How Do Paducah, KY Buyers Finance an Existing Practice, Boutique or Restaurant?

A purchase price rests on what the business earns for its owner. The seller’s numbers must show it three ways that agree: tax returns, profit and loss statements, and bank deposits for the same years. When deposits run well short of reported sales, or the reverse, the buyer needs the explanation in writing before anything else.

• Business tax returns for the last three years, plus this year’s statements to date
• Monthly bank statements that tie to reported sales
• Add-backs listed one by one: the owner’s salary, one-time repairs, personal costs run through the business
• Sales by customer, payer or product line, to show whether one source carries the business
• Payroll by position, including any family members on it
• An equipment list with ages and any balances still owed

Owner-run businesses come in two legal shapes, which affects what a buyer purchases. Among McCracken County, KY residents with jobs, 4.2% (margin of error 0.8) work in their own incorporated business and 5.2% (margin of error 1.0) in their own unincorporated business (ACS 2020-2024). Buying shares of a corporation and buying the assets of a sole proprietorship are different transactions; the buyer’s attorney and accountant set which applies.

There is no single required split between the buyer’s cash, a seller note and outside funding. A funding partner reviewing a purchase can ask how much cash the buyer brings, and a seller who agrees to carry part of the price shows confidence the business can pay it. A seller note can also be set to start after the outside loan’s first months.

Illustration only, invented figures: a buyer agrees to pay $420,000 for a sit-down restaurant’s equipment, recipes, name and lease. In this example the buyer brings $42,000, the seller carries $63,000 for 60 months at 7% a year, and a term loan covers $315,000 over 120 months at 10.5% a year.

In this example the term loan installment is $4,250.45 a month and the seller note $1,247.48, or $65,975.16 a year together. In this example the restaurant earned $118,000 a year for its owner before debt, so earnings cover the payments 1.79 times, with $52,024.84 left for the buyer’s own pay and surprises.

The first months after closing cost more than the purchase price suggests. Staff may need a retention payment, vendors may ask the new owner for deposits, and accounts for the card processor, software, utilities and insurance move into the buyer’s name. A practice may need new letterhead and patient notices; a boutique may need to restock sizes the seller let run down.

Illustration only, invented figures: a $25,000 cushion at closing in this example covers about two payrolls, a stock refill and the account deposits. Working capital set aside with the purchase keeps those costs from landing on a personal card. The other business loan types on this site cover equipment the buyer adds later.

Before closing, the buyer can ask the seller for these records, and a funding partner can ask the buyer for the same set:

• The purchase agreement, listing every asset the price covers and every one it leaves out
• The lease now in force, with the landlord’s written sign-off on moving it to the buyer
• A lien search on the business and its equipment
• Employee list with pay rates, start dates and any agreements
• Vendor and service contracts that transfer, and those that end
• For a practice: how patient records transfer and who holds them
• A non-compete clause, reviewed by the buyer’s attorney

A sale that also transfers the building adds a real estate purchase, which is outside this site. To talk through a purchase, call (270) 236-8708 or use the request form. More articles for local owners are on the blog.