Posted in Buyers Articles, Sellers Articles

When you put your business up for sale, you obviously want to present the work you’ve done and your assets in the best light. What you don’t want to do is overdue it. It is incredibly important to avoid the mistake of trying to make the business look good by falsifying, leaving out, or misrepresenting your financial information. Not only can these “creative” financials be illegal, it is always incredibly unethical.

As a buyer, you obviously don’t want to end up with a business whose numbers are no where near what was described.

For both sides of the transaction, the due diligence phase will be the great equalizer. This part of the transaction is where the buyer gets to go over the books. If you are a seller who has tried to tweak your numbers, this is where your tactics will be discovered. When buyers find out that the numbers aren’t true, the deal will more than likely fall apart.

Here are some common instances of creative number tweaking that sellers should avoid and buyers should look out for:

Don’t try to over value any assets in the business. If you bought the kitchen hood five years ago, you are not going to be able to put today’s retail price for the new model on your asset list. Be realistic, and use the help of your business broker and your transaction accountant to put price tags on the business assets. Only use a business transaction CPA for this, as a CPA unfamiliar with the ins and outs of a business transaction will always give you values that don’t jive with the current business market.

Don’t undervalue any liabilities, tax debts, etc. This will cause the net worth of the business to appear much larger than it actually is. The buyer will more than likely find out, and then they will be unable to trust anything you say moving forward.

As a seller, the temptation might be there to make your business appear more stable or profitable than it already is, but what you need to know is even unprofitable businesses sell. If a buyer is ready, willing and able to make the necessary changes you have been unable to make, your business will be a great buy for them.

As a buyer, you need to be vigilant during the transaction process, especially during the due diligence phase. If something seems wrong, it probably is. The same holds true for businesses that appear too good to be true. Use the services of a business broker and a business transaction accountant to help you decide if the numbers really are what the seller claims they are.

The conclusion? Be honest and deal-killing issues will not arise later.

Are you a buyer who is suspicious of the numbers you were presented with? Are you a seller who is concerned about revealing your true numbers to buyers? Talk to us today! Please feel free to leave us a question or comment here, and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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

Like any industry, there are great business brokers and there are those who shouldn’t even call themselves business brokers.

How do you ensure that the broker you choose to list or buy with is one of the great ones?

Ask questions.

What kinds of partnerships do they have with other brokers and with broker’s associations?

If a broker is a lone-wolf of sorts with no industry connections, they might have a tough time properly marketing your business or getting access to the listings you are interested in.

How many transactions have they closed in the last year?

If a broker has only closed one business transaction in the last year (or none at all), they are likely not the broker for you. Results will speak volumes about work ethic and knowledge of the industry.

Do they work in a very large office with many brokers, or do they work in a much smaller brokerage?

The benefits of choosing a broker that is part of a much larger firm may be the associations with other brokers that they have in-house. This might give you access to more listings and more potential buyers. Just remember to ask about a broker’s individual results. The firm they work for may have sold 50 businesses last year, but they may have only been responsible for one. On the other hand, there are some in the industry (usually those who are part of a very large office) who will tell you that using a one man shop or a small brokerage is a mistake. This is not necessarily the case. Look at results and inquire about the industry associations they have. A one man shop or a small brokerage might be your best bet because they are able to achieve success without the backing of a larger firm – a surefire testimony to how they work.

Are they really a business broker?

This might sound like a ridiculous question to ask, but it is an important one. Some involved in the real estate industry will try to help clients with buying and selling businesses while they are working on home and property listings. Selling a house and selling a business are two completely different animals. You might have a great realtor, but that doesn’t mean that they will know the first thing about a business transaction. Other types of professionals may try to broker business transactions as a side business. Business brokers are specialists and their field, so use an actual business broker for any business transaction if you want to ensure success.

Are past clients happy?

Look for a business broker with positive reviews and testimonials from former clients. Ask about whether they have repeat clients, and if they have any references. Also inquire about how they get the majority of their new business. If it comes from referrals, then you know they are good at what they do.

As with any major business decision, do your homework. The right choice of business broker can make your buying or selling experience a very positive one.

Are you a buyer or seller and want to know more about how to choose a business broker? Would you like to know more about how we help our clients through a business transaction? 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

The first question on any entrepreneurial journey is a big one. Is it better to buy an existing/operating business or should you choose to start one instead? The short answer? Buying an existing business is typically the better path.

Why?

An existing business has a history that you can examine.

If you start a business from the ground up, there is no way to know what the track record will be. If you are fortunate, the record will be good. If you aren’t, you probably won’t be around long. An existing business removes a bit of this risk by having financial records that you can examine closely prior to purchasing the business. An existing business also has a proven location and comes with an already established customer base.

Another plus to getting a business with records? As you go through the numbers you may find new business growth ideas, unused niches or overlooked areas that could be streamlined.

An existing business has cash flow.

New businesses fail when new business owners don’t take into account the period of time, typically 12 to 18 months, between opening the doors and when the business will actually start generating a profit. Many new businesses go under because they have no cash left after getting to the grand opening – they end up running on fumes and having to shut the doors before anyone even knows the business is there.

An existing business is already generating income. Even if you will need to find financing for operating expenses, there is no need to guess how much money you will need and how much you will be able to pay back because you already know what cash flow the business currently generates.

An existing business comes with someone to show you the ropes.

When an existing business is sold, there is usually a training and/or consulting period written into the contract. This ensures that the new owner gets the proper training to keep the business up and running.

If you start your own business, you will be going it alone. Although there might be business owners who are willing to give you advice, you won’t have someone to show you exactly what works (and more importantly what doesn’t work) for those critical first few weeks of ownership.

It is typically easier to get financing for an existing business.

It is fairly common in the sale of small businesses that the owner will offer seller financing. This is great for a new entrepreneur for two reasons. First, it says a lot about a business that the current owner has enough confidence in the business model to take payments over time. By offering seller financing, they will be dependent on the continued success of the business for years to come. Second, traditional sources of financing can be very hard to come by. For a buyer who can’t pay all cash up front, seller financing allows for the purchase of a business with just a sizable down payment.

For all the reasons above and more, deciding to buy an existing business will likely put you in a profitable position much sooner and with less risk than creating a business from scratch.

Have you ever started a business and wished that you had just bought one that was already established? Do you have questions about the success rates of existing businesses once they change ownership compared with the success rates of start-ups? Ask us! Leave us a comment or question here and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Become a Business Owner, Buyers Articles

When you are in the market to buy a business, you will likely see a few before you find the one you ultimately purchase. These first visits are important for a number of reasons. You will want to see the physical state of the business, what equipment and furnishings you will be inheriting and perhaps even how the business functions during normal operations.

One often overlooked indicator of the health of a business is the actions of the ownership.

Whether you are in for a surreptitious visit where no one is aware you are a buyer, or if you are in a meeting with the seller for the first time – watch their actions. The phrase “actions speak louder than words” plays heavily in the small business world.

Here’s an example: A restaurant owner who spends an entire dinner service at the bar drinking while the food quality lags will be able to tell you a lot about how the rest of the business probably functions.

An owner who is checked-out like this will likely not own a business that is as profitable as it could be. The financial state of the restaurant may not be up to par, but this kind of information is not always bad news for a buyer.

Simple fixes that an engaged new owner can implement, like holding staff accountable or changing food suppliers and/or the menu can get you a business for less than you might have thought with a fairly quick opportunity for growth.

You can find all of this out just from observing the owner.

On the other end of the spectrum, an owner who is punctual to all meetings with a buyer, who is meticulously organized, and whose staff snaps to attention as they enter a room likely runs a tight ship.

What you will inherit is a well-oiled machine that is likely in great financial shape, but you will likely have to pay a bit more than for the business in our first example.

In the initial stages of the business buying process – pay attention. You can get a general idea of the state of affairs just by carefully noticing the actions of ownership.

Are you a buyer who would like to know more about what to watch for when visiting a business? Would you like to know the kinds of questions you should be asking a seller in the first meeting? Ask us! Please feel free to leave a comment or question here and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Posted in Sellers Articles

If you’ve ever bought or sold a home, you know that the key to getting a property to the closing table is getting the word out that the property is for sale. As the seller of a home, you want people looking at your listing, perusing the pictures of the home inside and out, finding the home on a map and taking a drive by to check it out.

Isn’t the same true when you want to sell your business?

ABSOLUTELY NOT.

Business sales and real estate sales are two completely different animals. If you tell just a few people that your business is for sale the consequences can be devastating. People love a rumor and a bit of gossip, so if a few people know about your for-sale status it won’t take long for everyone to know your business is on the market.

Why is it a bad thing?

It will hurt your bottom line.

The time period from when you list your business to the day you reach the closing table should be a time period when you really push your numbers in a positive direction. Businesses with healthy numbers, with a good and stable list of clients and businesses with projected numbers on the rise are typically going to sell faster and for more money than those on a down-slide. It is imperative that you protect your business from anything that could cause problems with your bottom line – the major culprit in this sensitive time being a breach in confidentiality.

What could happen if confidentiality is breached?

Employees, nervous about the future under new ownership can leave and take their regular clientele with them. Vendors can decide to revoke perks you’ve had or cancel contracts. Customers may look elsewhere for their services because they worry about whether the quality they have come to expect from you will be the same under new management.

How can I keep my business sale under wraps?

Don’t tell anyone the business is for sale. Period. The only way that someone should be able to find out your business is on the market is if they get in touch with your business broker and sign the appropriate non-disclosure agreements. You shouldn’t talk about your business sale with your child’s elementary school teacher, the mailman or anyone else who is not your broker, transaction accountant, or transaction attorney.

Keep your business sale out of the rumor-mill by using the services of an experienced and qualified business broker – and don’t tell ANYONE. 

Are you thinking about selling and are concerned about confidentiality? Do you have questions about how your business broker can both market your business to potential buyers and also maintain confidentiality? Ask us! Please leave us a comment or question here and we can address any concerns you might have.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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