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

Buyer + Seller Beware: Make Sure Your Business Broker Is Really A Broker

Posted in Buyers Articles, Sellers Articles

Published September 11, 2023

Selling or buying a business is a significant decision. It requires careful consideration and expertise. Many entrepreneurs and business owners turn to business brokers to navigate this complex process. However, not all business brokers are created equal, and one critical factor to consider is whether the broker is really a broker.

What do we mean by that?

Many, many “brokers” aren’t business brokers at all. They’re real estate agents, attorneys – even dentists who “help” people buy and sell businesses on the side. You do not want a fly-by-night, part-time broker. You want an experienced and qualified full-time professional. Using someone who isn’t actually a business broker to help you buy or sell a business would be like going to your CPA to fix a toothache.

Why?

Part-time business brokers, as the name suggests, have other commitments outside of brokering deals. This limited availability can lead to slow response times and delayed communication. When you’re in the midst of a business transaction, time is of the essence and delays can be costly. A full-time broker is more likely to prioritize your deal and provide the attention it deserves.

Business transactions involve a multitude of legal, financial and operational complexities. A part-time business broker may not have the same depth of knowledge, experience or industry connections as their full-time counterparts. Selling or buying a business often requires specialized expertise, which a part-time broker may not be able to provide.

The business landscape is constantly evolving, and staying updated with industry trends, regulations and market conditions is crucial. Part-time brokers may struggle to keep pace with these changes due to their limited exposure to the market. A full-time broker is more likely to have their finger on the pulse of the industry, giving you a better understanding of current market dynamics.

One of the key benefits of working with a business broker is their network of potential buyers or sellers. A full-time broker has more time and resources to build and maintain a broad and diverse network. This extensive network can lead to more opportunities and a higher likelihood of finding the right buyer or seller for your business.

Successful business transactions often require substantial resources, including marketing, legal support and financial analysis. Part-time brokers may not have the resources or connections needed to provide these services adequately. In contrast, full-time brokers are more likely to have established relationships with professionals who can support the transaction process.

While part-time business brokers may be well-intentioned – their limitations in terms of availability, expertise and resources can pose significant risks when it comes to selling or buying a business. Work with a full-time, experienced and qualified business broker who can provide the dedication and expertise needed to achieve a successful outcome.

Are you looking at buying or selling a business and didn’t know that some “business brokers” aren’t business brokers at all? Would you like to know more about how we (as full time, experienced and qualified brokers) can better assist you through the transaction process? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Keeping Appointments When Buying A Business – Why It’s So Important

Published September 4, 2023

It might seem insignificant. You had an appointment with a broker for a call or you’re supposed to do a walk through of the business after coordinating with the brokers and the seller. What’s the harm if you let everyone know you can’t make it or if you forget and don’t show?

Keeping appointments is very, very important when you are trying to buy a business. It can make or break your journey to becoming a business owner.

Why?

When you buy someone’s business you aren’t buying a simple physical object. You’re buying someone’s blood, sweat and tears. Most business sellers care a lot about who buys their business because they want the business to continue as a success. They want their employees to be happy and keep their jobs. They want the brand they started to continue in the community.

A business buyer can’t just write a check. You need to have an amicable, professional relationship with the seller. You need them to trust you with their business. You need them to train you when you first take over. You need them to negotiate with you.

This is why it’s so crucial to keep all of your appointments in the business buying process.

Consider these thoughts:

Showing up when you said you would demonstrates commitment and professionalism.

When you’re in the process of buying a business, keeping appointments demonstrates your level of commitment and professionalism to the seller, the brokers, your prospective future commercial landlord and the like. It shows that you value their time and take the deal seriously. Consistently showing up (and showing up on time) for meetings and appointments establishes a positive impression, making it more likely that everyone involved will view you as a reliable and trustworthy part of the process.

Keeping appointments helps you build trust.

Buying a business involves a lot of negotiation and collaboration. Keeping appointments allows you to build trust and rapport with the seller. Trust is vital in a successful business transaction. It can lead to more open communication, smoother negotiations and a greater likelihood of finding solutions when inevitable problems arise.

Respecting everyone’s schedule and time can keep the deal on track.

Time is often of the essence in the business buying process. Missing appointments can lead to delays in decision-making, which might allow competing buyers to swoop in with a better offer or the business’s situation to change unexpectedly. Appointments often need to be made by coordinating the schedules of (at the very least) you as the buyer, the seller, the seller’s broker and your broker. Rescheduling this many parties can take a lot of time – time you might not have if something changes. Staying on schedule ensures that you have the necessary information to make timely decisions, helping you seize opportunities before they slip away.

Keeping appointments might seem like a minor detail in the grand scheme of buying a business – but the impact of this simple act can’t be understated. From building trust to making informed decisions, every aspect of the business buying process is influenced by your ability to honor your commitments.

Are you thinking about buying a business and hadn’t considered how important it it to keep appointments? Would you like to know more about why your relationship with the seller is so crucial to success? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Natural Disasters (Like Hurricanes) Shouldn’t Stop You From Buying A Business

Published August 21, 2023

Natural disasters shouldn’t stand in the way of your business dreams, they’re a part of life. If you want to live in a place that has a somewhat regular natural disaster risk (like hurricanes in Florida) you have a couple of ways you can think about this risk if your dream is to own your own business.

Deciding whether or not to buy a business should be made with a long-term perspective in mind. Remember that while natural disasters can cause immediate disruptions, they rarely dictate the long-term trajectory of a business. Also, buying a business that has survived and navigated through these types of challenges in the past showcases its resilience and ability to adapt to adversity.

There’s also the needs of a community that occur in the lead up to and after a disaster like a storm. Businesses that are well-prepared for emergencies (or those that provide essential goods and services during recovery) can experience heightened demand. As a prospective business owner, you can identify these emerging needs and position yourself to meet them.

After a natural disaster there can be a surge in construction, renovation, and related services. If you’re considering a business that caters to these industries (such as construction, disaster response, tree removal and the like) a post-disaster environment might present a unique chance to establish yourself in a market with increased demand.

Another potentially beneficial post-disaster situation? Some business owners might be more motivated to sell due to the challenges they’ve faced. This situation can lead to negotiation opportunities and potentially more favorable terms for you as a buyer. If you’re able to see beyond the immediate setbacks and have a solid plan for recovery, you could end up with a business at a better price.

Experiencing a natural disaster first hand can also teach you a lot. It provides invaluable insights into risk management and preparedness. When looking at businesses in a potentially disaster-prone area, you should consider what strategies you might use to safeguard the business and its operations against whatever mother nature throws your way.

Something like a hurricane can initially seem like an insurmountable obstacle to your business ownership dreams, but it should not deter you from pursuing your entrepreneurial goals. Resilience and adaptability really can turn adversity into opportunity – what defines success is your approach.

Have you always wanted to buy a business in a disaster-prone area but have concerns about what something like hurricane season might mean for you future business? Would you like to know more about businesses that do well in the aftermath of a hurricane? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

The Power Of Practical Experience: Why Business Buyers Should Stay In Familiar Territory

Published August 7, 2023

Practical experience rarely gets the credit it deserves. Aspiring entrepreneurs looking to venture into the world of business ownership really need to follow the age-old adage “stick to what you know” – it can mean the difference between success and failure. Buying a business where you have practical experience offers a multitude of advantages.

Here’s a few:

Practical experience in a specific industry provides buyers with an invaluable understanding of its nuances, trends and challenges. Armed with this knowledge, buyers can make informed decisions and devise effective strategies to navigate the market successfully. This level of insight is often difficult to acquire without hands-on experience in the field.

Buying a business in a familiar domain allows a buyer to hit the ground running. They are already equipped with the skills, know-how and practical experience needed to run the business. This significantly shortens the learning curve and the saves time and resources that would otherwise be spent on learning an entirely new industry from scratch.

Buyers with practical experience are more likely to get approved for a transfer of the commercial lease when a business purchase doesn’t involve the associated real estate. A commercial landlord is going to be far more comfortable with a tenant who already knows what they’re doing.

A deep understanding of an industry also enables buyers to identify gaps and untapped opportunities. Leveraging their practical experience, they can innovate and introduce unique solutions or products to cater to specific market needs. This ability to innovate can give their new business a competitive edge and the opportunity for growth.

Purchasing a business in an industry where you have practical experience is a strategic move that offers you numerous benefits. Beyond the familiarity and knowledge of the industry, you walk in with a competitive advantage and a head start in business operations.

Have you always wanted to own your own business but didn’t think about choosing one in an industry you already know? Do you have questions about what businesses currently available would match with your practical experience? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

The True Measure Of Success: Emphasizing Cash Flow Over Aesthetics When Buying A Business

Published July 17, 2023

In the world of business sales, it’s all too common for prospective buyers to be swayed by how a business looks. The allure of aesthetically pleasing interiors, new equipment or fancy technology can blind them to the crucial factor that truly defines a business’s success: cash flow.

Cash flow is the lifeblood of any business. It represents the net amount of money moving in and out of a business, essentially reflecting its financial health. A small café with a newly renovated space or a manufacturing business that just invested in all new equipment might look fantastic from the outside – but without consistent, positive cash flow it risks becoming unsustainable. Cash flow ensures that operational expenses, employee salaries and other crucial financial obligations are met. Neglecting to focus on cash flow during the business purchase process can lead to severe repercussions down the road.

One of the main reasons buyers get lured by aesthetics is the misconception that a visually appealing business automatically translates into profitability. While aesthetics can play a role in attracting customers and enhancing brand image, they do not guarantee financial success. A beautiful storefront might draw initial interest, but if it doesn’t convert visitors into paying customers and generate sustainable revenue – it’s merely a façade.

On the other hand, a business that might not have the most captivating exterior or is full of older equipment could be backed by solid fundamentals and robust cash flow. This means the company is efficiently converting its sales into profit, reinvesting in growth and reducing debt – all of which contribute to long-term success.

Focusing on cash flow during the purchase process enables buyers to make informed decisions based on concrete financial data rather than deciding on a business because you like the paint colors and furniture. Conducting a thorough cash flow analysis helps determine whether the business has consistent revenue streams, assesses its ability to weather economic downturns and reveals potential areas for improvement. This is why it is far more important to examine the financial records than it is to do a physical walk-through of the location.

Savvy business buyers understand the importance of looking beyond surface-level charm and instead place emphasis on the financial stability of the business.

Are you looking at businesses to buy and want to know how to determine the cash flow a business is actually generating? Would you like to know more about how to see past a shiny exterior and make a decision based on financial health instead? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Business Buyer? How To Make Sense Of Add-Backs

Published July 10, 2023

Small businesses are complex, and this is especially true when trying to determine whether or not a business is listed for a fair price.

Taking a cursory glance at a tax return or a profit and loss statement can leave you scratching your head when comparing what you see with the listing price. How did the sellers get to that number?

The value of a business comes from it’s cash flow, meaning an operating business has value for a buyer because it generates money. This money isn’t all just cash, however, as an owner benefits from their business in a number of ways. For instance, many small business owners pay for personal expenses as part of their business to minimize their tax liability.

These owner benefits that are funneled through a business can make determining the value to a buyer a bit complicated. To help with clearing up any confusion there is a metric used to determine the value of a small business called Seller’s Discretionary Earnings, or SDE.

SDE simply means that you take anything personal that an owner gets from their business or anything that was a one-time expense (something a buyer wouldn’t have to repeat or worry about) – and you add that amount back into what the business makes so you can determine what the cash flow actually is.

What kinds of expenses get added back?

Discretionary expenses, like paying for a car or cell phone through the business. Think of these like perks that a buyer might not necessarily take, so that expense is added back in to show a buyer what the numbers look like without the added perks taken out.

Extraordinary expenses, like a very high salary paid to a family member who works in the business – a family member who would probably not be staying on once the business is sold. The amount of this salary that is above the industry norm would be added back into the business to normalize the payroll numbers. This way a new owner can see what the cash flow looks like with staff who only take a standard salary.

Non-Recurring expenses, like the cost of repairing water damage from a broken pipe. The new owner wouldn’t need to pay for something like this continually, so the one-time expense is added back in.

Non-Cash expenses, like depreciation. The tangible assets a business has, like the equipment or vehicles, will lose value over time. Although not the only factor in depreciation, you can think of this add-back as something related to what the business writes off for tax purposes.

Once all of these add-backs have been “added back”, you will be able to see the cash flow a business generates. This clearer picture will allow a prospective buyer to decide if a listing price is fair or not.

Still confused? Your business broker is there to help you untangle the parts of the small business world that are inherently complicated – like add-backs and listing prices. Talk to your broker if you think a listing price seems crazy or if you don’t agree with what was added back. They can make sense of the numbers – so you can make an informed choice about how much you would be willing to pay for a particular business.

Do you have more questions about add-backs? Would you like to know how sellers typically come up with listing prices? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Is This Where You Want To Live? Thoughts For Business Buyers

Posted in Buyers Articles

Published July 3, 2023

The romance of owning your own business can sometimes give a new buyer blinders about where the business actually is and what that means for the day-to-day life of the business owner and their family.

It’s essential to evaluate the local area where the business is located to determine if it aligns with the lifestyle you’re looking for and it has the amenities you need. Assessing the local area helps ensure that you not only invest in a viable business but also find a community where you want to live and thrive.

An important note here. Don’t trust the outward appearance or your preconceived notions of what a place is like. Google it. Visit. Call schools. Watch YouTube videos. Join Facebook groups to hear what people are really saying. Read the local news. You get the idea.

Here’s some things to consider when looking at not only where you want to work – but where you want to live:

Evaluate the local area’s lifestyle and determine if it suits you, your family and your goals. Consider factors such as climate, proximity to amenities, recreational activities, cultural attractions and community values. Ensure that the local area offers the quality of life you desire, as you will be spending a significant amount of time in this community.

Research the cost of living in the local area to understand its affordability. Compare housing costs, taxes, transportation expense, and other living expenses with your budget and financial capabilities. Ensure that the cost of living is sustainable and aligns with your income potential from the business you plan to buy.

Evaluate the local area’s accessibility and infrastructure. Consider proximity to transportation hubs, major highways, airports and public transportation. Assess the quality of healthcare facilities, schools and other essential infrastructure that may impact your lifestyle and the business’s success.

Consider the safety and security of the local area. Research crime rates, the effectiveness of local law enforcement and any other relevant safety measures. A safe and secure environment is crucial for your personal well-being, the well-being of your family and the success of your business.

Evaluate the level of community engagement and support in the local area. Look for signs of a vibrant community that values local businesses and encourages entrepreneurship. A supportive community can provide networking opportunities, word-of-mouth marketing and a customer base that appreciates local establishments.

It could not be more important to thoroughly research the local area before you buy a business. Your life outside of your business needs consideration just like P&Ls and purchase contracts. Sit down with your family and figure out what everyone will need to be happy and then find a business in a place that will meet those goals.

Are you thinking about buying a business and hadn’t considered researching where you would actually live? Do you have questions about what businesses are currently for sale in an area you like? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying A Business? What To Expect When Headed For The Closing Table

Published June 26, 2023

If you think you might be ready to take the entrepreneurial leap, but don’t have a genius start-up idea you can work on in your garage – you don’t need one! Existing businesses get bought and sold everyday, some 500,000+ a year (a number that is on the rise as baby boomer owners enter retirement and list their businesses for sale). These existing businesses can instantly turn you into an entrepreneur, no start-up required.

If you’ve always wanted to be your own boss and think buying an existing business might be for you – the process is fairly straightforward. You can read more about the initial steps you’ll take here – but the last steps you take before the day you get handed the keys can be some of the most important.

Here’s a few to consider:

Complete a thorough and final round of due diligence on the information provided by the seller. Review all relevant documents, contracts, financial records and legal obligations to ensure there are no surprises or undisclosed issues. This step is crucial to confirm the accuracy of the information and ensure that the business is in the expected condition.

Work closely with your business broker and business transaction attorney to negotiate and finalize the purchase agreement/contract. This document outlines the terms and conditions of the sale, including the purchase price, payment terms, assets included and any contingencies. Ensure that the agreement reflects the agreed-upon terms and protects your interests as the buyer.

Identify and obtain any necessary approvals, permits or licenses required to operate the business legally. This may include licenses for specific industries or local permits. Talk to your business broker about what you’ll need from state and/or local regulatory agencies to ensure compliance with all legal requirements. You can read more about that here.

Develop a comprehensive transition plan with the seller to ensure a smooth handover of the business operations. Identify key employees involved in the transition process and communicate the plan effectively. Prepare any necessary training materials, transfer important documents and information, and ensure a seamless transfer of responsibilities. Use the entirety of the training period outlined in your purchase contract to your advantage and learn everything you possibly can from your seller.

Schedule a final walkthrough of the business premises with your broker to assess its condition and ensure that all assets included in the sale are in the expected state. Check that all equipment, inventory and fixtures are accounted for and in working order. Address any outstanding issues or discrepancies before the closing.

The last steps before reaching the closing table are crucial in finalizing the purchase of a small business. Completing due diligence, finalizing the purchase agreement, obtaining approvals and licenses, preparing for the transition and conducting a final walkthrough are all essential tasks. By carefully completing these steps, buyers can mitigate risks, address any outstanding issues and set the stage for a successful transition into their new business.

Are you new to the business buying process and have questions about these pre-closing tasks? Would you like to know more about what the transaction process looks like for the type of business you are interested in buying? Ask us! Feel free to leave questions or comments here and we would be happy to help!

Michael Monnot

4 Ways: How To Finance The Purchase Of A Business

Published June 19, 2023

Coming up with a brand new business idea is a big challenge. You have to figure out a concept, find a location, come up with operating procedures, hire and train a staff, build out your space – the list is a long one.

If you’ve ever wanted to own your own business there’s a way to do so without having to start at ground level. You can buy an existing business instead – one that has a proven location, concept and track record.

If this sounds like it might be the right path for you, here’s your next question.

How are you going to pay for it?

In the small business world there are essentially 4 ways to finance the purchase of a business. Let’s take a look at your options:

Seller Financing

This one is probably the most common. A buyer comes up with a substantial down payment and then the seller of the business finances the rest. This option is popular because small business funding can be difficult to get from a traditional lending institutions like a bank, so sellers will offer creative financing to open up the pool of buyers for their business. This is also popular among buyers because a seller who is willing to keep some skin in the game tells you volumes about how they view the future profitability of their business. They don’t get paid unless you succeed. A few caveats for this financing option. You will need to bring a large down payment, 10 or 15% isn’t going to cut it. Also, if you do end up defaulting on this loan the seller will get the business back.

SBA Loan

The Small Business Association (SBA) does offer loans in the right situation to people buying a small business. There will be a fair share of bureaucracy with this financing option, as well as certain metrics both the buyer and the business itself will have to meet in order for the loan to happen.

Investor/Family Funds

In some situations a buyer is able to procure funds from loans made by family, friends or investors. This option should include a contract or written agreement by all parties that spells out every aspect of the loan – how it will be paid back, what metrics are necessary, how one or more parties can be bought out of the agreement should the need arise, etc.

Your Own Cash

Lastly, you can always use your own cash to fund the purchase of a business. Perhaps you have a decent amount of money in savings, maybe you’re considering refinancing your home or pulling funds out of investment accounts. This option will alleviate you from owing money to others but must be considered carefully if you are going to be investing all of your available cash into the purchase of a business.

If one or more of these financing options seem doable for you, the next step you should take is to have a conversation with an experienced and qualified business broker. They will be able to talk you through the options available to you and help you decide which option will best meet your goals for business ownership.

Have you always wanted to own your own business but weren’t sure how you would fund such an endeavor? Would you like to know more about how seller financing works? Do you have questions about the process required for a loan from the SBA? Ask us! Leave any questions or comments here, we would be happy to help.

Michael Monnot