Archive for August, 2009

Phone Home First

Remember, in the movie, that ‘ET’ had to ‘phone home’ to be rescued? Well, who says life doesn’t imitate art? When you buy a business, from 20% to 50% will probably come from you or your family. The other investors or lenders will insist that you are financially committed in this way.

Highly leveraged transactions – the ones you don’t need much cash for – only happen for: 1) skilled individuals with special lender or investor relationships, 2) business buyers creating (or protecting) a large number of local jobs which are of public interest, or 3) businesses projected to make exceptional amounts of money. For the rest of us, large cash reserves are essential.

To be taken seriously as a potential small business buyer, you need somewhere between $50,000 to $150,000 of ready cash for a down payment and working capital. This is a minimum figure today.

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Business Plan A Must

You need a business plan to approach any investor or lender. This is where ‘know how’ comes in. You must know how you plan to run your business and be able to communicate this knowledge in an acceptable and convincing form to your potential investor or lender. There are business plan outlines to follow at every bookstore or library. Do not skip this crucial step.

‘Know where’ is the next key component. There are seven types of investors and/or lenders you should consider: 1) You, your family and close friends, 2) sellers, 3) banks, 4) various governmental or non-profit entities, 5) your suppliers, 6) your customers, and 7) other private individuals, including venture capitalists.