The Walk-Thru: What Business Buyers Should Know
Posted in Become a Business Owner, Buyers Articles
If you are in the market to buy a business, then one of the steps you will have in your future is the walk-thru. Much like buying a house, you will want to see the physical location of a business before you make any decisions on moving ahead with a sale.
Unlike a house, there will be a few more steps before you can see a business. It’s far less important to see the physical space when you are buying an existing business, and as such it’s a step that happens much farther along in the process than most new business buyers realize. When you buy a business the most important aspect is cash flow, not the color of the walls or what the machines look like. You will likely see the physical space after you’ve seen the marketing package, after multiple conference calls or meetings with the sellers – often after you’ve made an initial purchase offer.
How do you start? First you will need to sign a confidentiality agreement, most often called a non-disclosure agreement. You will be required to sign this agreement before your walk-thru for a few reasons.
Existing businesses can face terrible consequences if the entire world finds out that they are for sale. There is a powerful misconception that any business for sale is a business moments away from closing its doors for good (although typically nothing could be farther from the truth). If the for-sale status is disclosed the entire staff could quit (taking their regular clients with them), vendors might cancel contracts, customers may decide to shop elsewhere – you get the idea. Non-disclosure/confidentiality agreements protect sellers and their businesses from these potentially disastrous leaks of information.
Once the non-disclosure agreements have been signed, you will not just be able to waltz into the business whenever you please. An appointment will need to be coordinated between you, the seller and the brokers involved. You will likely need to see the business before or after hours (so curious employees can be avoided).
Why do the brokers need to be there? One of the most important roles that a business broker plays is that of a buffer. We have seen too many deals fall apart because initially innocent communications directly between a buyer and a seller devolve into a major issue.
Some sellers (whether appropriate or not) find questions about the legitimacy or profitability of their business offensive. If this happens and your deal begins to unravel, you will want your broker around to smooth things over. Your own broker will also be able to tell you if they think the things that were seen or said during a walk-thru were on the up-and-up. You will want their experienced eyes with you.
You will need to be flexible on meeting times for your walk-thru, especially if the business is one that has more than one or two employees that can be easily avoided. You will likely need to do your tour either before the business opens or after they close to keep the staff (or observant regular customers) from finding out about the for-sale status.
If you really want to see the business during business hours, then you certainly can. You just need to talk to your broker about whether or not it would be appropriate to do so. It would be tough, for instance, to walk in and see a manufacturing floor where the public is never allowed – but if you were considering a café, you could go in and grab a cup of coffee. Have your broker let the seller know that you are planning on dropping in as this is seen as common courtesy to the other side.
If you do grab that cup of coffee, it is important that you keep a low profile. Don’t ask any strange questions of the staff that will make them suspicious or do something like demand to see the manager or owner. You are there purely for observational purposes.
Now that you’ve made the arrangements — like signing the appropriate non-disclosure agreements and making an appointment with the brokers and the sellers – keep your appointment and don’t be late. Getting a walk-thru together requires a lot of moving parts, so buyers who fail to show or fail to show on time show a lack of respect – and sellers may refuse to work with you.
Bring questions with you. This visit is a really great chance to find out about the ins and outs of this particular business – and you don’t want to waste the opportunity.
You should feel free to open doors, examine equipment, etc. – just ask the seller first. It is important to remember that not only does the business still belong to the seller, it is a huge part of their life. Again the message is just to be respectful of the other parties involved.
You should never feel like you have to rush through a walk-thru, but on the same token eating up a ton of everyone’s time because you love to tell long-winded fishing stories isn’t fair to anyone. Stay on point and make the most of this unique opportunity because there are many things about a business you can’t learn from reading a P&L.
Once the visit is complete, have a conversation with your broker about the things you saw, your concerns (especially those you weren’t comfortable bringing up in front of the seller) and ask if they saw anything they think the two of you should discuss further. Use their experience and knowledge to your advantage when using the information you gained via your visit.
Are you considering buying a business, but would like to know more about the walk-thru process? Do you want to know what types of questions you should be asking during a visit? Ask us! Please feel free to leave comments or questions below.
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What Separates The Good Entrepreneurs From The Great
Posted in Become a Business Owner, Buyers Articles
Whether you’re a business owner already or someone who is considering taking the entrepreneurial plunge, knowing what it takes to be great is essential to success. The essential ingredients to success come from knowing about the challenges you will face and having the will to persevere. The problems come from unrealistic expectations of what business ownership is really like.
Many budding entrepreneurs come to the business market looking for a business they can buy for a small amount of capital that is going to make them buckets and buckets of money. This is far, far from reality. Owning your own business does give you the flexibility of deciding your own fate while doing something you are passionate about, but it rarely makes you filthy rich. If you are in it to become the next Mark Cuban, you might be in the wrong game.
One aspect of entrepreneurship most don’t consider is the mid-ownership crisis. Owning your own business is very tough, so late one night with a pile of work left to do before the sun comes up you will likely ask yourself “What am I doing here?” We regularly remark that it would be far easier to just go get a job and punch someone else’s clock. If you get to a mid-ownership crisis, don’t panic. If the issue is burn out, you can move to sell your current business and purchase another one in a different arena. If burn out isn’t the problem, then just hang in there. Great entrepreneurs know how to persevere and make the best of what they have to continually grow their business.
Another ingredient that separates the good from the great is leadership skills. If you own a business that isn’t a one-man show, then you not only have to motivate and manage your staff, you have to set a good example by being motivated all on your own. Many first-time business owners delegate anything and everything to their staff without lifting a finger – this can be a big mistake. The best leaders are those who would never ask their employees to do something they wouldn’t do themselves, and often demonstrate their leadership by rolling up their sleeves and working right alongside their staff. Regularly demonstrating to your staff that your heart is still in the game can be great for morale.
Great business owners also know the importance of the community’s perception. It can be difficult to keep from taking a bad review personally, especially if you are a company of one. Using any review (no matter how scathing or ridiculous it might initially seem to you) as constructive criticism can only help your business grow. Sure, there are trolls who live to complain and customers out there who no one could ever make happy, but responding politely to and implementing changes based on negative reviews will show your clientele that you are driven to be a part of the community for years to come.
Owning your own business can be really, really hard work – but the rewards of becoming a great entrepreneur are worth the effort.
Have you always wanted to buy your own business and are curious to see what’s currently available? Ask us! Please feel free to leave any questions or comments, we would be happy to help.
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You Don’t Need To Be The Next “Meta” – Why Small Businesses Are The Perfect Fit For Your Dreams
Posted in Become a Business Owner, Buyers Articles
Many cubicle-bound professionals daydream of one day becoming their own boss and launching themselves into fame and fortune – the likes of a Zuckerberg or Gates – but notions and ideas that lofty can actually prevent you from having a profitable and satisfying career as the owner of a small business.
The American economy was built with small businesses and the entrepreneurial spirit of main street, and although some small businesses do become mega-corporations, most don’t. This isn’t a bad thing – for most small business owners a profitable time can be had without exponential growth.
Why should you keep your business ownership dreams out of the clouds? If you are realistic about your expectations as a business owner, then you are more likely to find the happiness and success that can come from a sensible entrepreneurial vision. Still need convincing that you should keep your goals a bit lower than “the next Meta or Google”? Here’s a few reasons while a small business can be far better than a mega-business:
Too many cooks in the kitchen.
If you’ve ever worked for a large company or even sat in a large meeting, you will know that the more people involved, the slower the process will go and the more resistant to change they will be. Large businesses are like large ships at sea – they take an enormous amount of time and effort to change direction. As a small business, you will be better equipped to shift with market trends, pivot with your customer’s needs and be able to implement changes without the enormous task of getting the approval of a large number of people before anything can happen. This can be critical in times of crisis, like the pandemic, when a quick pivot in your business model can save you.
Sustainability isn’t just for farms.
A massive company also comes with massive infrastructure and expense. You might be racking up massive sales, but a large chunk of the money coming in will have to be allocated to keeping the bones of the company supported. A very large business needs a very large location, a location that likely comes with a very high lease payment. There are the bills to keep the lights on, to keep the wireless working, to provide benefits to employees, to buy office supplies – the list of expenses can go on and on. If a very large company isn’t able to keep profits growing, it can be incredibly hard to support that massive infrastructure. If you are a small business, on the other hand, you can easily maintain a small but functioning location with a low monthly cost in terms of lease and utilities. If you have a bad quarter, unlike your massive counterpart, you have a sensible and sustainable monthly expense that will give you the ability to stay in the game long enough to get the numbers back in the black.
Corporate life is not for control freaks.
If controlling your own destiny is something that is very important to you, then life on a mega-corporate ladder can be tough. By owning your own business the responsibility and decisions are all yours, so any successes you achieve are that much more satisfying. You have complete control of where your professional life goes, and for some this alone is desirable enough to stay off the corporate ship.
The message here is if you are considering entrepreneurship, dream big – but not so big that you talk yourself out of ever owning a business. Small business owners are driven and happy – so if you think this is a path you want for your life, make some realistic goals and then set them into action.
Have you thought about buying your own business, but aren’t sure entrepreneurship is for you? Do you have questions about how much money you could make by owning your own business? Ask us! Please feel free to leave a comment or question here, and we will be happy to help.
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Honesty Vs. Telling You What You Want To Hear – Selling Your Business With A Broker
Posted in Sellers Articles
If you really tried to add up all the hours you’ve put in, every penny you’ve spent, all the stress you’ve endured – it would probably mean your business is worth an absolutely insane amount of money. It would be great, right?
In reality your business is only worth what someone is willing to pay for it, so pricing your business correctly when you list is extremely important. Price it too low and you’re leaving money on the table. Price it too high and buyers probably won’t attempt to make an offer. You need to be in that sweet spot where you’re price reflects the actual cash flow of the business but isn’t delusional.
How do you figure out the sweet spot for your listing price? Talk to an experienced and qualified business broker. They’ll help you consider cash flow, your equipment and inventory, upcoming contracts, debts the business holds, your commercial lease, what comparable businesses have recently sold for, etc. and guide you to a listing price that gives you your best chance for the highest return on your investment.
Here’s the most important point. If you’ve chosen the right broker their goal is to help you sell your business successfully. The only way that’s going to happen is if the listing price is right. If you’ve got a broker who will let you list for whatever you want – that’s a problem.
Letting a client list their business for whatever they want is a way for some brokers to get listings – listings they know won’t sell. Why would they do this? Any listings they have will generate calls from buyers, so when a buyer inquires about your substantially overpriced listing that broker will use the opportunity to steer your potential buyer to another of their listings they can actually sell. Your business languishes on the market indefinitely and you don’t see the benefit of the listing – the broker does.
How do you keep this form happening to you? Hire a broker who tells you the truth. You might not like what you hear, but a broker who actually wants to sell your business isn’t going to let you list for an astronomical price. They’re going to help you hit that sweet spot – even if it’s less than you would ideally want. A good broker bases their listing prices in reality, not with the goal of getting the listing at any cost.
Ask lots of questions in your initial conversations with brokers. If you’re requesting a specific listing price and they don’t agree, ask why. If they are willing to let you choose any number you want – remember in that scenario you aren’t the one who benefits.
Have you tried to sell your business without any luck and now think it was because you listed it for the wrong price? Do you want to know what businesses like yours have recently sold for? Ask us! Leave any questions or comments and we would be happy to help.
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Stay In Your Wheelhouse: Why You Shouldn’t Buy A Business You Know Nothing About
Posted in Become a Business Owner, Buyers Articles
Sometimes it seems like a good idea. A hard about-face in life. Choosing to buy a business in an industry that interests you, but one where you’ve never spent a single, solitary second. How exciting, right? A whole new chapter of life – a new adventure.
Don’t do it. Here’s why.
Life as a business owner is tough. Really tough. It’s long hours, lots of responsibility and constant challenges. That toughness translates into rewards if you have the grit, experience and passion to be a successful entrepreneur. Notice we included the word experience. We’re not saying you need to have owned a business before. The romantic notion that the only requirements for success as a business owner are grit and passion just isn’t reality.
The reality is taking over a small business as the new owner comes with a sharp and steep learning curve. There are so many aspects of owning and running your new business that you will have to learn – quickly. How the operating procedures work and why they are the way they are. The nuances of your new staff. What needs to be where and when. How to place orders. How to manage inventory. How to stay on top of licenses, taxes, payroll. The list is long. What you don’t need in this mix is trying to learn an entirely new industry. If you want to be successful you’re going to have an exponentially easier time taking over a business where you have some real, practical experience.
Here’s an example. Say you went to school to be an accountant, then you spent some time working as the accountant for a small manufacturing company. Like most people you’re a fan of a good happy hour and have always had a daydream of owning a tiki bar on the beach. When a 200 seat beach bar near you goes up for sale, you put in an offer and are able to work out a purchase contact with the seller. After closing on the sale you struggle with your now 24/7 work schedule. You’ve never worked anything but a classic 9 to 5, so having to open the bar at 10am and stay until 3am every day is rough. The huge staff you’ve inherited to run this large establishment are a constant source of drama you’ve never had to contend with. You fire one employee and then 9 more quit, including your weekend bar back. Now you’re juggling trying to fill the schedule and trying to hire someone who will actually show up to be the bar back on Saturday nights. So for 5 Saturday nights in a row you’re the one hauling kegs and refilling ice. And you didn’t realize how fast you’d go through lemons so you’re driving around at 4am looking for a 24 hour grocery store because there isn’t any time to order from your vendor and get lemons by tomorrow. Then your line cook calls in sick so you have to jump in and work the line for 3 days, cooking food you’ve never cooked at what seems an insane pace – much to the displeasure of your customers who keep sending the food back.
If you’re someone who has experience in the restaurant industry, that scenario probably seems pretty normal. You know what it’s like to work late shifts and have to jump in and cover for people who’ve called in that night. You’re familiar with the drama that exists in every food industry staff. You understand that a 200 seat anything is huge, and not for anyone who’s a rookie. You know what food cost is and you understand what a bar needs (lemons) to function properly.
The point here is you really need to know what you’re getting into before you make the life-altering decision to buy a business. The only way to really know what owing a business is going to be like is by working in that industry at some point in your life. Our accountant from the example above could have bought a small manufacturing business or a small accounting firm and done quite well. Instead they are immediately overwhelmed and quickly burned out.
Don’t do this to yourself. Talk to a business broker about the practical experience and education you have. You might be surprised by the business and industry options available that would compliment the things you’ve done in the past. Set yourself up for success, not burnout.
Are you rethinking buying a business you know nothing about and want to know what industries and businesses would fit with your experience? Did you buy a business cold and have a story to share? Contact us or leave any questions or comments, we would be happy to help.
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