Posted in Become a Business Owner, Buyers Articles

It’s an entrepreneurial dream. Owning a business run by a trusted management team that allows you to spend your days sipping drinks in a beach chair. It would be nice, right?

The problems come when a prospective business buyer thinks this goal could be realistic with any business or that all you have to do is pay for a business and then sit back, relax and let the checks come in. Nothing could be further from the truth.

While it is possible to get your new business to a point where you can be a semi-absentee owner, you will never be able to completely abandon your responsibility and it will take a while to get there.

What if you buy a business that is currently run as an absentee-owner business? Can’t you just walk in the door and take over this already existing arrangement? The short answer is no.

There are a few reasons. First, the seller’s trusted management system is theirs, not yours. Although it is sometimes possible to maintain management loyalty when a business passes to a new owner – it is not guaranteed that the management in place will have the same amount of loyalty to you.

This can also be a precarious position for a new owner. If you don’t understand the ins and outs of the business, the details of the business that are needed to keep it profitable can go unchecked because you may not know they are (or aren’t) happening. Let this go on for too long and what you will be left with is no business at all.

Is it possible to have an absentee-owner business? Yes, but you have to realize two things.

One, you will never be able to completely ignore your business. Two, there are a few things that need to happen before you can move to an absentee-situation.

First you need to find a good business to buy, and you need to run it yourself for a while (like at least a year) so you know all of the ins and outs. Then you will need to find a good management team (or a single manager if it is a small business) that you are able to trust. Have this management team work alongside you for about the next 6 months so you can be sure they are properly trained. As you begin to relinquish power and responsibilities to your management team, it is incredibly important that you enable this management team to do their job by giving them the power to hire and fire, the power to change inventory, etc. If you’re going to trust them to handle the reins, you have to give them the power to do so. You will also need to come up with a system that will keep you informed of everything going on within the business. Lastly, keep a close eye on your business, even if you aren’t there everyday. Make frequent unannounced visits, go over the financial records regularly, etc.

While it is possible to be an absentee owner in some types of businesses, the majority of business situations are going to require a much larger time commitment from you.

If absentee-ownership is your ultimate goal, bring this up in your initial discussion with your business broker so they can help you to find businesses where this system has the potential to work.

Have you ever considered owning a business, but would ultimately like to be fairly hands-off with the day-to-day operations? Do you have questions about the types of businesses that can be run successfully this way? Ask us! Please feel free to leave us a comment or question here, and we would be happy to help you find a business that fits your goals.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Buyers Articles, Sellers Articles

A deal falling apart is the worst, particularly when it happens as you approach the closing table. Deals don’t close for a myriad of reasons, but to prevent it from happening in yours it might help to know what the market currently shows in terms of the reasons why deals fail. The IBBA and M&A Source Market Pulse Survey from the last half of 2022 offers some insight into why deals collapse.

The report shows that for Main Street businesses ($2MM or less) the main reason deals don’t close is poor financials – which doesn’t just mean that your business accounting system consists of a box of crumpled receipts under your desk. It also means you may have misrepresented, not fully understood or embellished your numbers. Misrepresenting your numbers, whether intentional or not, is a bad look and can lead a buyer to mistrust you to the point that they no longer want to continue with the deal.

Across both Main Street and Lower Middle Market ($2MM to $50MM) the overall reason deals don’t close is an unrealistic seller value expectation. You may have a magic number in your head, you may have a figure you’d love to get for your business that is based on what you’ve invested over the years, you may have a written valuation from a professional that specializes in your industry – but in the reality of the business-for-sale market all of those numbers essentially mean nothing. Your business is actually worth what a buyer actually pays you for it.

Another major factor in the death of deals is time. The longer you make a buyer wait, the longer your business is listed, the longer the transaction takes to work it’s way through the process the more likely it is to die. People change their minds, the market fluctuates, life circumstances get in the way. The way to combat time as a killer is to be ready. Have your financials in order, prep (with your business broker’s help) the answers to commonly asked buyer questions and be proactive with buyer requests – handling them the moment they come in.

If you’re a business buyer, know going in that some really great businesses have records that are lackluster (in terms of organization) at best. Also understand that it can be incredibly difficult for a seller to put a number on all their years of hard work and investment. Be patient with your negotiations and ready to possibly dig through a box of receipts. 

The moral of this story is although some reasons your deal might fall apart are out of your hands – most reasons are absolutely within your control. Go in ready, with realistic expectations and you’ll have a far better chance of seeing that closing table.

Do you have a Main Street business to sell and want to know what businesses like yours have recently sold for? Would you like to know how to get your financials ready for buyer’s eyes? Do you have questions about how to negotiate with a seller who has their business listed for an unrealistic price? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Buyers Articles, Sellers Articles

When you start the process to buy or sell a business (especially if it’s your first time doing so) you will likely encounter some new lingo that you may or may not be familiar with. For instance, the process of buying and selling a business is referred to as a transaction, the professionals who help guide you through the process are known as business brokers and the end of the transaction is called a closing.

What is a closing exactly?

Put simply, a closing is the goal of every business-for-sale deal. It is the end point of the transaction and occurs when all parties included have signed all necessary documents, when the money has changed hands and the keys to the business are given to the new owner.

In many circumstances, this will all occur at one meeting, sometimes referred to as the closing table. All parties will arrive ready to sign and exchange the necessary funds and keys. The business brokers and business transaction attorneys will be present, and typically the funds for the sale will be in the hands of an escrow agent who will release them once the appropriate papers are signed.

In other transactions, the escrow agent acts as a kind of intermediary for the closing. Each party will receive and sign the necessary documents and then send them to the escrow agent. Once the agent has received everything needed for the closing from both parties, the funds in escrow will be released to the seller and the deal will then be officially closed.

Another aspect of the closing process usually involves a walk-through of the business and an inventory count. This is important because if equipment or inventory has changed, the selling price of the business may need to be adjusted.

The closing type and necessity of a walk-through will depend on the deal that has been reached and the preference of the parties involved. Ask your business broker about which type of closing you will likely see at the end of your specific transaction.

Are you a business buyer or seller with questions about the closing process? Would you like to know more about walk-throughs or inventory counts? Ask us! Please leave us a comment or question here and we will happily get those questions answered.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Buyers Articles, Sellers Articles

Sometimes parents will buy or start a business because they hope to leave their children a legacy; the legacy of multi-generational business ownership. What happens if the children of those parents dread the idea of having to take over their parents’ business? The time for that difficult conversation is always NOW. If you are the child of business owners, ask yourself these questions:

Did you grow up working in the family business, but always dreamed of doing something else?

Would you only take over the family business out of a sense of duty or guilt and not because you really want to?

Have you had this conversation with your folks?

If any of these questions resonate with you, then perhaps it is time for you (and your family) to take a good look at what the future of you, your family, and the business hold.

Some things to consider?

If you would only take over the family business because you feel like you are bound by a sense of duty, then that decision would probably be a mistake. Businesses are a life-encompassing affair, and as the owner your heart really needs to be invested in the success of the business if it is going to continue to succeed the way it did when your folks were running the place. We frequently see small businesses falter when the second (or third) generation takes over without the same amount of drive.

If you have passion in another industry, then instead of sacrificing your goals to step into the family business role the family tradition of entrepreneurship can continue by selling your parent’s business when they are ready to retire, and then take the proceeds to invest in a business venture where you will have the passion and drive to continue the family legacy.

These considerations are important, and the conversation needs to happen sooner rather than later.

If you are the parent in this situation, you need to be honest with your kids about your expectations long before it is time for you to step down as owner. Although you may love your business, your kids might not, and it would be a far more productive legacy for all your hard work if you invested in a business where your children would be willing and able to succeed.

Do you own a family business and are concerned that your kids don’t want to follow the same path? Are you the child of a small business owner who likes the idea of staying within a family of entrepreneurs, just in an industry where you have passion? Talk to us! Leave a comment or question, and we can help you decide what would work best for your family and your legacy.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Buyers Articles

Small business sales can fall apart for a multitude of reasons. Any time you are contending with what may be someone’s life’s work and large amounts of money changing hands – there are bound to be challenges. The problems arise when those challenges are more than the deal can take. When that happens, no one ever makes it to the closing table.

As a business buyer, you may find that some reasons for deals coming undone have little to nothing to do with you, like if a seller suddenly decides they’d rather not sell, but there are some common issues that have everything to do with your end.

Sure, buying a business is a huge investment, both of time and money, but a ridiculously over-cautious, inflexible and inexperienced buyer can sink a business transaction as fast as an unwilling seller. The key is balance and understanding.

Before you get anywhere near a closing table, you may need to do a fair bit of introspective thinking. Do you really want to buy a business? Sure, owning your own small business is the American dream, but it is not always the easiest way to earn a living. Entrepreneurs can work long and intense hours, so you need to be sure that you are ready for that part of being your own boss. If you have done the requisite self-reflection, now it is time to go looking for the right business for you.

This may seem like a silly thing to point out, but you should choose a business that is going to suit you in terms of expertise and ability as well as one you actually like. Buyers might think they want to move to a completely different industry from where their experience lies, only to find that they are overwhelmed by the prospect of essentially starting from scratch in a business they don’t fully understand. An example would be an ill-prepared entrance into the restaurant business where a former accountant suddenly decides to buy a bar without ever having worked in one. Avoiding this pitfall is easy, pick something that matches your expertise. This is a great time to employ the services of a business broker to help you figure out what businesses would be right for you in terms of how much you are looking to spend, what kind of hours you are willing to work, and what would suit your knowledge base.

Once you have found the right business, make a serious offer. Buyers who lowball sellers just to see how steep of a discount they can get will only end up insulting the seller past the point of no return.

Do your due diligence once you have a business that you are serious about buying, but realize there will be limits as far as what will be available to you. For instance, sometimes buyers ask for the same information over and over again, or buyers demand to meet all of the key employees before it is appropriate to do so. All this does is upset the seller. Lean on the expertise of your business broker to ensure you are getting what you need without unnecessarily overstepping your bounds. 

The moral of the story is you will need to be cautious (as you should be when you are making such a big purchase) but not at the expense of a great opportunity. Any business is going to come with a fair bit of risk. 

Are you thinking about buying a business but have questions about the process or what business might be right for you? Ask us! Leave us a comment or question here and we will be happy to assist you.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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