Posted in Become a Business Owner, Buyers Articles

If you’ve ever watched one of the myriad of home renovation shows, you understand the importance of staying realistic with your must-have’s in a home when you are looking to buy. You can’t expect perfection when you are looking for a deal.

A similar truth rings true if you are looking at buying a business. Many new prospective business buyers come to the market with an eternally long list of what their ideal business must have before they buy. They literally want the perfect business. Guess what? The perfect business doesn’t exist.

We’ve seen some interesting perfection-seeking, must-have lists – like only wanting a business where the owner is retiring, the business is at least 20 years old, the landlord is willing to lower the rent and it must be able to run with an absentee owner – all for less than $50,000. Realistic? Definitely not.

The problem with this approach is the longer your must-have list, the less likely you are to find a business. You may end up in buyer purgatory forever, always searching for the “perfect” business.

Your first step towards successfully finding a business is letting go of the must-have’s and instead focusing on the goals you would like to achieve as a business owner. What are you looking for – a chance to be your own boss, more financial freedom, the opportunity to follow a passion? Ask yourself these questions first, then look for a business that will fit with your goals.

Your next step after defining your goals is to decide what issues you will be willing to deal with and which will be deal breakers once you find a business. All businesses are inherently complex and all businesses have issues of one kind or another – so be ready to make decisions on what’s do-able and what’s a deal-breaker.

Some examples of do-able issues might be a restaurant with falling numbers but an ineffective and disgruntled waitstaff that could easily be replaced, thereby turning customer service reviews around. Or perhaps a retail business that has zero online presence and no marketing plan to speak of that you could make profitable with some marketing savvy and a good website.

A deal-breaker issue, on the other hand, might be finding out during due diligence that you would be inheriting an $80,000 debt that the seller tried to conceal.

While searching for a business, remember that the past records of a business are just that, they’re the past, and the future of the business and what you could do with it are up for grabs. Just like in the home renovation shows, it’s not the house at the beginning of the renovation that counts, it’s the finished product that matters.

A creative buyer with some decent marketing know-how can turn around a less-than-ideal business in short order if they have a decent plan in place. By applying your personal strengths and experiences you can make many businesses fit with the goal you would like to achieve.

Just remember that there is no such thing as the perfect business, so keep an open mind and keep your must-have list short.

Are you looking at buying a business, but you can’t seem to find one that fits with your goals? Do you think your must-have list might be too long? Do you have questions about what issues are do-able and what issues are deal-breakers? Ask us! Leave a comment or question here, and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

www.InfinityBusinessBrokers.com

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Posted in Become a Business Owner, Buyers Articles

When new buyers enter the business market, there’s a common frustration – confidentiality.

You are about to spend a very large amount of money – so you will obviously want to know everything about the businesses you are considering, and you want to know it now.

The problem here? Business sales don’t quite work that way. There’s a need for discretion and confidentiality.

Why does everything have to be such a big secret?

Confidentiality has to stay in place in order to protect the business. If employees, vendors, clients or the competition find out a business is for sale, it can mean big problems for the bottom line. Employees quit, vendors cancel contracts, clients go elsewhere and the competition can move in for the kill.

Why should a buyer care about confidentiality?

One of the reasons buyers have an issue with confidentiality is it doesn’t seem like something benefits them – it only seems to be in place to protect a seller and the business itself. It’s not. Think of confidentiality this way, you don’t want the business you buy to be in complete turmoil the day you take over, so keeping a tight lid on the for-sale status will be key.

The best way to illustrate why confidentiality is such a massive deal is with an example of what can happen if confidentiality is breached.

A buyer is very interested in a listing for a small restaurant in a downtown location. The buyer gets in contact with the listing broker and signs the necessary non-disclosure agreement. The listing broker then reviews the “rules of the road” – the buyer may not speak to employees, share any financial information, or tell anyone that the business is for sale. The buyer agrees. Since he now knows the name and physical location of the business, he goes in for lunch and asks to speak with the manager. He asks the manager why she thinks the business is up for sale and then asks for a tour of the kitchen. The manager, a key employee, had no idea that the business was on the market. She immediately runs into the kitchen to ask the head chef if he knew anything about the business being up for sale, which, of course, he did not. In the panic this buyer has now caused, both the manager and the head chef quit to find more stable work.  Now the business has lost it’s two most important employees and has been left in a seriously vulnerable position.

As you can see, the confidentiality of a business sale is extremely important. This buyer seriously damaged the seller’s business, and he didn’t have to do very much to cause all of this upheaval.

As a buyer, you will be expected to maintain confidentiality all the way up to the closing table. This is critical to the survival of the business and to the sale. The non-disclosure agreements you sign are there for a reason and are absolutely enforceable. If you disclose the business sale to an inappropriate party, you can face legal repercussions.

These rules are in place to protect the businesses you are trying to buy. Do your future business favor and keep confidentiality in place!

Are you a business buyer who has questions about confidentiality in the business market? Ask us! Leave a comment or question here, and we will be happy to address any questions you have.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

www.InfinityBusinessBrokers.com

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Posted in Buyers Articles

If you are in the early stages of buying a business you will notice that the process of buying a business is unlike the process to buy anything else. You have to sign non-disclosure agreements. You have to provide financial statements. You have to disclose your full name and physical home address – all before you can even find out what the name of any business is. If it seems a little intrusive, you aren’t alone in feeling that way. Many first-time business buyers feel that way too. We get it, but your disclosure of a very small amount of information is about to give you access to potentially business-ending information. It’s more than a fair trade off.

What’s business ending about finding out the name of a business you might want to buy?

Existing businesses depend on the confidentiality of the business transaction process to protect themselves.

From what? Damaging misconceptions.

When the average person hears that a business is for sale, they automatically assume that said business is for sale because something is catastrophically wrong. Why would anyone sell a great business, right? Now imagine what the staff think. Am I about to be out of a job? Is the place I work going out of business? If we get a new owner will they fire everyone?

A business who has their for-sale status disclosed to the wrong people by a breach of confidentiality may face devastating consequences. The entire staff can quit en-masse. Regular clientele can find somewhere else to go. Vendors can cancel key contracts. Competitors can move in for the kill.

To protect businesses from these consequences everyone in a business transaction must agree to hold the for-sale status of the business secret for the duration of the business transaction. As a buyer, you will be required to sign non-disclosure agreements (NDAs) that say this, and carry with them legal repercussions if you breach confidentiality. A non-disclosure agreement gets tied to an individual by using that person’s legal name and physical address. There might be 10 guys named John Smith in your town, but there’s only one John Smith who lives at 123 Main Street.

After you sign the NDA, you will be given access to not only the name and location of the business – you will also be given access to information like proprietary business practices, tax returns, contracts, employee records and the like. A seller is trusting you with a huge amount of potentially damaging information (if it fell into the wrong hands), so divulging who you are and where you live is more than a fair trade off.

In some cases a seller or the commercial landlord will require financial statements as well. These are used to prove that you have the financial means to buy the business and you aren’t just kicking tires. Again, providing proof of financial means pales in comparison to the amount of information your cooperation with the process gives you access to.

It can be tempting to fight transaction protections by trying to alter NDAs or by refusing to provide financial disclosures. Don’t. NDAs are standard in this industry and can not be changed. Refusing to sign one or demanding changes before you do will result in business brokers and business sellers refusing to work with you. The same goes for those who want to be cagey about providing financial disclosures. Refusing to cooperate with the process means your business transaction is over. Period. The business transaction process exists to protect the businesses that are changing hands, and every step in that process is a tried and true way to keep everyone in the deal protected. 

You wouldn’t want a business you hope to buy destroyed by the careless buyer who came before you, or by a future buyer when you decide to sell – so everyone has to play along in order for the business transaction process to work as intended. Be prepared to cooperate, and the process will work for everyone – including you.

Are you looking at businesses and want to know more about the transaction process? Do you have questions about the NDA? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

www.InfinityBusinessBrokers.com

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Posted in Become a Business Owner, Business Broker Why & How, Buyers Articles

Do you have enough? When you’re considering buying your first business, this is probably the first question you will ask yourself. Why? There’s an unhelpful preconceived notion that you need millions and millions to buy a successful business. Guess what? You don’t.

Business prices can vary greatly, even within the same industry. If you are interested in buying a restaurant, for instance, you could get a small neighborhood sandwich shop for $50,000 – or you could shoot for a large waterfront steakhouse that could run you $500,000.

How are businesses priced?

Businesses are priced based on a few factors – namely how much money they earn (cash flow), the value of things like vehicles/equipment/furnishings and the value of the current inventory. There are other factors that also play into pricing, like how much comparable businesses have recently sold for, how many years the business has been open – the list goes on. When you first enter the business market it is a great idea to use the advice of an experienced and qualified business broker because they will be able to both explain how a particular business has been priced and also advise you on whether the business is potentially worth what the sellers are asking.

How do I actually buy a business?

In the business world cash is king. Most first-time buyers, however, are not coming to the market with large amounts of cash to spend. If you don’t have a ton of cash available then a very large manufacturing business that lists in the millions is probably not for you. There are, however, smaller businesses that can run under $30,000. What you end up spending will depend on what type and size of business would fit with your goals and also what you can afford.

What if I have almost no cash available, can’t I just get financing? Yes and no. Buying a business is nothing like buying a car. You can’t walk in with no money down and walk out with the keys. There are a few financing options available to business buyers, but it is important to understand from the start that you will need a fair down payment for any business with any financing option. No one is going to finance 100% of a business purchase.

There are a few traditional lending options – like bank loans – but for the most part you will have an incredibly hard time getting any bank to finance a small business purchase. 

The Small Business Administration (SBA) has some funding available, but much like traditional lending these loans are often hard to get. A business must meet a rather stringent set of criteria and then the buyer themselves will also have to meet SBA’s buyer criteria.

The last and most common financing option is something called seller financing. In this scenario the seller finances a portion of the purchase price to be paid back by the buyer over time. If you are looking to this option then you as a buyer will have to bring some capital to the table in the form of a down payment. For a seller a large down payment shows good faith that a buyer is serious about getting to a closing table. For buyers, a seller who is willing to hold a note like this is a good sign. It means the seller has confidence in the future of the business.

No matter how you end up buying a business – be it cash or financing – the most important point is to have realistic expectations and seek some sound advice.

When you first talk to your business broker, be honest about the amount of capital you will actually be able to bring to the table. Dishonesty here will eventually come out as you will be asked to prove how much capital you have as a deal progresses. Also be honest with your broker about what you are looking to get out of buying a business – if you just want to be your own boss, if you want a flexible schedule or if you want to follow a passion you’ve always had. With the amount of money you have and the goals you have in mind an experienced broker should be able to find you businesses that will meet with both what you have and what you need.

Are you a first-time buyer who has more questions about how businesses are priced? Would you like to know how much of a down payment you would need? Please ask us! Leave a question here, and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

www.InfinityBusinessBrokers.com

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Posted in Business Broker Why & How, Buyers Articles

If you are considering the entrepreneurial leap, you will likely find many people in your life who are ready to give you lots of helpful (and probably more frequently unhelpful) advice. Friends, colleagues, attorneys, real estate agents and the like will probably be full of unsolicited information. 

When you buy a business, you need real help. By far the best person you can have by your side during the business buying process is an experienced and qualified business broker.

Business brokers help people buy and sell businesses, and as a buyer one of your first steps to business ownership should be finding a broker to help you. Your initial conversation with a broker should include a discussion of your goals for business ownership, the amount of capital you have to invest, the areas and industries where you have practical experience, your timeline for buying a business and the like. Having your own broker – someone who knows what you’re looking for and what you want out of the deal – will be instrumental in helping you find the right business. 

When I called about a business, there was already a broker involved – so why do I need my own?

Business brokers don’t represent the buyer or the seller in a transaction, they represent the transaction itself. That being said, the broker who you speak to when inquiring about a listing is someone who knows and has a relationship with the seller – and it is their job to get the business sold. Would you be willing to take the advice of an adviser who only knows about the seller and the business and nothing about you? Probably not. Your own broker is going to go through the discovery process with you – and then use that information to help you narrow down the choices of businesses currently for sale. The point here is you should have a broker who knows something about you too.

What if my broker matches me with one of their own listings? Is it a bad idea to have them represent both sides of the deal?

If your broker knows you and your goals, and has the perfect business to meet those goals, then no – it wouldn’t be a bad idea for your broker to represent both sides. Again, brokers represent the transaction, so as long as you and the seller are both comfortable working with the broker it shouldn’t be a problem. In many cases having only one broker in the mix can actually make the transaction simpler.

What did you mean by “experienced and qualified business broker”?

Our industry is a tough one, and while many budding business brokers come onto the market – most never make it to a closing table. We also have lots of moonlighters – people with professional expertise in a completely different field, but they sell businesses “on the side”. For the most part these moonlighters are real estate agents and attorneys, but we’ve even seen neurologists and dentists give business sales a go. If you are trying to buy a business, you want someone who knows what they are doing by your side. If you needed a cavity filled, you wouldn’t call a realtor – so make sure any broker you work with is actually a business broker. Then ask them about their experience. Are they brand-new to the industry? If they are, they will likely have an impossibly hard time getting seasoned brokers to cooperate with them, they will be unaware of the common pitfalls that can derail a business sale and they won’t be able to guide you properly through the process.

When you are ready to buy a business, do yourself and your goals a favor by employing the services of the best adviser possible – a qualified and experienced business broker. 

Have you shopped around for a business but haven’t found what you were looking for? Is the “broker” helping you really a moonlighter? Do you want to know what kind of business could help you meet your goals? Ask us! Leave us a comment or question and we would be happy to help you on your journey to business ownership.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

www.InfinityBusinessBrokers.com

No Comments »