As you begin the process of buying a business, it is important to work out exactly how much you can afford to pay. The key is to ensure that you do not overstretch yourself, either when you purchase the business or when you actually start running the business.
Essentially your budget is how much money you have available, including both your own money and available financing to buy and run a business. Our buyers purchase their businesses with anything from £10,000 to £250,000 of their own money.
We recommend that you work out the maximum amount you can afford to pay for a business before you commence your search. This helps avoid a situation where you find yourself overstretching your budget for an extremely attractive business outside of your price range.
If you are looking to secure a bank loan then you will need to produce financial projections demonstrating how you will manage cash flow and, more importantly, repay the loan. Dependant on the sector, banks will require a minimum of 10% to 50% of the business purchase price as a down payment.
Be wary of using your entire budget for the purchase price of the business. Cash management in the initial stages is crucial to ensuring that your business is a success.
If you plan to expand the business you will need cash set aside for expenses like new equipment, marketing and PR.
Although not essential, we recommend that a buyer puts aside around 10 percent of their investment in buying the business for working capital. This sum will ensure that you are able to cover any growth or any unforeseen circumstances either in the business or personally.
Your budget does not have to be a rigid forecast. You should look to review the budget regularly to ensure that it is adapted to your evolving business. By budgeting you will also be able to benchmark the performance of your business and ensure that you are on target with your financial goals.