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The Three Snags of Purchasing a Drycleaning Business

Douglas Adams |

For almost two decades, Butler Capital Corp. has collaborated with business brokers throughout the country who handle the buying and selling of businesses. During that time, Butler has developed significant experience in financing business acquisitions in the drycleaning and coin laundry industries.
I estimate that 50% of Butler’s yearly business comes from customers looking to finance the purchase of one or more businesses. In 2007, we loaned more than $10 million for buy/sell transactions in the garment-care industry. The transactions ranged from a five-year loan of $100,000 for a client buying a small plant to a 10-year loan of $1 million for the purchase of a large, established drycleaning business.
As a business lender, Butler has learned the ins and outs of buy/sell loans — there’s nothing quite like hands-on experience to furnish meaningful lessons.
I’m asked so often about what a client should or shouldn’t do when thinking about buying a business, you could call me the “Dr. Phil” of acquisition financing. So what should buyers, sellers and brokers watch out for?
Typically, a broker hits three types of snags when trying to help a buyer purchase a business: difficulty finding financing for transactions that don’t involve real estate; too-slow turnaround times for loan approval; and limited flexibility on the part of the lending source. Let’s look at each of these potential problems.BUYING THE BRAND
First, there’s the dilemma of locating money for an acquisition in which the real estate is not for sale. In such a case, the buyer is primarily purchasing the operation’s “goodwill,” and many lenders, frankly, aren’t interested in financing something that nebulous.
Butler looks at it a bit differently, since we put stock in the individual and the business assets. My advice to brokers who hit this snag is to seek out a lender that’s willing to look at the going-concern value of the business. They are out there.IN TURNAROUND
Second is the problem of the turnaround time on a loan. A long wait for a credit decision can frustrate broker and customer alike.
I’ve had buyers come to me at the last minute after trying several lenders with no success. By the time they come to us, the seller is frustrated, the buyer is in a panic, and the deal is falling apart. They need to close in three weeks, and they believe it simply won’t be possible at this point.
Don’t worry. Although they’re harder to find, there are lenders that can underwrite, document and fund an acquisition in as little as three weeks.FLEXIBLE TERMS
The third snag is lender inflexibility. The best thing a potential business buyer can do is to find a flexible lender — one that knows how to structure deals creatively to make them work.
For example, one of my colleagues had a client who was buying a drycleaning plant that needed significant renovations before it could reopen. We knew that he would need additional time and money to get the store ready for business. Since we were confident that once the store was up and running, he would have no problem making his regular payments, we arranged for three months of low payments to allow more time and money to renovate.
Business brokers often find themselves on the selling end of a transaction, too. I tell my broker friends that they should counsel clients wishing to sell to take steps that will make the business easy to finance: Keep detailed financial records and have any important documentation ready before you start looking for buyers; be realistic about the worth of the business you’re trying to sell; and encourage the seller to clean up the place he or she is trying to sell. Appearance can drastically affect a buyer’s impression of how much the business is worth.
Don’t hesitate to offer this advice — after all, the job of a business broker is to help the seller, and that entails much more than publicizing the availability of a business for purchase.
I’ve always found buy/sell transactions to be one of the most enjoyable parts of the business; they are among the most interesting loans I work with. And I’m always available — at no obligation — for advice or a second opinion.
 

About the author

Douglas Adams

Butler Capital Corp.

Director

Douglas Adams is director of Butler Capital Corp.’s Garment Care Finance division. He can be reached at 866-374-9087 or via e-mail at dadams@butlercapital.com. Visit Butler online at www.butlerdryclean.com.

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