One of the most common questions that our brokers get asked is: How much will I need for a down payment ? This amount will vary based upon a series of factors:
- Type of Business
- Seller’s Situation
- Buyer’s Down Payment Ability
Typically speaking, the higher down payment offered by the buyer, the lower the total sale price of the business. But you don’t want to commit all your cash! You’ll need some cash on hand for operating expenses, deposits, and other requirements that come along with buying a new business. It is important to have an extra cushion as well for emergencies as well as unforeseen circumstances.
When you are ready to purchase a business, it is important to think about how much of a cash investment you are willing to make. As a general rule of thumb, expect to pay 1 to 1.5 times, the annual owner’s discretionary earnings as your down payment. Although, this can vary depending on your particular circumstances. If you are getting outside funding, you should expect a 15 to 30% cash investment. If the owner is financing part of the transaction, the down payment percentage varies widely, depending on the value of the hard assets within the business. These hard assets would include Furniture, Fixtures, and Equipment (FF&E) as well as Inventory.
How can Gateway MA assist me in determining my down payment?
Once you have determined what level of cash investment you are comfortable with, your Gateway Representative can assist you in finding an enjoyable business that is within your comfort level. If you are not sure how much is right for you, your Gateway Representative can also assist you in determining how much you can handle.
For an estimated down payment, check out our listings. Your broker can calculate a more exact amount once he or she has more information regarding your personal circumstances.