Are You Planning To Buy A Start Up? Read On Before You Do

Accurate valuation, no matter you are big or small company, or you are

Man or Women seeking New Business Loans, then it becomes more important when you are planning to buy out a small business which is not into operations for long i.e. a start up. A new organization which has just commenced its operations, does not necessarily gives clear picture by numbers alone, and there is not much past to go by.

Apart from factual valuation you need to assess the viability of the idea and of the industry it is dealing in.

So how should one evaluate a startup? It’s pretty complex, because the company doesn’t really has any revenue, assets or perhaps established industry to accurately reach at a price.

The method expounded below is one of the most widely used. At the very least, this method provides a starting figure to be adjusted according to a variety of external factors.

Terminal Value:

Terminal value of a company is the value at some point in the future. This point may be an expected liquidity event or a point where the company starts earning profit. The easiest way to do this is to compare with a similar company.

Another method is to check out the price/earnings (PE) ratios for the existing companies in the industry, and factor in the expected earnings in the terminal year.

Note: this terminal value is the best case scenario - everything goes right. Discount rate method recognizes the possible negative events to arrive at a figure.

The Venture Capitalist’s Required ROI:

In this method a VC decides upon the one time investment figure and its expected annual rate of return, and then using the formula [(1 + IRR)^years x Investment] arrives at final figure at the end of the period.

Apart from above described methods there are two other methods of valuing a start up. They are discount rate method and multi-stage financing. I will discuss them in my next post.

Though it is out of context here, but it is important to know that if you have bad credit ratings and you want small business loans for your working capital needs, you can always opt for cash advances. Companies like MerchantCashDirect provide Fast Business Loans if you have done certain amount of business in credit card receipts over some time even if you have bad credit ratings.

The Basics of Business Valuation

So you want a small business loan to purchase a new business. You need to know some outlines of how the professional hired by you would reach the value to correctly apply for funding for that small business you want to purchase. A valuation professional may use the techniques discussed below to develop a range of values. Different techniques might result in different values.

Asset Based Valuation:

Book value—It is the difference between total assets and total liabilities, better known as net worth. But it does not really indicate market value of the business.

Net adjusted value—In this method firm’s assets and liabilities are calibrated to current market value, giving adjusted book value. Again, it doesn’t correspond to actual market value.

Liquidation value—The estimation of the company assets’ worth, when sold at auction or a distressed sale.

These methods are rarely used because they don’t factor in future potential earnings and more often than not produce minimum values.

Income Based Valuation:

Capitalization of earnings— This method arrives at the assumed value of the business by dividing previous year(s) normalized net earnings by assumed capitalization rate. The perception of risk determines the cap rate used.

Discounted future earnings—In this method, present value is calculated discounting several years’ (perhaps five) future net earnings estimates. The sum of the present values may equal the assumed value of the business.

Again, the discount rate used reflects the perception of risk associated with the purchase.

Generally size, risk, profitability, and liquidity affect capitalization and discount rates.

Market Comparison Method: In this method the subject small company you want funding for is measured against the selling prices of similar companies on numerous parameters, such as industry, size, and location.

Rules of Thumb Method: In this method suggested selling price is arrived by calculating the firm’s annual sales/earnings (usually normalized) multiplied by an assumed multiple.

These are some commonly used business valuation methods. Purpose or reason for determining value may result in use of one or more techniques. The size of business is good indicator of the method to be used.

You must get the professional to clearly explain the valuation method used and its justification. The reasoning behind the pricing is critical for evaluating the personal risk involved and to successfully apply for New Business Loans.

Steps: Before You Buy Out a Business

The last posts I talked about the necessaries and basics of Small Business Start up Loans for your working capital or capital financing demands. This post I will discuss some of the absolute prerequisites before even thinking of going for a loan.

If you want funding so that you can steal out a small running business or a start up you need to know exactly the state of that business to negotiate a bargain if any, or to avoid paying to a greater extent than the business is worth, or whether or not to go for it at all.

These are Following steps should be taken to understand the current state of a business:

Visit Facility:

Check the facility and see it in activeness. Don’t be swayed by the super numbers on paper, visit the business. In fact, get an appointment with the vender to check out the business and then go again by yourself. This is the best way to find out the ground realisms.

Decide Professional Help:

Keep touch with some professional to do the valuation. If you don't want to hire anyone for the evaluation, at least get an lawyer to help you on many legal issues involved in such deals.

Request financial information:

The minimum you must insist upon:

- Corporate Tax returns for three years.

- Financial statements for three years.

- Inventory listing

- Accounts receivable aging.

- List of capital assets

- Accounts payable aging.

- List of equipment.

Check up on the price of comparable businesses and the industry:

The professional person you would hire might give you some info, but the best place is cyberspace. Check out the forums; articles; ask the industry experts.

Obviously none of these steps are required if your necessity is just working capital or if you are looking for financing small business loan for start ups.

In both cases, steps provided in my previous posts should be taken or for working capital financing requirements you can go for business cash advance.

The cash advance will be Pay back from the credit card sales that the business does in a particular period, usually through automatic debit. Organizations like Merchantcashdirect provide such cash advance.

How With A Click My Small Flower Business Became Big......

Hi, I have an interesting story to share it with all of you. I can’t refuse it man, it is so damn astonishing.

Well, in short it goes like this: I needed some money to add assortment to my florist shop, and I got it online after almost going mad looking around for funding.

You must be questioning; what’s the big business deal in getting a loan? People with small business organization get funding from banks and all….day in-day out. Well read on………

I live in New York. This city breathes, eats, and sleeps money, dude. But God help you, if you are not a good enough deal as per the money guys here. I possess a small florist store here, and by nature florist business is not reasoned as good investing especially for working capital funding, as flowers perish quickly. You just might get funding for the working capital expansion, as banks take the establishment as collateral.

That apart, those complete suits make me really discomfited.

I wanted to add some alien South East Asian assortment to my offers. They cost a bomb if you want them fresh enough. Obviously, I needed money, and banks and other loaners were out. Not that I didn’t effort but they were big time skeptical and asked for guarantees, security, hell lot of documentation and what not. On the top of it--that horrific interest rate!

I was at my witticisms’ end. I almost deferred the idea. Then my moneyman, God bless him, asked me to go for Small Business Funding. Business cash advance is not a loan and you can refund it directly from the credit card sales, and the terms and conditions to qualify are rather simple. You can get funding evening if you have heaped up bad credit ratings.

So I looked around, and guess what……I acquired cash in nine days flat. I qualified as I was perpetually making sales worth $5000 per month, much more than the minimum $4000. All I required to do: to fill up an online form on www.MerchantCashDirect.com.

Inside next few months sales just about doubled and now I am thinking of spreading out into a chain. And I got myself a super costly suit, just the kind financiers respect. So; Mr. Banker………now try to deny me loan.

Want Loans For Starting Up A Business, Well…Options Galore

In my previous posts I talked about the types of loan, funding choices available, and documents necessary for the successful loan application. Now I will talk about the financial institutions providing small business funding.

You should approach your financiers first to apply for a commercial borrowing. You and they have worked jointly. The resultant conversance will go a long way in palliating doubts and insecurities. likewise banks charge less for commercial loans than others.

Simply banks are a little more discreet, and disciplinarian of rules and guidelines regarding the borrower.

There are quite a few other types of business loaners. The primary dividing factor is the type of loans they offer: secured or unsecured loans.

Banking Company usually deals in secured ones, while independent financial organizations favor unsecured loans more. These independent financial organizations are ready to take more risks on starting smaller businesses than banks. Oftentimes they look for specific industries, types of loans, or business sizes of it.

There are 3rd forms of loaners who for the most part provide working capital funding. These loaners offer business cash advance.

The cash advance will be Pay back from the credit card sales that the business organization does in a particular period, ordinarily through with automatic debit entry. Organizations like MerchantCashDirect provide such cash advance.

Small Business Funding…How Not To Bungle

In last post I discussed the types of loan and funding choices available. Now I will talk about the requirements of successful loan application for Small Business Funding.

Applying for the commercial credit demands a lot of preparation documentation wise. The thoroughness and accuracy of the documents are absolute musts for productive borrowing, so it pays to set up them carefully. Some of the must have documents are:

• Financial statements: profit and loss statement, balance sheet and tax returns of the company
• Personal financial statements and tax returns for last three years
• Cash flow estimations on the monthly basis
• Comprehensive business plan
• Precise loan utilization detailing
• Profiles of decision making people i.e. top management

Earlier really going to the banks or any other financial institution doesn’t forget to have your financial documents reviewed by a qualified accountant, for certain in case you require capital funding.

You can deflect all those cumbrous paperwork if you just want working capital funding. In this case you can prefer for business cash advance.

The cash advance is to be repaid from the credit card sales that the business does in a particular period, commonly through automatic debit. Organizations like Merchantcashdirect furnish such cash advance.

Types of Loans for Small Business

Hi, being a financial advisor I am commonly flooded with the enquiries regarding financial backing process, particularly for small businesses. I am surprised by the lack of consciousness in most of the people making researches; mind you some of them are very successful at what they are doing.

It appears there is some kind of uneasiness amongst the small business owners who are searching either working capital loans or capital loans. May be it is those power suits………

No matter………….The procedure is very smooth, provided you are well prepared and well informed. Through this blog, I will talk about different aspects of procedure involved in small business funding .

To begin with, let’s talk about the types of loan and funding options available:

Long Term loans are the most common loans. They are mainly used as a capital funding source. Refund is monthly over a term in agreement.

Short term loans are for both capital and working capital funding source, and are to be refund in one year or less in a lump sum at the end of the term, rather of monthly.

Loan against equipments is more easygoing to secure. The equipments purchased through with funds are the direct collateral for the loan. Used for capital disbursals only.

Credit lines are mostly for working capital financial support. Alternatively of allowing the full amount of loan, a certain amount per year is loaned.

One great option is other than going for loans from banks and financial institutions: availing business cash advance.

The cash advance is to be refunded from the credit card sales that the business does in a particular time period, commonly through automatic debit. Organizations like Merchantcashdirect provide such cash advance.

In my next posting I will discuss the financial institutions providing loans, and essentials of a good loan application.