Buying a business Archives - Page 3 of 29 - Infinity Business Brokers

Published December 26, 2023

When you buy an existing business it comes with the seller’s personality, whether you like it or not. Their choices are everywhere – from the paint color on the walls to the employees they keep. It can be tempting to want to make your mark and change it into the business you’ve always dreamed of right out of the gate – but that is a colossal mistake.

Here’s why.

You bought an existing business because it’s existing. The doors are open and it makes money. It runs. Before you go gutting the interior, tossing the furnishings and replacing the staff you need to take a breath and instead start paying attention.

Why does this business work?

What parts of the decor, the current menu, the personalities of the staff, the operating procedures, the equipment, etc. add to the functionality and value of the business?

What is it about this business that keeps customers coming back for more?

If you rush in and change everything, you are missing the opportunity to learn what makes the place successful. Listening and learning should absolutely be your number one priority in the early days of owning your new business. Take every chance you have to learn from the seller, even if you aren’t a fan. While you negotiate ask lots of questions and pay attention to the answers. Be willing to take advice. Most business purchase contracts come with a two week training period – use that time to absorb everything you can.

When the reins are finally yours, slow down. Run the business as-is for as long as it takes for you to truly understand what works and what doesn’t. Talk to the staff – ask them to give you their thoughts about what is important and what they would change if they could. Talk to the customers and ask them the same thing. What would they like to see changed and what would they like to see stay the same?

Take all of this data that you collect and then make small, incremental changes that will benefit the business. Don’t make changes just because it’s something you would prefer.

Are you considering buying a business but hadn’t thought about when and why you should make changes? Do you have questions about the training period in a purchase contract? Ask us! Leave any questions or comments and we would be happy to assist.

Michael Monnot

Where You Can Find The Financing To Buy A Business (And Why It Won’t Come From Your Bank)

Published December 18, 2023

The entrepreneurial story we tell ourselves is full of flaws. You can’t come up with an idea in your garage or spy a cute coffee shop for sale downtown and simply waltz into your bank for a small business loan to cover the entire cost. It’s just not how it works.

Why?

Banks are gun shy about risks in general, but even more so since the debacle of 2008. Small business ownership is risky, particularly if you are trying to start a business from scratch. According to the U.S. Bureau of Labor Statistics 65% of businesses fail in the first 10 years, 45% fail in the first 5.

What that means for future borrowers is your local bank isn’t likely to grant you a small business loan for your start-up. They are also unlikely to fund the purchase of an existing business.

If the bank is out, where can a business buyer get financing?

The most common source of funds is the buyer themselves. Using property for collateral, sourcing capital from friends or relatives or using savings can typically generate enough to buy a business. If you’re going to own your own business, you’re going to have to get comfortable with putting your own skin in the game. A caveat here, if you are borrowing form friends and/or relatives a handshake deal will not suffice. You really need to consult a business transaction attorney and have some sort of contract before you take money from people you know. It will save everyone involved from the issues that can quickly arise when money needs to be paid back.

Another common avenue is a loan from the Small Business Administration (SBA). This path obviously will have it’s share of red tape, and not all businesses currently for sale will qualify for this type of loan – but it can be a great way to secure a business without having to fund the entire purchase yourself. Talk to your business broker about how you might qualify for a SBA loan and what businesses currently for sale would work for this scenario.

In many situations a buyer can also get financing from the seller themselves. This is called seller financing and many small business owners use this as a way to attract buyer to their business. A seller willing to keep skin in the game says a lot about how they think the business will do in the future (if the business fails they don’t get all of their money) and it opens the pool of potential buyers to those who might not have all the capital they need up front. An important note here – no seller is going to finance the majority of the purchase price for a buyer. Buyers need to come to the table with a substantial down payment. Ask your broker if there are any seller financed businesses available in the industries you’re considering.

There are also creative ways to get a deal done. Earn-outs, angel investors and the like are possible – but unlikely. Your best bet as a buyer is to see how much capital you can raise on your own, research your options with the SBA and talk to your business broker about business owners who might offer you seller financing.

Have you always wanted to buy a business buy aren’t sure how to raise the capital? Would you like to know what types of businesses are currently offering seller financing? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Don’t Communicate Without An Intermediary: Why You Should Keep Your Broker In The Middle

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

Published December 11, 2023

If you’re in the middle of the process to buy or sell a business, it can be tempting to contact the other side without using your business broker.

Why?

Say you just have one simple question, and to get that question answered you would have to call your broker, your broker calls the other broker, they ask their clients and then the answer gets passed back to you in reverse order.

This might seem incredibly inefficient, but the system is in place for a reason.

Let’s use the same example. You only have the one question, so you skip the intermediaries and call the other side. The conversation starts out innocently enough, but then your one question turns into five more, and as you continue asking the person on the other side becomes very offended by your questions, gets angry, hangs up and then decides not to move forward with the deal. Your one question just cost the whole transaction.

Business brokers, also known as business intermediaries are there for one reason, to protect the transaction. This is an incredibly important role, as without an intermediary most deals wouldn’t make it to closing.

Business transactions are inherently complicated, as someone’s hard work and someone else’s money are about to be exchanged. Like it or not, both buyers and sellers in business transactions have a lot to lose, and many seemingly innocent questions and statements can be misconstrued as offensive and can cause deals to fall apart and both sides to lose money.

Another major pitfall of going around the intermediaries? In almost all business transactions, there is a training period that occurs shortly after closing. Want to know what’s not fun and is seriously unproductive? When a buyer and seller hate each other and then have to work together.

Don’t make the mistake of trying to go around the intermediaries in the process. Your broker is there to act as a buffer and is there to help you, so keep them in the middle and you will have a far better chance at transaction success.

Are you a buyer or seller who has questions about the role of a business broker in your transaction? Ask us! Please leave a comment or question here, and we will be happy to assist you.

Michael Monnot

Are You A Business Seller? What Are You Going To Do After The Closing Table?

Posted in Buyers Articles, Sellers Articles

Published December 4, 2023

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? Ask us! Please leave us a question or comment here, and we will be happy to assist you on your next entrepreneurial chapter.

Michael Monnot

Navigating Negotiations – Why You Should Listen To Your Broker

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

Published November 27, 2023

When you enter the business-for-sale market, you will find that some businesses are listed really, really high – priced no where near what you would be willing to pay. If you are still really interested in the business, you can put in an offer that makes sense to you.

If these two numbers are so different, how do buyers and sellers come to an agreement on the difference?

Negotiations and intermediaries.

In business transactions, the buyer and seller are the boss. A business broker has to let a seller set the price of their business, and on the other side, whatever a buyer chooses to offer the broker must present to the seller. Business brokers are known as business intermediaries because they act as a buffer between the parties in a transaction so that the transaction happen.

Having someone in the middle allows a buyer or seller to ensure they are getting what they want, but the nature of business transactions means both sides can do or say whatever they want – which sometimes means one side offends the other and kills the deal.

If you are a buyer preparing an offer, and your broker is telling you that the offer is only going to offend the seller – it would be wise to listen. You always have the ability to walk away from the deal, but you would be surprised how many buyers and sellers are able to reach a middle ground that works for everyone if both sides are able to stay amicable.

The moral of the story? Listen to the advice of your business broker!

Are you a buyer who wants to know how to make offers that will keep both you and a seller happy? Ask us! Leave a comment or question here, and we would be happy to help.

Michael Monnot

Honesty Is The Best Policy: Why Creative Financials Are A Bad Idea

Posted in Buyers Articles, Sellers Articles

Published November 20, 2023

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

Great Broker/Bad Broker: How Asking Questions Ensures The Best Help

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

Published November 13, 2023

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

Is It Really Better To Buy An Existing Business?

Published November 6, 2023

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

Buying A Business? Why You Should Observe The Seller

Published October 30, 2023

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

Why A Franchise Buyer Needs Their Own Business Broker

Posted in Business Broker Why & How, Buyers Articles

Published October 23, 2023

Are you interested in buying a franchise? Do you already have a franchise in mind that you would like to be a part of?

If you answered yes to either of these questions, you might think that your first step is to get in touch with the person in charge of new franchises or franchise sales. This should NOT be your first step. Your first step is to find a business broker familiar with franchise sales and hire them to help you.

Why? Don’t the franchises themselves have people who can help me?

They do, and they don’t. Some franchises do have a business intermediary or business broker of sorts, but what you need to question is where the loyalties of a broker employed by the franchise will be. They most certainly will not be with you.

Something else you should know. The commission paid to a business broker at the close of a business sale is paid by the seller of the business. Franchise companies without an in-house broker will essentially use the broker who is the lowest bidder. Is that the kind of person you want helping you? Buying a business is a major personal investment; you will definitely want quality instead of someone else’s bargain.

When you are buying a franchise, you want someone on your side who can help you through the ins and out of the process. Using an affiliate of the franchise might not be the best fit for you, so do a bit of homework beforehand and get yourself a broker who is qualified, experienced and above all there to assist YOU.

Are you interested in buying a franchise, but you have questions about how to begin? Would you like to know what types of franchise businesses are currently for sale in the areas you’re interested in? Ask us! Please feel free to leave us a comment or question here, and we will be happy to assist you on the road to franchise ownership.

Michael Monnot