Buy a Franchise or Business For Sale? – What is Better? / franchise cityApril 25, 2022
Thinking about buying a franchise? Should I invest in a business? What is better in the United States?
Get to know the pros and cons of buying a franchise or buying a business in the United States.
Learn with Patrick Findaro the secrets behind them!
#VettedBiz #Franchise #BusinessForSale
Full article here: https://www.vettedbiz.com/buy-a-franchise-or-business-for-sale/
Patrick Findaro,co-founder of Vetted Biz and Visa Franchise.
Today I want to talk a little bit about the pros and cons of buying a business or buying a franchise.
So first buying a business, the great thing is that you have the financials, you can see how much money they’re making, how that breakdown is, what are the different revenue sources, what’s recurring revenue, what are one off customer relationships, and what what expenses, what expenses, you could potentially lower as the new owner, there are a lot of benefits in terms of the information you have for that currently operating business. And then you can really de-risk a lot of the chances of having continued business success based on there’s a business that’s had some customers for 510-15 years, those customers drop off at 5%. And you can do those calculations and really understand what’s the risk of this business? How can I expand upon this business, and you have that data?
Now on the cons, that information received could be false. They could be overstimulating their sales information, they could be having a lot of employees that maybe are getting paid cash. And you only find that out during the final due diligence. And a lot of people are running businesses not in a professional manner throughout the United States. And that’s especially true for businesses for sale under $500,000. Where as opposed to being sold on a multiple of EBIT, da, essentially net profit, they will be sold on owners compensation.
So what’s the owner making in salary dividends, is the owner’s wife getting money from the business owner, the health care insurance, that that helps the owners family, you know, the company car, there can be a lot of different expenses that are not going to be run through professionally managed business.
But a business for sale and especially in the less than $500,000 range, you’re going to have to do a lot of work with an accountant to really understand how much is the owner making at the end of the day. And then also, with buying a business, they can be pretty expensive.
So depending on the business, it can be anywhere from two to four to five times the owners compensation to give you perspective, for a few different industries like real estate, property management, insurance, accounting businesses that have a stable book of clients that you’re just expanding upon. They don’t even trade on a multiple of owners compensation or ebit.net profit, they’re trading on a multiple revenue. So it could be one to 1.5 times revenue, that it’s going to cost you to buy that existing business cut.
One huge benefit though, right now Small Business Administration loans, SBA loans, are at some of the lowest rates ever been 5%. And you can finance a business acquisition over a five year period over a five to 10 year period, and you’re paying a 5% interest rate. And with a business acquisition, as opposed to a franchise, you can fund it with as little as 15% cash down. So for a business that is a million dollars, you put $150,000 down on a $850,000 government loan, and if you’re a green card holder or a US citizen, you are eligible for the SBA loan program.
With a franchise of that same million dollar franchise if you’re if you’re opening up from from zero and it’s already operational, generally you’re going to have to put 30% down so you’re gonna have to invest $300,000 and get a $700,000 loan Scylla 5% but you’re gonna have to invest double the amount of cash if you’re going to go the franchise route for financing and that’s again with a new franchise not buying over an existing buying an existing franchise…
Full article here: https://www.vettedbiz.com/buy-a-franchise-or-business-for-sale/ franchise business should i buy a franchise franchise city low cost franchises business broker low cost franchise opportunities