So it’s been more than a couple of weeks! Second update incoming to consolidate and ruminate on the latest progress and direction.

The main items I wanted to cover off this time were:

1. Establish the value of the first business I could afford.

2. Validate the options for a loan here in the UK.

3. Build contact network with key contacts ready for the ideal company (accountant & finance broker as a priority).

4. Bonus is finding a business broker that can help with finding more ideal company prospects.

Completed on the majority of these so read on if interested…

1. Business value…

I’ve been at work pulling together a template of a manufacturing business with typical gross margins and operating expenses with loan repayments included and this has given me an approximate total value of a business I can afford.

Given I need revenue and profits high enough to cover loan and seller financing but also be low enough that I can actually afford the amount on the loan, this narrows down my choice of options. Other items to consider are that I’m not a billy-big-bills spending huge amounts of cash and so I’m looking at smaller businesses that don’t have high enough revenue to be listed on major sites due to value of company I can afford. From a risk mitigation point-of-view it would also be good to buy into ideally not distressed and is making enough gross profit to cover operating expenses and predicted loan repayments.

Basic points on a typical deal structure:

• 100% of company value made up of 60% cash upfront to current owner (consisting of my personal cash and a loan) and 40% seller-financed from future profits of the business over a defined timeframe.

• Of the 60% cash upfront from the loan and personal amount invested, 10% of this amount is typically expected to be my personal contribution to the deal.

• So applying the above logic and rounding numbers to keep it simple to a £1m business valuation number, this broadly splits into £60k personal cash, £540k loan value and £400k seller financed over a few years of profits.

Sounds great and a real potential to buy into a cashflowing business! One thing to check is the total amount of loan available also needs to be secured against some available assets that are ideally from the company being purchased (to limit personal risk). With this being an engineering company, it has a factory and machinery to secure against and so I’ve been working with the current owner to establish exactly how much these are.

Once a value of the assets is set, a loan company will typically provide a loan based on 70% of the value of the assets. So as long as this value stacks up against the total money required to buy the business, you’re well on the way to purchasing the company!

2 & 3. Options for business acquisition loan and building contact network…

From a few google searches specifically focussed on finding business brokers specialised in selling engineering businesses based in the UK, I found a recommended broker who I reached out to with a prospecting email. We had a great chat and let me know about the types of engineering business they typically work with and the associated valuations of these. I definitely feel like I’m at the bottom end of the typical clients they worked with and I’m now 100% I can ultimately stretch to purchase a business through them, but they were really helpful in sharing basic information the different states of companies to purchase and referred me to one of their preferred suppliers.

The subsequent chat with the business financing partner also provided massive insight. The outlined typical deal structure and mentioned they have three preferred lenders that I can potentially work with in the future. A tick in the box!

4. Finding more businesses for sale & contacting other brokers

From the information gathered from the business broker I found from Google, it’s really in my best interest to make more ground on prospecting more potential businesses for sale myself. To do this, I’m searching through Facebook local business groups and I’m in the process of establishing what is effectively a lead funnel based on my offer of buying someone’s company.

The first conversation I struck up with through a friend referral is a retiring boomer who now wants to cash in on the business they want to sell and is motivated to get the deal done sooner rather than later.

I’m going to carry on searching main aggregators like UK listings through BizBuySell and Flippa but will also post on local business Facebook pages to see if I can develop any leads this way. I’ll keep you posted…

For next time…

I’ll focus on leads that I have developed myself, build on the findings from this week’s finance calls and also look into options for distressed engineering businesses as this could be a good avenue to find a profitable (in the future!) business.

Hope you have a great rest of the week.

JC.