What kinds of things should you consider when deciding on the type of business you should buy?

First and foremost, you should really consider a field where you have some practical experience.  Jumping headfirst into business ownership and a new field is a recipe for disaster. Use the abilities you have developed throughout your employment history to bring success to your own business venture.

Also, be completely honest with yourself.  If you have never worked in a restaurant or bar, it is not a good idea to buy one. If you’re not a big fan of kids, don’t go into childcare. If you’re someone who hates sitting at a desk and staring at a computer all day, it is probably unwise to purchase an IT business. If you are prone to outdoor allergies, don’t buy a landscaping business.

Match your dreams, aspirations and knowledge to the business you will eventually buy.  By having the ability to bring what you already know into your new business venture, you will be setting yourself up for success as a new entrepreneur.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Going from employee to the owner of a small business will take a huge level of personal commitment and a good deal of effort, time and money.  This is not a decision or change that you should take lightly or a process you should do in haste.  There are elements you should consider and questions that you will need to ask while being mindful of potential pitfalls along the way.  Some of the questions you should begin to consider are as follows:

• What kind of business would I ultimately like to have?

• How am I going to pay for my new business venture?  Cash? Financing? A little of both?

• Am I looking to be a franchisee?  Or do I want to buy an existing small business?

• Have I really done my homework? Have I thought of and found an answer to all of my questions?

Your ultimate success, both financial and personal, will depend on your preparations at the beginning of your entrepreneurial journey.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

A purchase contract (or “offer to purchase” as it is sometimes called) is a detailed document that a buyer submits to a seller in order to purchase the seller’s business.  In this document the conditions, warranties, non-compete conditions, financing, terms, inventory, training and other transition details, and other aspects of the purchase are laid out.

Your business broker will help you draft this document, and may even have a standardized version you may use to craft your own.

This contract will allow you to have access to the records and finances of the business you would like to buy during a due diligence phase that follows the initial offer.  After due diligence, you will have the chance to amend your offer or back out of the deal if you choose.

Again, your business broker will be an invaluable asset during this process, as they will be able to help you decide how you should proceed.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

To put it simply, a Letter Of Intent (LOI) is a letter that a buyer sends to a seller to let the seller know that they are a serious buyer who is looking to make a serious offer on the business.

LOI’s are typically used for larger business transactions, though that is not always the case.  Consult with your business broker to determine if the LOI is the right way for you to proceed in a potential business deal.

In the LOI will be an initial summary of the terms; like timing of the steps taken in the future, price and other terms. This document is non-binding, but is considered a serious commitment by you to the business transaction, and lets a seller know that you have the initiative to see the deal go through.

This will allow you to get into the due diligence phase, where you will have access to the financials and other records of the business.  After this phase you will be permitted to either back out of the deal or make an offer to purchase, depending on what you find out during due diligence.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

The following are a list of suggestions on how to value a business’s inventory:

–          You and the seller will first need to agree on which method to use for the evaluation of the inventory. There are typically two types of evaluation methods.  The first is to use the vendor’s invoice or some other documentation to determine the original purchase price.  A warning when using this method, the original price may not reflect the current value of the inventory. To avoid this pitfall, use the second method where the current value is used.

–          When should you do the evaluation and final inventory count? This step should be completed at the close of the business sale, as the inventory will likely fluctuate during the process of getting to the sale closing.

–          When negotiations begin between a prospective buyer and the seller, there should be an estimated inventory value that will just need to be adjusted at closing.  This is a crucial aspect of the purchase process if you wish to avoid major disagreements, and as a buyer you want to be sure you will have the necessary inventory to take over operations of the business.

–          What counts as inventory? Ask your business broker for specifics, but typically something counts as inventory if it can be used or sold as a material or product for a customer. This does not include furnishings or equipment.

–          A word to the wise, do not trust inventory software programs, get in there and do an actual physical count. This will lessen the risk of discrepancies within the actual inventory.

–          While completing the inventory, you can simultaneously do a condition and quality check of the inventory. This can be useful for determining which items you will be able to sell and which, if they are no longer in demand or not compatible with your business plan, you may be able to negotiate for a lower value.

–          If no issues have developed between the buyer and seller, then it may be a good idea to do all (or at least part) of the inventory together as it offers a unique opportunity to “pick the brain” of the owner for additional inside information about the business.

–          Another option is to bring in an outside service to conduct the inventory for you. This is a good idea if you and the seller are not getting along well, as it limits the amount of time you have to spend together. This is also a great option if you do not have the time to conduct the inventory yourself.

The evaluation of the inventory is a very important part of the business buying process. The only way to make sure you get fair value for the inventory is by conducting the inventory yourself, or at least by having a qualified and trustworthy person do it for you.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

The purchase of a business is always complex, and one area that can cause issues for a potential buyer and the business seller is the evaluation of the business.  This critical part of the business transaction can mean the difference between paying too much or buying a business that is in trouble without realizing it.

For instance, a good deal of the evaluation of the business might be held in inventory.  In some sectors, the value placed on the inventory is above the purchase price of the business.

As a potential business buyer, you should understand what is included in the inventory and also what method you will use to do a evaluation.  Do the inventory evaluation at the close of the sale, and this value should remain very close to the estimated inventory you and the buyer agreed upon at the start.

Also, be sure to do a physical count instead of depending solely on the value reported by the inventory software the business currently uses.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

During the recent economic downturn, many aspects of our economic climate have been likened to the Great Depression.  When looking to purchase a business, one truth of that time long ago still stands, cash is king.

If you are able to pay for the majority of your new business with cash, you will be a highly desired buyer in whatever industry you choose. If you have the ability to purchase a business outright, you will have a great deal of leverage in any business purchase transaction.

If you have a decent amount of cash, but not the entire amount that you need, the economic climate can actually give you better financing options in the form of seller financing.

Lending institutions are hesitant to lend money, so business sellers have the choice to wait for a buyer with all of the cash, or offer seller financing.

Seller financing might offer lower interest rates and a longer period to pay back the loan, especially if the seller knows that they will be getting a good deal of cash up front.

Try to only finance a small portion of the purchase price, as this will set you up for success down the road.  A smaller amount of debt will lead to less pressure and the ability to focus on growing your business instead of just keeping it afloat.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

Less than stellar economic news doesn’t mean that all businesses are in trouble.  As a future entrepreneur, you can stay ahead of the game by choosing a business that is essentially recession-proof, one that offers goods or services that people need regardless of the economic climate.

A few options?

1. The food service industry: Obviously a high-end restaurant is going to face tough times during an economic downturn, but a low-price restaurant can become a viable option for families who would still like to eat out but no longer have the discretionary income to spend a lot when they do.
2. The food retail industry: When looking to save money, many families will scale back on eating out and instead make the majority of their meals at home.  Therefore, retail groceries will tend to do better when families have less money to splurge on meals outside the home.
3. The maintenance sector:  In better times, you might just replace a household item that is worse for wear.  In a recession, there is a greater demand to fix what’s broken rather than to buy something new.  The same goes for structural aspects to homes, like roof repairs, where deciding to wait to solve a problem will cost the homeowner in the long run.
4. Legal service or debt collection industry: While a slightly darker business option, when times are bad for consumers, these two fields tend to be very lucrative.  The work needs to be done, and a new entrepreneur can step in to get what needs to be done, done.
5. The healthcare industry: People always need healthcare, and this wide and varied field can include walk-in clinics, eldercare, and selling medical supplies.

Choosing a business based on what people need instead of just what they want can be a very smart move during bad economic times.  Think about what goods and services are in demand regardless of the current housing or employment market, and you can have success as an entrepreneur in this uncertain economy.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com