Help purchasing an existing business

[riverwed070707]

DH manages 6 franchise locations in our metro for a couple investors. They have been trying to sell (passively, its never been on the market) for a while with no luck. Today they approached him about possibly purchasing all 6 locations at more than 50% less than the appraised value. Both of them have full time careers outside of owning these facilities and with one now living out of the area, they feel they don't have the time and energy for the investment side anymore, especially because employing a full time GM really dips into what could otherwise be a really successful business. They indicated they offered it to him at a hefty discount because they want him to have it. If he declines they will officially put it on the market.

We're weighing the pros and cons and taking a look at the books but I'm curious how this type of thing is generally financed and what it would take to qualify. Since the business is already cash flowing, do we get to take that into consideration when they look at our qualifying income or do we have to prove we can support the loan expense without the business income?

We have a couple options already. Potentially the current owners would finance it (they offered but I don't have the details on what that would look like). Alternatively, we may be able to get financed through the franchise. Would a traditional bank/business loan be an option as well? Just want to explore all options!

[Fishindude77]

Can we ask what type of business?

Banks aren't typically too fond of conventional loans to buy a business unless the buyer has some pretty serious collateral to personally guarantee things with, plus experience running a business, which it sounds like DH may have.

Most small business sales like this are typically financed by the current owner. It's a good deal for the seller because he won't get all of the money at once and get slammed by taxes, plus he gets the interest income for lending. It's good for the buyer because there is a level of trust between both parties, and the seller will have a genuine interest in assisting to see that the buyer is successful in keeping the business going.

A million ways to structure it and lots of details to work out. My experience is that the best deals keep things as simple as possible and everything above board and transparent regarding the numbers. Could be a great deal for you. Good luck !

[riverwed070707]

Can we ask what type of business?

Banks aren't typically too fond of conventional loans to buy a business unless the buyer has some pretty serious collateral to personally guarantee things with, plus experience running a business, which it sounds like DH may have.

Most small business sales like this are typically financed by the current owner. It's a good deal for the seller because he won't get all of the money at once and get slammed by taxes, plus he gets the interest income for lending. It's good for the buyer because there is a level of trust between both parties, and the seller will have a genuine interest in assisting to see that the buyer is successful in keeping the business going.

A million ways to structure it and lots of details to work out. My experience is that the best deals keep things as simple as possible and everything above board and transparent regarding the numbers. Could be a great deal for you. Good luck !

They are 24-hour fitness facilities.

Good to know that seller financing is common - I'll investigate further what that could look like and what they had in mind.

[rennigade]

Ive only ever heard terrible things about owning a fitness center/gym. From what people say on bodybuilding.com margins are usually very thin.

Equipment is really expensive...especially machines. Constant maintenance. Not sure if these gyms offer classes geared towards women but those usually bring in a lot of clients. You basically bank on the fact that lots and lots of people will sign up for a year contract and only show up for a couple weeks. Thats why classes are important.