Get Your Finances in Order Before You Make an Offer
[This article assumes you’ve already read through our Research article “Checklist: What to Do BEFORE You Buy a Business“. If you haven’t, click the article link above and read that first, and then come back.]
If you’re serious about buying a business, it requires a lot of solid research. And that research includes YOU.
Before you begin to pursue a laundry of your own, you should know what kind of shape you’re in financially, and what resources you have available to put towards this purchase.
Do not be tempted to skip this financial preparation step; you don’t want to reach out to a broker or seller and have the conversation go like this:
You: Hi, I’m interested in the laundromat you have listed for sale in Happytown.
Broker: Great! I’ll send you an information sheet. So can I ask how you plan to fund this purchase? All cash? Financed?
You: I don’t know.
Broker: Um, ok. Well what kind of funds do you currently have available?
You: I don’t know.
Broker: Hmmm. Alright, how is your credit score then?
You: I don’t know.
This is not how you want that conversation to go, am I right?
In fact, the broker probably dismissed this poor bloke after the first “I don’t know.” This buyer clearly hasn’t done his homework and isn’t prepared to answer even basic questions. Don’t be that buyer. Please.
How is Your Credit?
One thing you should have already done by now is check your credit report. This applies even if you’re paying cash. Why? Because landlords (and some sellers) will check your credit and base a significant part of their decision on just that alone.
Your credit doesn’t have to be perfect, but you want to be sure that you have plenty of time to fix any errors you find, so that is why this should be on your to-do list first.
By law, you are entitled to one FREE credit report every year from all three major credit agencies; Equifax, Experian and TransUnion. To obtain your free reports, go to the government-authorized site, AnnualCreditReport.com.
The reports are free, but they don’t reveal your actual credit scores. To get our credit scores for free, we used the website CreditKarma.com.
Don’t Be Caught Cash-Less
When you start to get serious about a purchase, you should make sure that at least $5,000 of your available funds are actually in cash and readily accessible in a checking account.
This cash can cover time-sensitive things like “good faith” deposits and landlord application fees.
You don’t want to be ready to make an offer and then have to wait 7 days because your “good faith” deposit is tied up in the stock market. Avoid this by having a small chunk of cash ready in a checking account at the very beginning.
Once you find a laundry you want to pursue and make an offer on, you’ll be able to write a check for your good faith deposit and put your offer in immediately. When buying a business, time is of the essence my friends.
Create a Personal Financial Statement
When we were in the process of purchasing our first laundromat, we found out there had been a buyer just before us that didn’t work out.
We asked why, and the broker told us that the 30-day window had run out on getting their financial paperwork together for the landlord. They couldn’t seem to get their account balances organized or itemized, so after the 30-day window ran out, the seller was free to accept other offers. Soon after, we came along with an appealing offer, and the seller was more than happy to let go of the first buyer and lock in an offer with us.
Let that story be a lesson to you.
If you haven’t already, you need to know your Net Worth and prepare a “financial picture”. Landlords, lenders (and some sellers) want to get an idea of your financial situation, and a Personal Financial Statement does just that.
At its simplest, it is a document that lists your assets (cash/investments/property) on one side, liabilities (debts) on the other, and then shows your Total Net Worth (assets minus liabilities) at the end.
So, start by calculating your Net Worth. (For more information on how Net Worth is calculated, we talk more about it HERE.) We recommend the website PersonalCapital.com. They calculate it for FREE; this is what we used to calculate our own Net Worth to submit to lenders and landlords.
Sign up for a free account with your email address, then it’s easy to start adding your assets and debts. In fact, we still log on to PersonalCapital.com every few months, just to enjoy watching the number go up!
Once you’ve entered all of your assets and liabilities into your Personal Capital account, you’ll be able to easily fill out any financial forms provided by lenders and landlords. Log on, get the values, fill in the form, and submit it. Without delay.
Pat Yourself on the Back
Now that you’ve done some financial preparation, you can give yourself a solid pat on the back. You’ll be prepared to answer basic financial questions, you have a fairly good grasp of your financial picture and you’ll be able to provide your financial details to lenders and landlords easily and quickly.
Now it’s time to start looking for a laundry to purchase, and get this entrepreneurial dream of yours off the ground!
About Laura Dobbins
Laura is the founder and co-creator of Laundromats101.com, and owner of two laundromats in the Sacramento area. She’s a math geek (Calculus III was a breeze), and currently works as an Analytics Manager in the Healthcare Finance sector. When she’s not busy analyzing something, she loves cooking French food and blogging.
For more in-depth information, we’ve created The Laundromats 101 Complete Guide to Purchasing a Laundromat, which includes an entire chapter devoted to making an offer and getting your finances in order.
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