| T O P I C R E V I E W |
| MsCwick |
Posted - May 22 2008 : 12:47:54 PM
OK so I am trying to buy this flower shop, and the bank will finance x amount of dollars for the building and 50% of inventory. The remaining X amount of dollars is 50% inventory and the rest "good will". Well, since it's inventory and good will, it isn't financeable by the bank, so I was requesting owner financing. WEll part of the reason the bank wont finance it is because it's not secure enough for them to do so, but now the owner says if I default, and there is not secured, she will not be able to recoup the money.
ANyone have any legal/business advice?
The bank man said to use the building as collateral and she could put a lein on it.
My real estate agent told the seller that she wouldnt hesitate to finance that to me because she knows me and I am responsible and stuff, so I was encouraged to go spend the day with the seller and let her get to know me, and maybe she will feel more comfortable |
| 7 L A T E S T R E P L I E S (Newest First) |
| NancyM |
Posted - Jun 06 2008 : 2:19:14 PM
Hi Again-
I would be very concerned about what you have seen on the financials from the owner-did you just take what she had in them and assume they were correct? I would strongly caution you to use proper due diligence and have a CPA look at the books. I have seen some horrible deals made by people who took what the owner-provided financials as correct. The same people can also help you make sure you have made the best choice of entity for tax purposes.
Good Luck!
Nancy
Farmgirl Sister #159 |
| MsCwick |
Posted - May 29 2008 : 10:55:51 AM
I have the last three years, and it grosses close to 200K a year, with profit after owner pay about 25K. Owner pay was just under 30K. I wrote a business plan, a 15 page business plan with lots and lots of details. The owner has admitted to "fixing her numbers" for the tax man, so she's not claiming all of her income. She also cannot keep records and pays someone every now and then to come in and help her.
I would go to lunch with the employee but her and the owner are best friends, and I don't want to get in the middle of that by asking werid questions.
I know the vacant space is weird. BUt it's only on that block and only on that side of the street.
here is a pic
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| Hideaway Farmgirl |
Posted - May 29 2008 : 05:08:57 AM
Yes, Cristine, you sure don't want to lose your own investment if the business doesn't produce enough income, let alone a profit. I assume you have looked over the last twelve months, or last 24 months of sales records, to make sure there is a steady clientele? That's a good idea about the long-term employee ... she has as much to lose as you do, so partnering up with her may help, and she is going to be your biggest asset since she has worked the business for years and can give you (hopefully) the straight scoop. Especially if she is putting her money where her mouth is, so to speak.
Here's another thought; can you buy the business but not the building, and relocate the business elsewhere? With the vacant retail space on either side, something is going on. Maybe good, maybe bad. Have you checked with local realtors and city/town planners to see if there is zoning changes, or something planned for that area that is going to affect the future of this location? I would hope that the seller has been completely honest with you, but as we all know (and tend to forget in the excitement of the moment) Caveat Emptor (sp?) or, Buyer Beware!
If I were there in your shoes, I'd be taking this long-time employee out for nice long lunch and pick her brains for a while...a worthy investment.
Jo
"Wish I had time to work with herbs all day!" |
| kissmekate |
Posted - May 28 2008 : 10:03:22 PM
I agree with Katie. The vacant space is really scary.
I think there are a couple of red flags that merit a step back and reviewing whether this endeavor is worthwhile or a train wreck.
Don't miss out on a blessing, just because it isn't packaged the way you expected. ~MaryJo Copeland |
| katie-ell |
Posted - May 28 2008 : 4:30:38 PM
Take a good hard look at your location -- the existence of vacant retail spaces on either side would make me pause . . . Have you made a business plan? Do you know what the current business grosses and what the costs are? And why the current owner wants out?
Not to be a wet blanket -- just be sure to do your homework. Have you thought of working for someone else in the business first, while you learn the trade, rather than going right in as an owner?
www.youaretoocreative.blogspot.com |
| MsCwick |
Posted - May 28 2008 : 3:59:49 PM
Jo, yesterday I found out that the owner completely decided against owner-financing. Part of the reason I even brought up the idea was that the bank DOES NOT finance good will, and will only finance half of inventory, which maakes it nearly impossible for someone to purchase a business without the out of pocket expense being almost 50%, which could be a LOT of money if it was a larger purchase.
The woman who works at the shop who has been there for years offered to finance this amount for me. It would give her job security for sure, and her reason for doing so is that her husband passed away and the amount of money wouldn't affect her financial situation(assuming this had something to do with life insurance)
I will offer the building as collateral and if I were to default, she could put a lein on the building. We'll see what the bank says ;)
I rode down there today and took a few pics and found that there are vacant retail spaces on either side of the store, which really cuts down on foot traffic, so now I'm a little worried.
I'm working on advertising ideas and promos to get people in the door!
Cristine |
| Hideaway Farmgirl |
Posted - May 27 2008 : 06:47:24 AM
Cristine, you may want to look for private financing elsewhere; friends or family (perhap the willing real estate agent you mentioned?)or talking to additional banks where you have built solid relationships based on your reputation and past payment history.
The seller may just want to sell her business, take her money and move on to whatever her next direction in life is. If she didn't want to move on, she wouldn't be selling in the first place, would she?
I am a little weirded out about the idea that anyone who is selling something, whether a car, a house or a business should be made to feel obligated or pressured to provide the buyer with owner financing.
On the other hand, if the seller is not quite ready to move onto new things in her own life, why not approach her with a partnership idea? She retains ownership of the building, perhaps, which protects her risk exposure, and when you have made a success of it, you can pay her back or pay her off. Of course, taking the building out of the equation may impact the bank's willingness to loan you the other money.
Yes, it sure is a roadblock, but not a dead end. After all, roadblocks exist in order to make us STOP and LOOK look before leaping, right?
I wish you great success with this business venture, Cristine! You'll find a way to make it work!
Jo
"Wish I had time to work with herbs all day!" |
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