Hi all, I have a target doing with PnL of $4M rev and $450K SDE in 2019, BS has ~$400K book value. However, in YTD 2020, sales are down 22% due to covid. The good news is variable operating expense reduction far outpaced the sales decline, generating higher cash flow. Current Book value is approx. $800K. Few questions:
1. How would an SBA lender look at this business from a lending perspective, and will they consider the cash/equity this business has on the books, even thought it's been impacted by covid?
2. How should I structure the deal? Seller is willing to stay on for 12 months transition.
3. Are there contacts that will help with LOI?
Structuring deal and initiating LOI
by a searcher from Columbia University - Columbia Business School
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The cash/equity on these size transactions are usually not a factor in the valuation, multiples are usually on a no cash/no debt basis, adding back some working capital that is added on top.
Having the owner stay for 12 months is OK (as far as the SBA, that is the maximum limit), but my philosophy is: You never want to buy a business where the owner doesn't want to stay 6 months, You never want to buy a business where the owner wants to stay longer than 6 months.
I have often been brought in by banks where an individual has found a business, but needs help in getting it to the deal table safely and efficiently. I am a firm believer that this should never be done without an advisor, similar to if you got arrested for a felony, you can represent yourself in court, but you would only have a fool for a client. I have been working on the buyside helping individuals for 15 years, so let me know if I can help you.