Posted in Become a Business Owner, Buyers Articles

Seller financing can make small business deals possible, as it allows buyers (who don’t have all the capital necessary or who are unable to raise funds through more traditional lending sources) the opportunity to buy a great business.

Our economy is in much better shape than it was during the recession, and as such the business market has changed. In the midst of the recession nearly all deals came with a fair share of seller financing as traditional lending was essentially nonexistent and any buyers in the market weren’t flush with cash. This was great news for buyers as they could consider businesses that would have otherwise been out of their range.

Now that the economy has dramatically improved, the tides of seller financing have turned.

First and foremost, the improved economy means there are more cash buyers coming to the table that will directly compete with those who need a seller financed deal. In terms of recently completed deals, seller financing still holds as a close second to cash, but now buyers need to come with at least 50% down if they hope to compete with other buyers and get a deal to closing. There are, of course, exceptions to this rule as every business deal is different – but the days of financing more than half of a transaction are probably gone for good.

It is also easier now than it was just a few years ago to get more traditional bank financing or a SBA (Small Business Administration) loan, but many financial institutions are still gun-shy about risky small business deals as the memories of the recession are still relatively fresh in everyone’s mind.

What if I can’t get a bank loan and the business that I’m interested in doesn’t qualify for a SBA loan? How can I get seller financing?

If you are interested in seller financing, let your business broker know as it will help in narrowing your purchase options. Your broker can look for business sellers who have indicated they would be open to a deal that includes some seller financing. Next, you need to be prepared to offer at least 50%, if not more, of the purchase price up front if you want any seller to take your seriously. No one is going to finance 100% of the deal or anything close to it.

Do you have more questions about financing options for the purchase of a small business? Would you like to know what the terms look like for a typical seller financed deal? Contact us today or leave us a comment or question here. We would be happy to help!

Michael Monnot

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Posted in Business Broker Why & How, Buyers Articles, Sellers Articles

Our industry sometimes gets a bad rap, but as professionals who deal with other business brokers on a daily basis – we get it.

Like any industry, there are great brokers who excel at their job, and then there are those who are not so great. This article is meant as a peek into the business broker world and a quick education of what business brokers (should) do with the hope of helping business buyers and sellers choose a professional who will be a help – not a hindrance.

For starters, what is a business broker? A business broker is someone who assists business buyers and business sellers with the business transaction process. They (depending on the state) are licensed and insured to do this type of work, and although the business world is very different than the real estate world – they are often licensed as real estate brokers.

You can liken what a broker does to the buying and selling of homes, but with some MAJOR differences. First, business brokers aren’t typically selling property. They are selling existing businesses, and most businesses don’t own the property where they are located – they lease it from someone else. Second, the marketing and sales process for a business is very different from the same process for a house. For example, business sales are inherently much more complex and the for-sale status of a business must be kept in the strictest confidentiality (businesses for sale are perceived to be businesses on the verge of failure, which is rarely the case – and without confidentiality the whole staff might quit, clients might cancel contracts, etc.).

A business broker is hired by a business seller to list their business on the business market, and also hired by business buyers to help them find and then purchase a business. The commission paid to a broker (or brokers) involved is typically paid as a percentage of the final sale price by the seller.

Not all business buyers who come into the market end up buying a business, in fact the rate is probably something like 10% of those who inquire about businesses actually end up buying. For this reason, many buyers find it difficult to get the attention of brokers and sellers until they are forthcoming about their financial information and are ready to make serious offers.

Not all businesses that get listed on the market sell, this is also just a fact of the industry. The average rate most brokers hold is somewhere between 20-25% of businesses they list actually sell. If that rate sounds abysmal to you, we agree. Ours is typically closer to 60%, and most good brokers will be in that range. Why don’t businesses sell? Why isn’t the rate higher?

There are a litany of reasons why businesses don’t sell. Some businesses are priced way too high right out of the gate, and as such won’t sell because they are far outside the range of what the market will allow. In some cases the sellers refuse to take anything but a full-price, all-cash offer, which almost never happens. Some brokers take listings just to load up on potential calls, but do little to nothing to actually sell all of the businesses they list. We see “marketing packages” that consist of three poorly photocopied pages of old tax returns and nothing else. We deal with brokers (and sometimes sellers too) who rarely, if ever, respond to requests for information. In other cases, a business may not sell because of the time constraints of the sale on the seller’s side. If you have a very niche business, you will need to wait for a very niche buyer. Even if you don’t have a niche business, patience is necessary as most businesses take somewhere between 9 to 12 months to get from listing to closing.

Now that you have an idea of how the business of buying and selling businesses works, how do you pick a good broker instead of a bad one? Ask questions. Lots of them. A good broker will have no problem supplying you with answers.

If you are a seller, ask to see what a typical marketing package looks like. If you’re a buyer, see how quickly your requests for information and phone calls are returned. Ask any broker what percentage of their clients come from referrals (a high percentage here is a great sign). When you listen to answers to your questions, is the broker being honest with you, or are they just telling you what you want to hear? How important is confidentiality to this broker? How many closings do they typically have a year? Does this broker have their own shop, or are they a part of a much bigger company (and if part of a big company, are the numbers of businesses closed and number of listings just theirs, or are they including the corporate numbers)? Are they properly licensed and insured to do this type of work? Is this person only a business broker, or is this a side job that they don’t focus on?

The help of a good business broker can mean the difference between success and failure in the business market, so ask questions. Once you’ve found a good broker you can work with – listen to their advice. A good (or great) broker is there to help you, and by helping you and others like you, help the small business community they depend on.

Are you a seller who wants to help your business sell with the right help? Are you a buyer who’s had trouble getting attention from anyone in the business? Do you have more questions about the business buying and selling process? Contact us today or leave us a question or comment. We would be happy to help.

Michael Monnot

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Posted in Become a Business Owner, Buyers Articles

If you are looking for businesses to buy, then you are probably frustrated by the paltry amount of information you are initially offered when a business peaks your interest. You sign a non-disclosure agreement and you may get nothing more than a few years of P&L statements and a highly abbreviated tax return.

How are you supposed to decide if a business is right for you if you can’t find anything out about the business you want to buy?

Due diligence.

Due diligence is the period of time after an initial offer is accepted where you as a buyer get to go through the business with a fine-toothed comb. Business sales are conducted this way because unlike other purchases – like a home or car – information about an operating business is often proprietary and needs to be kept strictly confidential in order to protect the business itself throughout the sales process (more information about why confidentiality is important can be found here). During due diligence you will be provided with basic business documentation and will also be given a chance to request other documentation you deem necessary.

How long do I have once due diligence starts?

The due diligence period is typically two weeks – plenty of time if you are using your time wisely. Two weeks is also plenty of time because due diligence doesn’t officially begin until AFTER all of your requested documentation is provided.

Two weeks? Are you serious? That hardly seems like enough time.

It absolutely is. By the time you get to the due diligence period, you will have had conference calls with the seller, face-to-face meetings, cursory information and initial questions already answered – the due diligence period is strictly a deep dive. Two weeks will be more than enough, especially if (as often happens) you are given a good chunk of the information you requested and it takes a week or two to get the rest. That will lengthen your due diligence period considerably and give you ample opportunity to decide if the business is right for you.

If, during your due diligence period, you decide that you don’t want to buy the business – you can walk away. This is another reason due diligence is relatively short. This period pulls a business off the market, so holding a business this way for an unnecessary length of time isn’t fair to the seller or to other buyers in the market who are also interested.

The message here is trying to force a seller to agree to a long due diligence period isn’t going to help you decide if a business is right for you. Using your time wisely during a two week due diligence period absolutely is. Ask your business broker about your concerns, and use their guidance during your due diligence period to get the most out of your time.

Are you considering buying a business but still don’t think two weeks is enough time for a proper due diligence? Would you like to know what types of special circumstances would lead to a longer due diligence period? Please ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

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Posted in Business Broker Why & How, Buyers Articles

If you are thinking about buying a business, your first step should involve looking for someone to help you find the right business for you. The right professional for the job is called a business broker – someone who specializes in helping people buy and sell existing businesses.

In our industry there are a lot of fly-by-night impostors who think that dabbling in the business broker profession is something that can be done on the side to make some extra money. Nothing could be farther from the truth. 

The business market and businesses themselves are very complex, and each business and each business transaction is unique. Helping people buy and sell businesses isn’t something you can do without the knowledge, experience and focus necessary to successfully reach a closing table. We’ll put it this way, you wouldn’t trust a general practitioner to do reconstructive plastic surgery on your face, you would use a plastic surgeon instead. Why? They are a specialist. Business brokers are specialists too.

The fly-by-night impostors come in all forms. We’ve come across lawyers, doctors and accountants who have tried to pass themselves off as someone who could help someone buy a business – but by far the worst offenders are real estate agents.

A real estate agent is a specialist in the buying and selling of homes and property, so many in that profession think they can seamlessly transition into helping people buy and sell businesses. Again, nothing could be farther from the truth. A home and a business are completely different animals, the business market operates by different rules and the set of skills needed for a successful closing on a house are completely different than those needed to reach the closing table for a business.

Many real estate agents attempt to dabble in the realm of business brokers by offering to help a client who already bought a house find a business. These agents call us and try to work out some kind of deal where they will represent their buyer clients in the business transaction. Whenever this happens, any business broker worth their salt will refuse to work with a real estate agent in this way.

Why? Why can’t I use the real estate agent I already know and trust?

You can’t because that real estate agent can’t help you buy a business. They have absolutely no idea what they are doing. As business brokers we would never try to sell you a car or manufacturing equipment for the same reason – we would have no idea what we were doing in that industry.

What should happen instead? Your real estate agent refers you to a qualified and experienced business broker, and they get a referral fee for the introduction. They essentially get paid for doing nothing more than exchanging phone numbers, so for the agent it’s a great deal. You as a buyer then get the proper help you need to successfully buy a business. Everybody wins.

The point here is you need to be suspicious of anyone who is not a full-time business broker who wants to help you buy a business. Save yourself the headache and get the right help from the start.  

Are you thinking about buying a business and want to know more about the difference between a business broker and a real estate agent? Would you like to know more about the process of buying a business? Ask us! Please leave us any questions or comments here and we would be happy to help.

Michael Monnot

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Posted in Become a Business Owner, Buyers Articles

The old adage you have to spend money to make money is absolutely true. Business owners have to invest in things like marketing and improvements in order to keep a business thriving and growing.

There is a far more important adage, however, that a new business owner needs to abide by.

That adage? If it ain’t broke, don’t fix it.

What do we mean by that?

When you envisioned your life as a business owner, you likely saw your business as something uniquely your own. Your own designs, ideas, concepts.

If you’ve decided to take the entrepreneurial plunge by buying an existing business, you have made a very smart choice because you don’t have to start from the ground up – you get a fully operational business with a proven location on day one. This removes the issues a start-up business would bring – like finding a location, build-outs, buying equipment and furnishings, getting permits, hiring a staff, creating operating procedures, painting, designing a sign – the list is enormous.

Getting your hands on an existing business means that while all of that initial work is finished, all of those initial decisions have been made by someone else – the previous owner. This can cause a business buyer to have issues with the aesthetic and/or operational aspects of their new business because it doesn’t exactly match the business they envisioned.

As a new business owner, you need to consider this part of buying a business. There will be some things that you don’t like about your new business and some things that you personally would have done differently.

Maybe you hate the paint colors. Maybe you think the ordering system is wildly archaic. Maybe you think the layout needs to be completely changed.

If you are having these thoughts about your new business – STOP. You bought an existing, operating business that generates cash flow. Every business is inherently complicated, so it would be very difficult – if not impossible – to ascertain what parts of the business work and what parts you can change on day one.

You might hate the paint colors, but maybe the rustic charm of the decor is what keeps the regulars coming back. You might not like the ordering system, but it is based on the vendors your business needs to survive. You might hate the layout, but it is the layout that creates the efficiency that keeps the business alive.

New business owners who are hung up on their own vision of what their business should be walk in on day one and immediately embark on a very expensive major renovation, rewrite the operating procedures and change all of the vendors and staff without taking the time to figure out why the business is successful. This always, always ends in complete disaster.

We aren’t saying you can’t change things. What we are saying is patience is the name of the game. Give yourself a few months to decide what works and what doesn’t, why the previous owner did things the way they did. Once you really understand the business as a whole, you can make small changes to slowly guide the business toward your vision.

Don’t fix what isn’t broken!

Are you thinking about buying a business, but haven’t seen anything that matches the vision you have for business ownership? Would you like to know more about how buying a business can be a better choice than starting from scratch? Please leave us any comments or questions and we would be happy to help.

Michael Monnot

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