Posted in Buyers Articles

In the time before the pandemic, business buyers would typically request 3 years of tax returns when considering a business. If you’re looking at businesses in 2024, those three years of records land you squarely in the throws of the pandemic – where many businesses struggled or faltered and a few pivot-capable businesses did very well. 

How do you make heads or tails of numbers that can show a huge slump or a huge bump? Maybe don’t consider those numbers as hugely significant. 

If you do ignore the COVID numbers, you’ll have company. According to the IBBA Market Pulse Q1 Executive Summary “Q1 2024 survey results indicate that the vast majority of M&A advisors believe buyers are largely disregarding the financial impact, whether positive or negative, that COVID-19 had on acquisition targets. A combined 80% of respondents agreed or strongly agreed that buyers are mostly ignoring any ‘COVID slump’ or ‘COVID bump’ when assessing a company’s financials.”

This tendency to ignore the pandemic years makes sense when you consider that the businesses that made it through this period were doing something right, and the ones who saw a huge spike in profits because of something they did related to COVID have likely seen those metrics fall as the pandemic became less of a concern. 

What can you do then when you look at the track record of a business in the post-pandemic market? Ask for more years of records. Many buyers now ask for 2019 to today, or even the last ten years of tax returns. This over-arching view of a longer period of time will likely give you a better sense of how this business fared before and after the shut downs and mayhem – giving you a better perspective.

Are you looking at businesses and want to know more about how to interpret the numbers during the pandemic? Do you have questions about what time period of records you should ask for? Ask us! Please feel free to leave any questions or comments here 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

Owning a business is a lot of work. Day to day operations, issues that need to be resolved – it can be hard to keep up with everything. This usually means that keeping your financial records in order slides to the end of the list. It’s tedious, annoying, time consuming and sometimes feels like it can wait in the box under your desk in favor of something more pressing. 

This procrastination can become a problem, however, if you find yourself in a situation where you need to sell your business. How can you prove to prospective buyers that the business is worth what you say it is if your records are a jumbled mess? 

What about on the other side of the table? If you’re a business buyer you might have noticed that the financials you seem to see from small businesses can barely be called “financials” at all. A copy of a P&L that’s been faxed too many times, some scant numbers that seem to be derived from thin air – it can be hard to parse out how a business is actually doing. 

Does poor record keeping always mean a business isn’t doing well? Absolutely not. What it does mean is a seller is leaving money on the table and a buyer has room to negotiate.

If you are considering selling your business, or if you aren’t planning on selling now (but you will be selling in the future) the time to straighten out your books is NOW. Pull out that box from under the desk and start working through it whenever you have a chance, or hire someone who can do that for you. Your business can only look its best on paper if your papers are in order. A business with clear, concise records can easily prove the value that you’re asking for. It also shows prospective buyers that you’ve been an organized owner, which translates to more faith in the business.

If you’re looking at businesses to buy don’t immediately pass over a business with messy books. Think of a business like this like a house with good bones that needs a little work. If that work has to come from you after you buy it – guess what? You can negotiate for a better price. Notice we said “good bones” – not all businesses that have issues keeping their records in order are in great shape otherwise. Seek the advice of your business broker and/or a business transaction CPA to figure out if this business is worth negotiating for.

The message here is that big box of jumbled records is fairly common in the small business world. If you’re a seller, get those records in order. If you’re a buyer, look for those opportunities to get a great deal.

Do you have questions about how to make your business look top notch to buyers? Would you like to know more about how to interpret messy records? Ask us! 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 Become a Business Owner, Buyers Articles

Buying yourself a business is a big deal, and you obviously want to give yourself the best chance at success.

How can you give yourself a leg up before someone hands you the keys? Here’s 6 ways:

1. Do your homework

This one might sound ridiculous – but most people would be shocked at how little research some business buyers do. You shouldn’t just be searching business listings. You should be looking at market trends, looking at what types of businesses are doing well and what types of businesses are struggling, what the local market actually looks like in the areas you’re considering, who your competition would be and how they’re doing things differently, what the areas for potential growth are, what the marketing opportunities could be – the list is long and should be exhaustive. You should have a decent grasp on the area, the market and the trends long before your first meeting with a seller. 

2. Stay within your skillset

When you make a major life change like buying a new business it can be tempting to jump into something completely new, but if you’re buying a business this is a huge mistake. Taking over as the owner of a business is hard enough because there’s a steep learning curve. You have to learn absolutely everything. Buying a business where you have zero practical experience takes that learning curve and makes it terrifyingly steep. Do yourself a favor and look at business opportunities that will utilize the skills you already have.

3. Make yourself a business plan

Starting any new venture without a plan is foolhardy at best. You need to go into your new business with an idea of where you think the business is headed, what you need your metrics to be in order to remain sustainable and where the line is when you walk away and lock the doors. A properly laid out business plan will help you hit the ground running, instead of guessing where you are and where you need to be. 

4. Don’t kill all of your capital

If you have $100,000 to spend on a new business, you should not be looking at $100,000 businesses. You need to reserve a decent chunk of your available capital for all the things you’re going to need to spend money on. Commercial rental deposits, licensing and permitting fees, initial payroll, new inventory orders, etc. Burning up all of your capital with the purchase alone will put you in a very precarious position right out of the gate. Reserve some of your cash to keep yourself from ending up in a bind.

5. Don’t focus on the wrong things

It can be exciting to walk into your new business on your first day as owner and “make it your own” – the temptation can be enormous to immediately start changing things to your liking. The problem here is you bought a functional, operating business. You have no idea on day one why that business is able to keep the doors open. Too many changes too fast (particularly changes meant only to satisfy your tastes) are almost always a waste of resources and time – and have the potential to drive away your regular clientele and staff. Focus on learning why things are the way they are, then make slow and incremental changes as needed. 

6. Don’t ignoring marketing

Many small businesses fail to use every marketing opportunity – some because of lack of time or resources, some because of burnout. Many new business owners walk in on day one and focus all of their energy on things other than marketing. Learning the business, getting to know the staff and regulars, making changes and the like. While these are important parts of your first days as owner, a big chunk of your energy should be focused on getting that business out to as many new customers as possible. Maybe the business needs a new website, maybe it needs a social media strategy, maybe it needs more community engagement. You need to be planning your new marketing strategy before you get handed the keys so you can begin to roll it out on day one. 

The message here is there are some very important things you can do both before you buy your new business as well as in your early days as owner that will help you set yourself up for success.

Are you looking at businesses to buy but aren’t sure what types of businesses would fit with your skillset? Would you like to know more about how to create a business plan or how to implement a new marketing strategy? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Become a Business Owner, Buyers Articles

A smart, capable guy who has never worked a single, solitary second in the restaurant industry buys himself a bar – and within six months he’s out of business. How does that happen? 

We like to use the classic bar example because it illustrates a really crucial point that all business buyers must consider. You really need to have some practical experience if you want to have hope for success. 

Why?

Getting handed the keys and walking in to run the business you now own is a daunting, uphill task. You have EVERYTHING to learn. How the business runs, what the standard operating procedures are, how to run payroll, how to keep the books, how to manage the staff, what contracts need to be fulfilled and renewed, how to fix equipment, how to keep on top of your licenses and permits, etc. – the list is incredibly long. 

What you don’t want to do to yourself is add learning an entirely new industry to the mix. You really need to know something about what a business like this is like, day to day. Otherwise you’ve just created an alarmingly steep learning curve for yourself. One that many, many failed business owners have been unable to overcome. 

We’ll go back to the bar example. The guy who bought the bar wasn’t necessarily bad at running a business, the issue was the type of business he bought.

Bars are fun when you patronize them, but many people mistakenly assume that owning a bar will be just as fun – particularly those people who have never worked in one. 

The hours are long and brutal because your day starts in the morning for deliveries and the like and then ends extremely late at night after last call and cleaning. The margins can be razor thin, you constantly have to monitor your staff as theft is easy, you have to stay on top of your inventory, employee turnover is high so training new staff is a constant (as is having to work the shifts yourself for said staff when they can’t or don’t show up), you have to watch for fake ids, overserved patrons, support your staff when it’s busy – all things a former bar employee would know. 

Lots of people leave their 9 to 5 jobs and buy a bar because they think owning a bar will allow them to make their own schedule, be able to attend their kid’s baseball games in the evenings and sit at their own bar having drinks with their favorite regulars a couple nights a week. See how vast the difference is between the dream and reality? That vast gap is the reason people fail. 

How do you keep this from happening to you? 

Buy a business in an industry where you have some practical experience. An accountant doesn’t have to buy an accounting firm, but they can buy a business that uses the practical skills they’ve acquired as an accountant. 

And if you really want to buy a bar, go spend a couple of months working in one first. Learn the ins and outs. See if you really want that life. If you do, fantastic. You can now use those skills and practical experience to make the purchase of a bar successful. 

Have you always wanted to own a particular type of business but hadn’t considered the importance of practical experience? Would you like to know what types of businesses could work for you with your specific set of practical experience? Ask us! Leave questions or comments for us here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Become a Business Owner, Buyers Articles

Think about buying a house. You assume going in that the house is priced based on comps and the current market. As you walk in you see that the current owners painted the kitchen a color you hate, and you aren’t a big fan of the style of cabinetry in the bathrooms. Should a difference of aesthetic opinion mean you should get a steep discount on the house? Obviously not. The house is worth what it’s worth – as is.

The same holds true for businesses. You don’t’ get to steeply discount an offer just because there’s something about the business you would have done differently. The business is listed for the price it’s listed for – as is.

Perhaps you feel differently about the salary the owner takes. Maybe you aren’t a fan of the way contracts with clients are structured or you wouldn’t have as many employees. Differences of opinion do not mean that you can change the value of a business. The business operates and generates cash flow today because of the decisions of the current owner. You can either accept the value that the owner has placed on their business or not.

If you hate the choices of the current owner, guess what? You can easily change those choices when you become the new owner.

We aren’t saying that you have to accept a listing price or a counter offer. The point we are trying to make here is there’s a difference between disagreeing with the value of used commercial kitchen equipment and negotiating for a lower price and trying to negotiate a lower price because you hate a choice the current owner made.

A word of caution here. It’s a terrible idea to walk into a currently operating business and immediately change everything. The business operates and generates the cash flow it needs to survive based on all the choices then previous owner made. If you change too much too soon you risk missing the reasons why the business works.

Perhaps the quaint, vintage-style of the café you just bought is the entire reason your regular clientele frequents the place. Changing the decor and style might drive your bread-and-butter regulars away. Keep the business as-is for a time after you take over – then make small, incremental changes to better suit your ownership style in ways that don’t hurt your bottom line. 

If you don’t like the way a business is run or choices an owner has made you have two paths to take. You can walk away from that business or make changes when you take over. Your opinions of past ownership choices don’t change the value.

Are you considering buying a business and want to know more about how sellers price businesses? Would you like to know what you should look for in a business when comparing the listing price to what the business should be worth? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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