The Costs of Starting from Scratch: Why You Should Buy an Existing Business Instead



I own my own business.” This phrase has a great ring to it, and if you’ve ever thought about owning your own business you will have a few options.

 

Option one? Come up with a concept and a location and start from scratch.

 

The plus side to this option? The business is 100% yours from day one. Every paint color, piece of furniture, operating procedure, etc. will be something you created or decided on.

 

The downsides to starting this way? Everything is yours, but everything is also unproven.

 

Your location might be perfect, but it also might not work at all for your type of business. The only way to figure out if a location is going to work is to put a business there and see what happens. Your operating procedures, the inventory you chose – everything has not yet stood the test of time and the test of the market, so in reality you are essentially going in blind.

 

The other major downside? The money.

 

Buying a business may seem like an expensive venture, but believe us when we say that starting a business can be far more expensive, especially with the added risk of an unproven model. A brand new business needs a location – then that location needs a build out complete with the permitting and licensing to do so and also new equipment, furnishings, flooring, paint, decor, lighting…the list goes on. Then you will need to stock the place with supplies, inventory, etc. You will then need the working capital to keep the place open and running a minimum of six months – which is typically the time needed for a new business to start turning a profit. Sounds expensive, right? It is.

 

Option two? Buy an existing business and then make it your own.

 

If you buy an existing location – the location, the product or service, the operating procedures – they all work, otherwise the business wouldn’t be open.

 

You will be paying for the already existing, built-out and stocked location, but this price will be far less than if you did it all on your own.

 

Would you invest your money in an unproven business, or would you invest in a company who’s proven their staying power? Think about entrepreneurship in the same way. It is a far better bet to buy a business that already works instead of starting from the ground and building up.

 

Are you thinking about buying or starting a business? Do you want to know what the numbers really look like when you compare the costs of the two options? Ask us! Leave us a comment or question here, and we will be happy to help you on your journey to entrepreneurship.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Business Buyers and Business Sellers: What Are Multiples And How Do I Use Them?



The most important number in the sale of any small business is the price. The listing price is what a seller hopes to get and the purchase price is what someone is actually willing to pay.

 

Where do these numbers come from?

 

There are a few ways that business prices come to be. They typically come from an analysis of the financial records of the business, coupled with what the assets and inventory are worth. In some cases, it is appropriate to use the sold price of comparable businesses in the area, in others it comes down to multiples…

 

So what is a multiple? In the simplest form a multiple takes the average price businesses in a particular industry sell for and compares that number to what a business earns. For example, the multiple for a restaurant might be two times earnings – meaning you should price a restaurant at twice what it earns in a particular year. Read more about other industry multiples here:

http://boss.blogs.nytimes.com/2010/07/15/determining-your-companys-value-multiples-and-rules-of-thumb/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1

 

Now that you know what multiples are, how do you use them? Multiples should really only be used to determine a ball-park figure for the value of a business. Take the restaurant example. Restaurants are very complex businesses, so most restaurants sell for a number very different than the oversimplified two times earnings. Read more about pricing a restaurant here:

 

http://www.infinitybusinessbrokers.com/business-buyers-and-business-sellers-how-to-estimate-the-value-of-a-restaurant/

 

If multiples only give you a ball-park figure, should you use them at all? Yes and no. When you are looking to sell your business, multiples can help you get a starting point for where you might want to set your listing price. It is critically important, however, that you not stick with a simplified number that could cause you to over or under value your business on the market. If you are a business seller, read more about using multiples to price your business here:

 

http://www.infinitybusinessbrokers.com/what-are-multiples-how-to-value-a-business/

 

If you are a buyer, you can use multiples to help you gauge if the listing price of a business is in line with industry standards – just remember that the justification for a listing price probably includes much, much more than just the multiple.

 

Are you a business seller who wants help using multiples to set a listing price for your business? Are you a buyer who has questions about how to use multiples when analyzing business prices? Please feel free to leave us a comment or question here, and we will be happy to help you with multiples.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Negotiations and Closing the Deal: Why the Greedy Business Seller Won’t See the Closing Table



We know, your business is your baby. We’ve owned businesses too. We completely understand the blood, sweat and tears – the money and time invested – these things have value to a business seller.

 

The problem here is this – a business buyer doesn’t see your business the way you do. They see an investment opportunity, and as such, they are only going to be willing to pay for the numbers they can see, and the parts of the business that will give them a return on their investment.

 

How do you as a seller bridge this gap between what you see and what a buyer sees?

 

Be rational and realistic. Talk with you business broker about where they think you should be priced and then listen to their advice. The point of listing your business should be to sell it, and setting your listing price too high will keep you from ultimately reaching that goal.

 

Once you’ve decided on a realistic listing price and also the target number you really want for your business, stick to it.

 

Here’s what happens. You list your business for a completely rational price, you get a great offer from a buyer that comes close enough to your target price that you are willing to move ahead with the deal. Then you start to think, “well, if they are willing to pay this price, I bet I can get them to pay more” or “these buyers don’t understand the true value”. This last minute greedy-push-back by sellers does only one thing – it kills the deal.

 

It is completely normal to second guess your decision to sell and the money involved as the closing table looms in the near future, but you have to remember the numbers you decided on were good numbers, so remove your emotions from the situation and stick to them.

 

If you want to make it to closing and get the return on your business investment you’ve been waiting for, keep this goal in mind during negotiations. Let reality and rationality prevail.

 

Are you trying to sell your business, but your deals keep falling through? Are you concerned that you may have priced your business too high? Please feel free to leave us a comment or question here, and we will be happy to help you reach your goals.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Business Sellers: Why Your Personal Facebook Page (And Everything Else Online) Is Key To The Image Of Your Business



We’ve all heard the stories in recent years of school teachers losing their jobs because of an inappropriate Facebook comment, but what many small business sellers fail to realize is their personal online image is crucially important to the image of their business in the community and to the buyers they are trying to attract.

 

My Facebook account is private, so why does it matter?”

 

Even with privacy settings in place, it is not very hard for someone searching your name to get access to at least a few pictures and perhaps even a few of your posts. Think of your personal profile information this way – would you tell every customer or prospective buyer coming through the door everything you’ve posted on Facebook over the years? Probably not.

 

All I have is a business Facebook page.”

 

You can read more about why just a business Facebook page isn’t sufficient if you are serious about selling your business here,

 

Why Your Website Can Be Your Greatest Marketing Tool or The Kiss of Death: Some Thoughts for Business Sellers and Business Buyers

 

but you need to think about absolutely everything that has ever been posted on this wall as well. Some owners make politically-motivated posts, or some rant about the competition. Neither will look very professional in the eyes of a buyer, and they will be left wondering if you as the owner are less than professional about other areas of the business too.

 

I don’t do social media, so this doesn’t apply to me.”

 

Nothing could be farther from the truth. This article by Steve Cody

 

http://www.inc.com/steve-cody/7-reasons-you-need-manage-your-online-presence-more-carefully.html

 

highlights all the areas that small business owners need to consider when thinking about what their online presence says about them and their businesses. Regardless of your active participation (or no participation at all) you have an online presence that needs to be managed.

 

If you are serious about selling your business, take a good, hard look at what your personal online presence says about both you and your company. Make changes now before you’ve lost the opportunity for good first impressions with buyers.

 

Are you thinking about selling and are wondering how your online presence may affect your sale? Do you have questions about what kind of access to your personal online information buyers will have? Ask us! Please leave us a comment or question here, and we will be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


The Endgame: What Is a Business Seller To Do After The Closing Table? Buy Another Business!



If you own a business, we know you’ve already thought about it. The endgame. Retirement from small business ownership. Travel. New adventures.

 

Sure, we’ve all had the daydreams. If you are seriously considering selling your business, these daydreams are going to need to take on a more concrete form. Have you sincerely thought about what you are going to do when you leave the closing table?

 

What do business sellers do when they’ve sold their business? It varies. Some fully retire, some go back to the 9 to 5 game. Others take up volunteer efforts. The most common thread we see, however, is that someone who has owned their own business isn’t very good at sitting around.

 

If you haven’t had the chance to really consider your post-owner life, here’s what we see most business sellers do – they buy a new business.

 

Although it might seem crazy, business sellers do typically end up heading right back into entrepreneurship. Most take a bit of time off to do all those things that owning a business won’t let you do – like going on a three week vacation – but then that entrepreneurial itch starts up again.

 

If this sounds like you, then considering what kind of business you may want for your next venture is something you can do long before you sell the business you have. Maybe you are interested in a different industry, maybe you want to work in the same field but you have another location in mind.

 

Whatever your thoughts on the matter are, it is a good idea to have a conversation with your business broker about your post-sale goals. This will give you first-crack at any great businesses coming up for sale and allow you to decide how much of the proceeds you would make for the sale of your current business that could be used for the purchase of a new one.

 

If selling your current business is something in your future plans, think about your post-sale goals. Perhaps a new business would be the best plan for you!

 

Are you a business seller who is considering buying another business? Are you curious about the businesses that are currently on the market that might be an option for you? Please leave us a question or comment here, and we will be happy to assist you on your next chapter in entrepreneurship.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com

 


Why Your Website Can Be Your Greatest Marketing Tool or The Kiss of Death: Some Thoughts for Business Sellers and Business Buyers



We spend a lot of time getting to know businesses inside and out, and for the most part business owners, both those who are selling and those who have just purchased a new business, are really smart people. They care about marketing their business in such a way that the business is put in the best light possible. The decor is nice, their local advertising is top-notch, etc. Then you look at their website…

 

This is a digital age, and like it or not, many future customers will come to you (or won’t come to you) based solely on your presence on the web. The first thing a prospective client is going to do when they learn your name or search for a service in your industry is hit an internet search engine. Your website is the face of your business, even more so than your actual physical location, so your web presence needs to be great. We come across great businesses all the time who have dreadful websites or no websites at all. This is a HUGE mistake.

 

But I’m not an IT guy and I don’t know how to write code! Having a website built is expensive!

 

Neither of these issues should prevent a business from having a nice-looking and informative website. Long gone are the days when you had to know how to write code, there are a plethora of services out there that will help you build a great website – and most of them are free (we like Wix.com, but there are many more out there).

 

But I’m not creative! I don’t know what to put on a website!

 

Again, issues that are easily solved. Almost all of the services that will supply you with a free or low-cost website come equipped with templates – all you have to do is pick one, then copy and paste your information in. You should look up your competition and similar businesses in other areas to see what you are up against. Some templates are too simple or look to hokey, and by spending a few minutes researching you will quickly see what is appealing and what isn’t and then apply what you find to your own site.

 

A note here, have someone proofread your site before you publish it! There are a ton of websites out there that would otherwise be great except they have major spelling mistakes. Spelling mistakes show a lack of attention to detail and a lack of professionalism. Is that the impression you want to give to prospective clients? Hopefully not.

 

If you are trying to sell your business and don’t already have a great website in place – changing this needs to be a priority. Buyers will absolutely look you up on the web while they are considering buying, so put your business in the best light possible by improving your internet presence.

 

If you are buying a business with a terrible website or no website at all, creating a great online presence can be a quick and easy change you can implement immediately. This will help to bring in new business by allowing customers to find you online, and can let those customers know what kinds of goods or services you offer.

 

A professional-looking, visually appealing and informative website can be your very best marketing tool. Don’t sell your business short by ignoring how you are perceived online!

 

Are you a business seller who needs some advice about improving your web presence? Are you a business buyer who would like to know what to look for when you are looking at the websites of prospective businesses? Ask us! Please leave us a comment or question here, and we will be happy to answer any web presence questions you have.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


You’re Not A Rookie Business Owner, So Why Would You Use A Rookie Business Broker?



The adage that it takes about 10,000 hours to master any kind of craft is true of any industry, and as a small business owner you’ve probably seen this first hand. Ten thousand hours works out to about five years of full time work, and if you’ve owned your business that long or longer we’d bet you feel you really know the business and the industry inside and out.

 

Now the time has come to sell your business and you are looking for some help. You find a business broker who is willing to work on the cheap – and he’s a brand-new broker so you think you’ve got someone who’s fresh in the industry, that can’t be a bad thing, right?

 

We have just one question to ask you – were you the master of your industry right out of the gate? Did you make mistakes back then you never would today with the knowledge and experience you now have under your belt? Hiring a rookie broker is like hiring rookie you from all those years ago when you first became a business owner.

 

Who would you rather have handling one of the biggest financial transactions of your professional life? Rookie you, or you today? We’re pretty sure you would choose you today, because practical experience always trumps “fresh”.

 

The same is true with business brokers. You want an experienced pro, not the new kid on the block. How can we say this with such confidence? We see the ramifications of hiring a rookie broker all the time.

 

Like any industry, there are the rookies and then the brokers who have been around long enough to make a real name for themselves in their region. A seasoned vet will have working relationships with other brokers in the area (meaning a larger pool of ready-to-buy buyers), a new broker will not. We’re not saying that it’s a great thing that many newbies have a hard time getting cooperation from other brokers, but it does happen. This industry sees many budding brokers fail and move on to other careers, so the vets will typically only cooperate if you’ve already proven your staying power.

 

Another major reason to stay far away from a rookie broker? They make lots of mistakes. Big ones. Mistakes like these:

 

Treating your business listing like a listing for a house and disclosing that your business is for sale to the whole world. You will probably lose employees, vendors and clients – let alone the headaches of constantly having tire-kicking “buyers” traipsing through your business and disrupting normal operations.

 

Letting you price your business however you please, without any understanding of the multiples, comparable sold businesses, the market or your numbers (which are so much more than what appears on the bottom of your tax return). The purpose of listing a business should be to sell it, and improper pricing can lead to listing purgatory.

 

Using a one page P&L and your last tax return as your only marketing materials distributed to buyers. Look at last year’s tax return. Does the number on the bottom line truly describe your business in its entirety? Nope, of course it doesn’t. Only an experienced broker knows what works and what doesn’t when it comes to a marketing package.

 

Don’t make the mistake of having a rookie broker handle your transaction. Hire an experienced, knowledgeable and qualified business broker instead.

 

Are you a business seller who has questions about the differences between a new broker and a seasoned vet? Ask us! Please feel free to leave us a comment or question here, and we will be happy to help you.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Fortune Teller or Business Seller, the Safer Financial Bet



Let’s look at a scenario where a small business owner has come to you, as a friend, for advice.

 

He is considering selling his business, but isn’t sure that the time is right.

His business is currently very profitable, and although his health is good – retirement needs to be in the picture sooner rather than later.

The economy looks good, and business is booming.

 

Should he stay in the game to maximize his earning potential or should he sell while the business is at its peak? Could he make more if he stays in the game for two more years and then cashes in?

 

What would you advise this business owner to do?

 

You would probably advise him to stay in the game, why leave a business that is making you serious money, right?

 

We left out a major detail here, it’s 2007… Now what would you tell this owner to do?

 

The point of this exercise is to highlight that the best advice in this situation, the advice to sell, can only be given with the power of hindsight. In 2007 this business owner likely had no idea of the economic disaster that was about to come his way. For the businesses that survived the recession, and many did not, it has taken many years to get back to their 2007 numbers if they have at all.

 

Sometimes the best thing you can do for the investment in your business is sell while the selling is good. Gambling with what the future might hold for your business could end up meaning what it did for those who were trying to sell their businesses in 2008 as opposed to those who were able to sell in 2006. It is far easier to sell a business that is doing well than one that has taken a major hit or is in a downward slide.

 

This decision can be an agonizing one, but if selling your business is something you are considering doing in the foreseeable future, now might be the best time.

 

Have a serious talk with an experienced and qualified business broker about how your industry is doing, what comparable businesses in your area are currently selling for and about whether it would be advisable to sell your business now while the chances of making a great return on your investment are really quite good.

 

Thinking about selling, but you’ve been waiting for the right time? Curious about what other business sellers in your industry were able to get for their businesses? Ask us! Please leave a comment or question here, and we would be happy to help you with any selling questions.

    Michael Monnot 941.518.7138 Mike@infinitybusinessbrokers.com 1910 Park Meadows Drive, Suite 202 Fort Myers, FL 33907 http://www.infinitybusinessbrokers.com


Attracting the Big Fish: How to Make Your Business Appealing to Strategic Buyers



It may seem counter-intuitive at first to position and market your business in such a way that your biggest competitor will want to buy you, but these strategic acquisitions are good news for a business seller. Who better to purchase your company than a bigger fish in your industry’s pond?

 

They will have the available capital, they know and understand your industry, and it is a big compliment to your business if they want to bring you into their fold.

 

How can a business owner position their company to attract this kind of buyer?

 

Branding

Building your brand should be a big part of any business owner’s goals, but if you are looking to get noticed by the competition you will need to have a brand that can contribute effectively to the market position of a competitor. To do that you will need to hold a decent market share.  You also need to be able to describe your brand effectively in those key first meetings with a strategic buyer. What does your brand say?

 

Your Team

In any growing and successful operation there is a core team that makes the business the well-oiled machine that it is. A strategic buyer is going to want this core team to remain in place, allowing for a seamless transition and putting aside any fears that you are the only glue that holds the company together.

 

The Future

Strategic buyers typically don’t buy companies that are in an asset-sale/liquidation/downward spiral, they want a business with a strong future. You should always have your eye on the future of your business, but when you are positioning yourself to be acquired you should be in the process of developing and building your business for the days ahead. This forward-thinking direction will be very attractive to strategic buyers.

 

Your Sales

This is a number you should always know,  as it will be a figure on the top of the priority list for a strategic buyer. This number will speak directly to the amount of market share you hold, and the amount of market share that they will be acquiring if they buy you out.

 

Growing, Growing, Growing

As we mentioned before, the strategic buyer is typically looking for a business on the way up, not on the way down. Have the narrative of your growth and your projections ready to discuss, as well as knowing how your growth compares to the industry average. Do you know the size of the market you are in?

 

If you are considering selling your business, looking to a strategic buy from your competition might be a good move. Talk with your business broker about this type of buyer and whether this type of buyer would be right for your business.

Are you a business buyer who is horrified with the thought of your biggest competitor buying your company, but are curious about what the numbers might look like for you if they did? Would you like to know more about positioning your business to attract this type of buyer? Please leave us a comment or question here, and we will be happy to help you with strategic buyers.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


The Joys of Red Tape: Licensing and Permitting For Small Business, The Basics



You know how everyone always jokes about what a nightmare bureaucracy can be? If you are buying a business, prepare yourself – you are going to have your fair share of red tape. All of it will need to be completed in the correct order and to the correct level of ad nauseum before you can operate your business. Just remember that this process can be frustrating, but waiting for you on the other side is owning your own business!

 

This is a part of the business transaction process where your business broker can be worth their weight in gold. A good broker will have someone who can help you with any and all red tape, or they will be able to help you themselves. Some business buyers choose to have their broker do all of the licensing, others are able to get it completed with just a few suggestions. How you handle this part of buying your business is up to you.

 

Want some pointers? Here’s a sample of our best advice, derived from many trips down bureaucracy lane:

 

DO NOT PROCRASTINATE!!!

Many red tape items are contingent on one agency completing or signing off before another can even begin, so start early and stay on top of it.

 

Gather an Immense Pile of Paper

First you will want to try to get together the list of everything your broker and the seller think you will need. Ask the seller for copies of the licenses and permits they hold, as you will need their license and permit numbers to fill out your own.

Go online and print out every application you think you might need, even if you are going to be submitting them online. A printed version will allow you to collect all of the needed numbers/addresses/names/titles/etc. so you don’t end up timed out of the online application process (they pretty much all have a time limit and then they force you to start over, just to make them extra-user-friendly).

Once you have assembled your pile of seller information and printed applications keep all of it together and take it everywhere you go. Many applications require signatures from multiple government agencies or departments.

Naming Yourself and the IRS

The very first step is the naming process, even if you are buying an existing business and keeping the business name the same. Why? Your business will technically have two names, the DBA or “Doing Business As” (also called the Fictitious Name) and the legal name which can literally be “Anything You Want, LLC”. You will need to file your DBA with the Division of Corporations in your state, and the legal name will need to be filed through your attorney or a legal service like LegalZoom. You will also need to get a Federal Employer Identification Number (also called a FEIN or an EIN) from the IRS.

 

Get Licensed

If the seller currently holds a license needed for the operation of the business, like a liquor license, then instead of starting from scratch you will be using applications for transferring that license. A word to the wise here – don’t rely solely on the information you find online about what is required to get the licenses issued or transferred. Get someone – a real, live person on the phone. Better yet, find the local office instead of the statewide call center, and get a local agent on the phone. The local agents are the ones who will be processing and issuing your license, so they are the ones you need to keep happy. Another caveat? Be really patient with this part of the process. You can call the same call center three different times and get three completely different answers to a single question. Defer to what the local office tells you in this case.

 

The Locals

You will also need to get yourself a Certificate of Use and your local Business Tax Receipt or BTR (also called the Occupational License). The Certificate of Use gets issued after your building and fire inspections, your BTR after your Certificate of Use goes through. If you are buying an existing business, you may not need an inspection if the business has had one recently, but you will need to call and check. Again, get a living person on the phone to discuss the requirements and process and you will be far better off than trying to divine what you need from a cryptic government website.

 

Money, Money, Money!

Did we forget to mention that pretty much all licensing and permitting applications come with a fee? Yes, they all do. While rarely astronomical in price, the costs will be completely dependent on what applications you are filling out, what inspections you need, etc. We just wanted you to be ready with your credit card or checkbook when you start the process.

 

It Really Is Worth It

This is one of the parts of being your own boss that is not very fun, but with a good dose of patience and a bit of organization it will all fall into place. Most of the real, live people you will get on the phone are very helpful, and remember that your broker is always there to help you as well.

 

Are you thinking about buying a business, or do you already have a business in mind and are wondering about what kinds of licenses or permits you will need? Are you having trouble finding the agencies you need to get your applications filed? Please feel free to leave us a comment or question here, and we will be happy to help you with navigating the red tape.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com



Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907




Search



Recent Posts

Categories

Archives

Tags