what happens when I find a business to buy Archives

Why You Need To Think Of The Closing Table As A POSSIBLE Miracle

Posted in Buyers Articles, Sellers Articles

Published July 22, 2024

Business deals are really, really tough. A large amount of money is changing hands. Many people are involved. Schedules are fluid and frequently changing. Personalities clash. Someone is giving up their blood, sweat and tears to a complete stranger. Another person is buying themselves a job from a person they don’t know well enough to completely trust. It’s a tenuous balance to be sure.

When you buy or sell a business you might think you don’t need help, but the truth of the matter is that business deals are so inherently fragile that it can be almost impossible to see a closing table without someone in the middle. That person is a business broker, and you need a good one.

Business brokers work as intermediaries. They are a buffer between everyone involved and are worth their weight in gold. Their job is to protect and guide the transaction from start to finish, and to keep the relationship between the buyer and seller as amiable as possible.

People who own businesses and people who would buy a business are a tough bunch. Entrepreneurship is difficult and it takes someone with a tenacious personality and a lot of drive. Think type-A, organized and decisive. Guess what happens when you put two people with strong personalities in a room together and try to make a bunch of really big decisions? They clash.

Why are we telling you this? If you know going in that there are going to be conflicts, that it’s a completely normal part of the process and that you have your broker to get you through – the conflicts don’t seem as bad and world-ending.

There will be a lot of moments while you buy or sell a business where it will feel like the deal is dead, like you can’t get the details ironed out, like it’s a hopeless uphill battle. The good news is this isn’t true. You can get a deal done if you prepare yourself by having a lot of patience and by getting yourself the right help in the form of an experienced and qualified broker. Your closing table is an absolutely possible miracle.

Are you thinking about buying or selling a business and want to know what you should do when you feel like the deal has no hope of making it to the end? Would you like to know more about how business brokers work through a transaction? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying A Business? Confidentiality + Why It Matters

Published July 1, 2024

This is a topic we write about a lot, and for good reason. Buying a business is one of the few major purchases people make that requires a level of secrecy. When you buy a house or buy a car, those are done out in the daylight, where all of the relevant and pertinent information about what you’re buying is available – often with just a Google search.

If you’re in the market to buy a business then you may have realized that it is really, really difficult to get information on businesses for sale. Listings are super vague and don’t typically include any pictures that would tell you what business you’re looking at. Calls to the listing broker lead to vague information as well, along with requests to sign a non-disclosure agreement (NDA) – which requires your full name, physical address and your phone number/email. You might also have to provide a financial disclosure in order to find out more than just ancillary information.

You may be thinking “I’m about to spend a ton of money, why do I have to jump through so many hoops and provide so much information about myself?”

The short answer? What you are giving pales in comparison to what you receive.

What do we mean by that?

When you sign a NDA you are then given access to potentially devastating information – most importantly the name and address of a particular business.

Why is the name and location such a big deal? This information is kept under a veil of strict confidentiality for good reason. When the for-sale status of a business is disclosed bad things can happen. Most people wrongly assume that a business for sale is a business on the brink of collapse, although that is rarely the case. When a staff finds out the business is for sale, they can all quit en masse. When clients find out a business is for sale they can jump ship to the competition. The repercussions of the disclosure of the for-sale status to the wrong people can be catastrophic.

As such, business sales are done behind closed doors, behind non-disclosure agreements and done out of the sight and earshot of the staff and clientele.

In some cases a seller might also require a financial disclosure from you before the name and location of the business can be discussed. From a seller’s perspective this makes sense. The fewer people who know about the for-sale status, the better – so they may only want to grant access to buyers with the financial means to actually purchase the business. Think of it like having to provide a real estate agent with a pre-approval from a bank to see a house (which is very, very common).

Once you have signed the NDA and provided proof of funds, you will not only be given access to the name and location of the business. You will also get access to financial records, employee information, contract information, proprietary information and the like. What a seller is providing to you is far more than you are giving in return.

Are you looking for a business to buy and have been frustrated by the lack of information you can find online? Would you like to know more about the NDA you will have to sign? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Buying A Business? How To Consider COVID “Slumps And Bumps”

Posted in Buyers Articles

Published June 3, 2024

In the time before the pandemic, business buyers would typically request 3 years of tax returns when considering a business. If you’re looking at businesses in 2024, those three years of records land you squarely in the throws of the pandemic – where many businesses struggled or faltered and a few pivot-capable businesses did very well.

How do you make heads or tails of numbers that can show a huge slump or a huge bump? Maybe don’t consider those numbers as hugely significant.

If you do ignore the COVID numbers, you’ll have company. According to the IBBA Market Pulse Q1 Executive Summary “Q1 2024 survey results indicate that the vast majority of M&A advisors believe buyers are largely disregarding the financial impact, whether positive or negative, that COVID-19 had on acquisition targets. A combined 80% of respondents agreed or strongly agreed that buyers are mostly ignoring any ‘COVID slump’ or ‘COVID bump’ when assessing a company’s financials.”

This tendency to ignore the pandemic years makes sense when you consider that the businesses that made it through this period were doing something right, and the ones who saw a huge spike in profits because of something they did related to COVID have likely seen those metrics fall as the pandemic became less of a concern.

What can you do then when you look at the track record of a business in the post-pandemic market? Ask for more years of records. Many buyers now ask for 2019 to today, or even the last ten years of tax returns. This over-arching view of a longer period of time will likely give you a better sense of how this business fared before and after the shut downs and mayhem – giving you a better perspective.

Are you looking at businesses and want to know more about how to interpret the numbers during the pandemic? Do you have questions about what time period of records you should ask for? Ask us! Please feel free to leave any questions or comments here and we would be happy to help.

Michael Monnot

Messy Financials – Why They Shouldn’t Scare Buyers And Should Motivate Sellers

Posted in Buyers Articles, Sellers Articles

Published May 27, 2024

Owning a business is a lot of work. Day to day operations, issues that need to be resolved – it can be hard to keep up with everything. This usually means that keeping your financial records in order slides to the end of the list. It’s tedious, annoying, time consuming and sometimes feels like it can wait in the box under your desk in favor of something more pressing.

This procrastination can become a problem, however, if you find yourself in a situation where you need to sell your business. How can you prove to prospective buyers that the business is worth what you say it is if your records are a jumbled mess?

What about on the other side of the table? If you’re a business buyer you might have noticed that the financials you seem to see from small businesses can barely be called “financials” at all. A copy of a P&L that’s been faxed too many times, some scant numbers that seem to be derived from thin air – it can be hard to parse out how a business is actually doing.

Does poor record keeping always mean a business isn’t doing well? Absolutely not. What it does mean is a seller is leaving money on the table and a buyer has room to negotiate.

If you are considering selling your business, or if you aren’t planning on selling now (but you will be selling in the future) the time to straighten out your books is NOW. Pull out that box from under the desk and start working through it whenever you have a chance, or hire someone who can do that for you. Your business can only look its best on paper if your papers are in order. A business with clear, concise records can easily prove the value that you’re asking for. It also shows prospective buyers that you’ve been an organized owner, which translates to more faith in the business.

If you’re looking at businesses to buy don’t immediately pass over a business with messy books. Think of a business like this like a house with good bones that needs a little work. If that work has to come from you after you buy it – guess what? You can negotiate for a better price. Notice we said “good bones” – not all businesses that have issues keeping their records in order are in great shape otherwise. Seek the advice of your business broker and/or a business transaction CPA to figure out if this business is worth negotiating for.

The message here is that big box of jumbled records is fairly common in the small business world. If you’re a seller, get those records in order. If you’re a buyer, look for those opportunities to get a great deal.

Do you have questions about how to make your business look top notch to buyers? Would you like to know more about how to interpret messy records? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying A Business? 6 Ways To Set Yourself Up For Success

Published May 21, 2024

Buying yourself a business is a big deal, and you obviously want to give yourself the best chance at success.

How can you give yourself a leg up before someone hands you the keys? Here’s 6 ways:

1. Do your homework

This one might sound ridiculous – but most people would be shocked at how little research some business buyers do. You shouldn’t just be searching business listings. You should be looking at market trends, looking at what types of businesses are doing well and what types of businesses are struggling, what the local market actually looks like in the areas you’re considering, who your competition would be and how they’re doing things differently, what the areas for potential growth are, what the marketing opportunities could be – the list is long and should be exhaustive. You should have a decent grasp on the area, the market and the trends long before your first meeting with a seller.

2. Stay within your skillset

When you make a major life change like buying a new business it can be tempting to jump into something completely new, but if you’re buying a business this is a huge mistake. Taking over as the owner of a business is hard enough because there’s a steep learning curve. You have to learn absolutely everything. Buying a business where you have zero practical experience takes that learning curve and makes it terrifyingly steep. Do yourself a favor and look at business opportunities that will utilize the skills you already have.

3. Make yourself a business plan

Starting any new venture without a plan is foolhardy at best. You need to go into your new business with an idea of where you think the business is headed, what you need your metrics to be in order to remain sustainable and where the line is when you walk away and lock the doors. A properly laid out business plan will help you hit the ground running, instead of guessing where you are and where you need to be.

4. Don’t kill all of your capital

If you have $100,000 to spend on a new business, you should not be looking at $100,000 businesses. You need to reserve a decent chunk of your available capital for all the things you’re going to need to spend money on. Commercial rental deposits, licensing and permitting fees, initial payroll, new inventory orders, etc. Burning up all of your capital with the purchase alone will put you in a very precarious position right out of the gate. Reserve some of your cash to keep yourself from ending up in a bind.

5. Don’t focus on the wrong things

It can be exciting to walk into your new business on your first day as owner and “make it your own” – the temptation can be enormous to immediately start changing things to your liking. The problem here is you bought a functional, operating business. You have no idea on day one why that business is able to keep the doors open. Too many changes too fast (particularly changes meant only to satisfy your tastes) are almost always a waste of resources and time – and have the potential to drive away your regular clientele and staff. Focus on learning why things are the way they are, then make slow and incremental changes as needed.

6. Don’t ignoring marketing

Many small businesses fail to use every marketing opportunity – some because of lack of time or resources, some because of burnout. Many new business owners walk in on day one and focus all of their energy on things other than marketing. Learning the business, getting to know the staff and regulars, making changes and the like. While these are important parts of your first days as owner, a big chunk of your energy should be focused on getting that business out to as many new customers as possible. Maybe the business needs a new website, maybe it needs a social media strategy, maybe it needs more community engagement. You need to be planning your new marketing strategy before you get handed the keys so you can begin to roll it out on day one.

The message here is there are some very important things you can do both before you buy your new business as well as in your early days as owner that will help you set yourself up for success.

Are you looking at businesses to buy but aren’t sure what types of businesses would fit with your skillset? Would you like to know more about how to create a business plan or how to implement a new marketing strategy? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Why Do You Need That? Why Business Buyers Have To Provide Financial Statements

Published April 15, 2024

Talking about how much money you have is well, uncomfortable. It would be profoundly odd to approach someone at a party and ask how much cash is in their checking account. It’s considered extremely private information, and as such it’s not something most people want to be forthcoming about.

This natural resistance to disclosing your financial situation becomes a problem, however, if you’re trying to buy a business. Business brokers, sellers, commercial landlords and the like are all going to ask you how much money you have and to put that information into writing. Yikes, right?

Not really. Try to buy a house (or even look at houses to buy) without written preapproval from a bank. Most real estate agents won’t allow you in the door of their listing without proof you have the funds necessary to buy that house. Why? If you don’t have the money, it’s a colossal waste of everyone’s time.

The same rules apply in the business-for-sale world. You have to prove that you have enough to buy a business, have enough collateral to qualify for special funding, have the capital available to pay your lease and make payroll out of the gate, etc. No one wants to waste valuable time disclosing a business to someone who can’t actually buy it.

Notice we said disclosing and not showing. You can’t just go see a business for sale. Business sales are conducted under a veil of confidentiality – for many reasons. Sellers don’t want the entire staff to find out the business is for sale and quite en masse. They don’t want to lose critical contracts. They don’t want vendors to switch to the competition. They don’t want the profoundly powerful (and almost always profoundly incorrect) assumption that a business for sale is a business on the brink of failure to drive their regular clientele away. Confidentiality is very, very important.

What that means for you as a buyer is you can’t just waltz in anywhere, whenever you feel like it. You have to look at relatively vague business listings and then pick a few you like. You’ll then have your business broker get you the non-disclosure agreements (NDAs) for those businesses so you can find out the name, location and other confidential information like P&L statements.

In some cases, the sellers are going to request a financial statement from you before any NDA will be available to sign. This is a completely fair thing to request. They have the right to ensure that you’re a real buyer before they disclose to a complete stranger potentially damaging information. You’ll likely have to provide a statement about how much cash you currently have, stocks and the like, property you own and so on. And you’ll have to share this information with not only your broker, the seller’s broker and the seller but your future commercial landlord as well. So get comfortable with the idea early.

The point here is although it might initially feel like you’re divulging a lot of private information – you need to consider the trade off. You’re proving you’re a real buyer and a business owner is trusting you in return with everything about their business.

Are you looking at businesses to buy but aren’t comfortable with providing a financial statement? Would you like to know more about why confidentiality (and ensuring buyers are real buyers) is so important in business sales? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

The Power Of Preparation: Why A Comprehensive List Of Questions Is Better

Published April 1, 2024

When you’re in the process of buying a business, you’re going to have questions – lots of them. It might be tempting to ask each question individually and as they come to you, but the best approach (and the true power) lies in preparation – in assembling comprehensive lists of questions that not only makes a more efficient use of time but also helps you to better understand the business you are considering.

Why can’t the seller just answer my questions as they come to me? Why do I need to make lists of questions instead?

To begin with, asking a question and then getting an an answer during a business transaction isn’t a simple process. You come up with a question, you send that question to your business broker, they send it to the seller’s broker, that broker then sends your question to the seller, the seller has to get you an answer and then the process repeats itself in reverse. This takes time, time a seller has to find somehow while running the business you’re trying to buy. Sending question after question after question will only bog down the deal, annoy all those involved and won’t help you figure out exactly what you need from your seller.

Instead, look at the initial information you are provided and make a list of questions. Bounce that list of questions off of your business broker and see if they already have some of the answers. Focus on the areas that are of real importance – for instance it would be beneficial to ask about the length of employee contracts but a complete waste of time to ask what color the walls are painted.

Every question of substance holds weight because every answer to those questions is a potential pivot point. This is why it’s so important to only ask questions that matter, and to ask them in batches. Asking one question at a time can lead to a disjointed and inefficient exchange of information – as well as a frustrated and annoyed seller. Well-structured lists also keep you thinking about the different aspects of the business. As you make and edit your lists invariably new thoughts and questions will come to you – as well as ideas to help your new business grow with you at the helm. Your lists will keep the conversation (and your thoughts) focused and organized, maximizing the use of time and resources. This efficiency is particularly crucial in negotiations, as an irritated seller is going to be far more difficult when it comes to the big pieces of your deal.

The most successful business buyers are efficient partners in negotiations. By demonstrating your preparedness with thoughtfully curated lists of questions, you signal to the seller that you are serious, diligent and committed to a fair process – and you aren’t going to waste their time. This fosters trust and goodwill, paving the way for smoother negotiations and a stronger foundation for the future relationship you’ll need throughout the training period and the transition from one owner to another.

Are you looking at businesses to buy and hadn’t thought about asking questions in bunches instead of individually? Would you like to know what some common business buyer questions are? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Don’t Hop On A Plane Cold – Why Smart Business Buyers Plan Ahead

Published March 4, 2024

You’ve made the decision – you’re going to bite the bullet, buy a business and move to Florida. You buy plane tickets and head down, ready to drive around and scope out the local small business scene. When you get to town, you try calling brokers to have someone drive you around to see what’s for sale – but you aren’t having any luck. No one is answering or returning your calls, and those that do tell you there’s no way you can see any businesses today.

What gives? You’ve got money to spend – why won’t anyone help you?

Buying a business is a very complicated process that contains a multitude of moving parts, and as such the business buying process is nothing like buying anything else. When you buy a house or a car the process involves driving around and taking a look, but houses and cars are physical things. A business is different because a business has customers, has employees, has contracts, has leases, requires licenses and permits, has vendors – the list goes on. When you buy a business you aren’t buying a thing, you are buying cash flow. Since you aren’t buying a physical thing, the process is more complicated.

For starters, business sales are confidential. Confidentiality is important because there is a very powerful misconception that a business for sale is a business on the brink of failure. Think about it. The last time you saw a “For Sale” sign in the window of a business your immediate thought was that the business was in trouble, right? Why would anyone sell a perfectly good business?

Great, profitable businesses are sold every day. Business owners sell for a myriad of reasons. Retirement, a desire to change industries, personal reasons, or because a financial milestone has been reached. Sure, there are businesses for sale because the owner is in trouble and the business is faltering – but those businesses are fairly rare and can be a great opportunity for growth.

The fact that a business is for sale says nothing about the financial health of that business, but the misconception that exists can cause catastrophic damage to an existing business if the for-sale status is disclosed to the wrong people – like if the staff finds out the business is for sale and quits en masse.

The need for confidentiality means you will have to sign a non-disclosure form for each and every business you want to see, and you will most likely need to see the physical location before or after hours when the staff isn’t there. In addition to the required paperwork and the need to avoid a staff, physical visits to a business require aligning the schedules of the buyer, the seller, the buyer’s broker and the seller’s broker. This type of schedule wrangling takes time, so showing up in Florida and demanding to see businesses isn’t going to work.

What should you do instead? PLAN AHEAD. Before you get on a plane, call and have a conversation with an experienced and qualified business broker. They can help you find businesses that fit with your goals and your financial means, then you can narrow your field to just a few choices. Your broker can set up conference calls, meetings and site visits long before you land so you can see the businesses you want in a way that works with everyone’s schedule.

Don’t hop on a plane cold – plan ahead and you will be set up for business buying success.

Are you thinking about buying a business and want to know more about why confidentiality is important? Would you like to know what businesses are currently available that might work for you? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Walk Before You Run: Why New Owners Should Take It Slow

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