Buying a business that already exists gives you many advantages. The first is you are investing in a proven and pre-existing business model with customers, products, and marketing. With these assets in place, you can immediately repay the business purchase costs with the profits you earn from this new business. However, you need to finance this business purchase first. It can be as expensive as investing in your own start-up.
Kavan Choksi – Consider these methods for business purchases
Kavan Choksi is an eminent name in the world of finance and business with expertise in entrepreneurship, travel, and photography. According to him, when you are considering purchasing a business, you need capital for purchasing the business and choose a finance method that suits you the best.
You can take a bank loan or approach a credible financial institution for the task. You must have collateral ready to offer them so that the loan gets approved for you. Generally, you can use any of the following as collateral for your business-
- Home equity.
- Business assets like inventory and the accounts receivable.
- Personal guarantee, which means in case of a default, you will be personally liable to repay a specified amount of the value of the loan.
- You might need to provide the bank or the financial institution with a personal guarantee for the loan you seek. Certain lenders do it as they do not wish to undergo the complications of taking possession of your collateral and its sale.
Get qualified for loans
Before making the purchase of the business final, you need one or many letters for pre-qualification of the loan. This is a part of the process with every lender and getting the green signal from them for buying the business. Later, you can show these letters to your seller and close the sales transaction.
Never use your retirement savings
When you are buying an existing business, do not make the mistake of using up your retirement savings. It is possible for you to use it for the purchase of a business with heavy tax implications. However, it is very risky. In case the business does not perform well in the long run, you risk losing everything you had saved up for retirement. Business experts recommend you not to take this drastic step. It is prudent for you to resort to other means of financing for your business purchase.
You can also bring in a partner as an investor in the business purchase. You can offer ownership rights to your partner so that you get help with funding for your business. You can also bank on an acquaintance who is interested in a business purchase like you.
According to business expert Kavan Choksi, if you are buying a business for the first time, you should consult a financial expert and discuss the best financing options available for you. Never rush through the process so that you can get the best deals over time.