Buyers Cash Required
"Manufacturing business
nets $100,000 per year"
Desperate owner will finance
with $50,000 down! Now!
Sounds too good to be true doesn't it?
It is!
But let's pretend for a minute it was true and you had the $50,000 cash down required. There is more.
In addition to the cash down payment you will need:
The cash down must be liquid. Stocks, insurance policies, real estate and such are not liquid. You may have a severe penalty to cash them in or sell at a loss if you do need it immediately.
Closing costs. If you are using a bank for some of the funds there will be funding fees, points, application fees, inspections, appraisals, attorneys and possibly a broker if you hired a buyer's broker. If you had a broker find you the above deal, 'you done good!'
Is the inventory included in the purchase price? If not, how much cash will you need? How much cash will be required to be escrowed with vendors for net 30, 60 or 90 status?
The lease! What does the landlord require? Of course there was the application fee, there may be an approval fee also as well as a transfer fee. (The seller is getting hit with some you haven't heard of!) First and/or last month's rent, security deposits, insurance escrow, tax escrow, advertising fund, merchant association fees and professional association fees. (Some or none may apply to the business you are buying.)
Utility deposits (phone, gas, water, oil, sewer, trash, pest, burglar alarm, etc)
Now, your $50,000 down transaction can easily turn into $70,000 liquid cash required at closing. And then there are still operating funds until you start to turn a profit.
Make a list, and check it twice...
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