whatever reason. This can be to get rid of a financial burden, and for you an opportunity to put your management expertise into practice to turn the same business into a high mountain of profits.
2) Sellers can be much more understanding than banks. Let’s say your new business has been slow for a few months and cash flow has become more like a cash leak. So now you’re forced to miss a payment, or even two. Which lender is more likely to penalize you – the bank or a person with whom you have established a good relationship and who can sympathize with your business problems? I’m sure you and I share the same answer.
3) And no, the sellers will not take your personal property. While most banks obsess over collateral, sellers rarely require the same. Yes, they may want you to put a security interest in the deal, but other than that, a handshake will often seal the deal.
Question: If seller financing can’t be worked out, should I just go to my bank?
Answer: In fact, the ideal bank may be one that the company already uses. They know the business and if the seller can introduce you to their banker of long standing, it could make the transfer of ownership easier. However, you can also apply at any commercial bank for a business loan. However, as you can imagine, this type of transaction requires a lot more than meeting the requirements as you would for a car loan. They want to know a lot more about you and your prospects for success before they approve a loan; and of course, it depends on your credit history and management skills. One thing you have to remember is don’t beg. You should never go to any financial institution “hat in hand” begging for a loan. As intimidating as banks can be, they are really just supermarkets of money with shelves full of goods they want you to buy.
They need you as much as you need them. If you have a deal that makes reasonable sense, they will go along with it and make a lot of money from you. If you come to the bank with an idea to start a company, you need a good business plan. Solid screenings will also be required as part of the package. With the help of a business plan, the bank can analyze the feasibility of the venture and decide accordingly.
Question: You mentioned a “business plan” at the beginning of the article.” What information can I provide the banker that may be relevant to what he is looking for?
Answer: Here’s what you can find in a business plan to help you gather the necessary information for a banker.
Elements of a business plan: cover page, statement of purpose, content, business description, marketing, competition, operating procedures, staff business insurance, financial data, loan applications, capital equipment and inventory, balance sheet, break-even analysis, pro-forma revenue projections ( profit and loss statements), three-year summary, monthly details, first year, quarterly details, second and third years, assumptions on which projections were based and pro-forma cash flow.
It is also necessary to present the supporting documentation of the business plan. The banker will need to see them before they will even consider your loan.
Some supporting documents are: your tax returns for the last three years, your personal financial statement (all banks have these forms), in the case of a franchise business, a copy of the franchise agreement and all supporting documents provided by the franchisor, a copy of the proposed rental agreement or purchase of construction space, copies of licenses and other legal documents, copies of CVs of all principals and copies of letters of intent from suppliers.
Question: Is there a difference between a marketing plan and a business plan?
Answer: Marketing plays a key role in successful business ventures. How well you market your business, along with several other factors, will ultimately determine your degree of success or failure. A key element of a successful marketing plan is knowing your customers – their likes, dislikes, expectations. By recognizing these factors, you can develop your marketing
a strategy that will enable you to awaken and fulfill their needs. Identify your customers by their age, gender, income/education level and residence. Initially, target only those customers who are more likely to buy your product or service. As your customer base expands, you may need to consider modifying your marketing plan to include other customers. A sample marketing plan is included in report #8 to give a more detailed idea of its components.
A business and marketing plan are essential tools to help you get a good idea of how you should proceed with your future business. However, if you are looking for a bank loan, a business plan should be sufficient. A marketing plan can be useful when presenting to business brokers, venture capital providers and, of course, the seller. Since many businesses are funded by salespeople, he will be curious to see what ideas you have that will increase the company’s sales. By doing so, his shares in the business will increase in value and he will be comfortable with you taking over.
Question: Can you describe in more detail some of the elements found in the marketing plan?
Answer: It is my pleasure. A marketing plan is essential to set your new business on the path to success. Consider it your bible. It will help you target your market, or as we said before, create your niche. A marketing plan will help you answer the following questions: How can you position yourself in relation to your competition? How do consumers perceive your product? How should you price your product? Who will distribute your product? How will you promote the product to the public?
In your strategic situation summary, you should summarize the key points of your situation analysis (market, segment, industry and competition analysis) to recap the main events and provide information to better understand the strategies outlined in the marketing plan.
The second part of the marketing plan should include goals and objectives. This section explains how to define a market demographically-geographically in social and economic terms. Each market target should have needs and wants that are somewhat different from other targets. These differences may be related to the types of products purchased and the frequency of purchases. Objectives should include the following program components:
4) Promotion (or sales force)
5) Technical services
As for the third section of the marketing plan, this is where you will provide position statements to help you describe how you want each target market to perceive each product relative to the competition. State the core concept used to position your product (brand) in the eyes and mind of the target customer. Position statements should describe:
1) What criteria or benefits does the customer consider when purchasing your product along with the level of importance.
2) What do you offer that differentiates your product from the competition?
3) Limitations of competing products.
All these details have given you a general idea of the content of the marketing plan. The most important segments are the following:
o You will need to determine how each of your products fits the target market. Other problems that could be solved would be new product proposals and adjustments in the combination of existing products.
o The overall pricing strategy should be identified along with a cost-benefit analysis. Determine what role you want price to play, share increase, maintenance, etc…
o Describe specific distribution strategies for each target market. Issues to be addressed are the intensity of distribution, the manner in which distribution will be carried out and the assistance provided to distributors.
o A promotion strategy is used to initiate and maintain a flow of communication between the company and the target market. To help develop a communications program, the attributes or benefits of your product should be identified for each target market.
o Describe the market research problem and the type of information needed. Include a statement explaining why this information is needed.
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