what happens when I find a business to buy Archives - Page 5 of 16

A Business Buyer’s Options For Corporate Structures – Which Is Best For You?

Posted in Buyers Articles

Published August 8, 2022

There are a lot of important decisions to make when you are buying a business, but one you may not have considered is choosing the corporate structure. You will need a corporate structure in place before you do many of the licensing/permitting applications that will be necessary for you to officially take over the reins. Your corporate structure also defines who owns the business and how the business will be taxed.

What are my options?

Corporation

Probably the most frequently used and preferred type of structure for forming a company is the corporation. By presenting the Articles of Corporation to the Secretary of State, you can form a corporation fairly quickly. If you are forming the company in Florida, then the registered office is also in Florida and the corporate structures are governed by the laws of the state of Florida. A corporation formed in Florida can carry out business in every state, although all of the states require a registration. Foreign nationals can also form a corporation in Florida. A registered agent (a person headquartered in Florida) has to be named to receive and deliver documents.

Limited Liability Company (LLC)

The Limited Liability Company is not accepted in all states, but it is in Florida. The shareholders are personally liable for taxation and the accountability is limited to the assets of the business. Just like the corporation, an LLC requires the filing documents to be registered with the Secretary of State. In most cases at least two shareholders are required for a Limited Liability Company.

Sole Proprietorship

If the business is privately owned, it is a Sole Proprietorship. In the majority of cases a single person is the owner of the business. This type of corporate structure does have some downsides. The owner is liable with all of their personal assets and the owner is also liable for taxation.

General Partnership

In this type of corporate structure, the partners lead the business together and all of the partners are absolutely liable for accounts payable. This setup usually requires more administrative effort and can be more cost-intensive.

Limited Partnership

The Limited Partnership consists at least of 2 people, a General and a Limited Partner. The Limited Partner has a supervisory role, both available and limited. He or she can’t be part of the management and acts as an investor. The General Partner leads and is liable for the business. A shareholder contract has to be prepared for the forming of the business. With this type of corporate structure, you have to request a Certificate of Limited Partnership from the Secretary of State.

Before you make a decision it is important to contact a certified public accountant familiar with corporate structures and small businesses, a business attorney or a business broker because they will be able to advise you about what type of structure would be right for the business you want to purchase. Are you a business buyer or budding entrepreneur who would like help? Please feel free to contact us or leave a question here and we will be happy to help or refer you to one of our partners.

Michael Monnot

Business Buyer: What’s In An Offer?

Published July 18, 2022

If you’ve found a business you really like, and you are ready for the next step, congratulations!

The next stage in the business transaction process is the initial offer, sometimes called a “purchase contract” or an “offer to purchase”.

Once a buyer makes an offer, the seller decides if they are willing to accept the offer. If they are, then the business transaction heads into a period called due diligence. Just like you can’t do an inspection on a house until you’ve had an accepted offer – in business sales an accepted offer will give a business buyer a chance to look over every aspect of the business and decide if they want to go ahead with the sale.

What goes into an offer?

This document will contain the terms, conditions, non-compete conditions, financing, inventory, transition details like training, warranties and any other aspects of the purchase.

Should I write my own offer?

In most cases, you will want to have a business broker put together an offer to purchase for you, although there are some standardized versions you may be able to use in the most simple of transactions. Business transactions are inherently complex, so having someone who writes these types of contracts all the time to help you will keep you from having issues (like if you unknowingly leave out what could be a crucial part of the contract) down the road. If you really want to write your own, just make sure you have your broker look it over before it gets handed over to the seller.

Is an offer set in stone?

Absolutely not! Your initial offer is contingent upon what you discover in due diligence. If what you uncover during this period makes you unwilling to go ahead with the purchase, you will have the opportunity to back out. If what you find during due diligence isn’t enough to kill the deal, but you discover, for instance, that the business is earning 15% less than was initially stated , you will be able to adjust your offer accordingly.

The moral of the story? An offer is an important part of the business transaction process, so use the experience of your business broker to guide you through this step.

Are you a buyer with your eye on a particular business but you aren’t sure what will need to go into the initial offer? Was your initial offer rejected by the seller and you need to know what to do next? Please leave us a comment or question and we would be happy to help you.

Michael Monnot

Should I Use Multiples? Advice For Business Sellers & Buyers

Posted in Buyers Articles, Sellers Articles

Published July 4, 2022

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:

What’s a multiple?

In the simplest form a multiple takes the average sale price for businesses in a particular industry 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.

Now that you know what multiples are, how should 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 an oversimplified two times earnings.

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 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? Ask us! Please feel free to leave us a comment or question here, and we will be happy to help you with multiples.

Michael Monnot

Is It Too Ugly? Why You Need To Look Beyond The Mess

Published June 27, 2022

When you first start searching for a business to buy you might have an idea in your head of what that business will look like. In your mind the location is perfect, the windows are clean and everything is new and organized. When you are shopping for something like a house or a car this is often the case – as a clean home shows much more successfully than a dirty one. In the small business market, however, this expectation of perfection is going to be problematic.

Why?

Most small businesses are a mess because a small business is complex by nature. Sure, the parts that the customer sees are usually tidy – but walk into most back offices, kitchens, garages – and the reality will show itself. And the mess might not be just physical. As you start to peel back the layers on most small businesses problems will spill out. There might be interpersonal issues with the staff. The financial records might be an unorganized disaster. You get the idea.

Here’s the good news. If your first impression isn’t great it doesn’t mean it’s not a great business. It just means you need to dig a little deeper to see if the mess that’s in front of you is something manageable or something you aren’t going to want.

Here’s a few examples:

You walk in and it’s ugly.

The equipment is really old. The décor is really dated. The vehicles look worn out. When your first aesthetic impression of the physical parts of a business isn’t great, it doesn’t necessarily mean the business itself is bad or doesn’t make money. Instead of instantly deciding the business isn’t up to par – ask why the current owner keeps things the way they are. To you the outdated décor in a café isn’t appealing, but perhaps it’s the old school charm that keeps the loyal clientele coming back. The vehicles might look worn out, but upon further inquiry you discover that the vehicles always look like that because this construction business is rough on their equipment and the internal parts of the vehicles are very well maintained. You can’t let aesthetics alone sway your decision about a business.

You find out there’s a ton of employee drama.

If the business you’re considering requires employees then you’re likely going to encounter some sort of staffing issues (particularly when you first take over). If it seems like there’s an issue among the staff, ask the current owner why they haven’t dealt with it. Maybe what seems like drama is simply a culture that works as this staff has been working together successfully for a very long time. Maybe the employees who have issues with each other are able to keep it professional in front of customers and are really great at their jobs. In this case the issues don’t actually impact the business itself. Perhaps the current owner is a bit burned out and has become apathetic to employee issues that could be easily handled by you as a new owner laying some new ground rules.

You have to understand going in that a small businesses is going to be messy. Parts of it will likely be ugly. The mess and ugliness probably don’t tell you the full picture. Make sure you are delving a bit deeper to understand why things are the way they are – before deciding to walk away from what could be the perfect business for you.

Are you starting the search process for businesses and want to know what you should look for during site visits? Do you have questions about the kinds of small business issues that are relatively easy to fix as a new owner? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Why “Any Business That Makes Money” Is A Bad Idea

Published June 20, 2022

Don’t set yourself up to hate your new business.

This one happens more than it should. A prospective buyer calls a business broker and asks for “any business that makes money” – a colossal mistake.

Here’s why:

Business ownership is tough. It usually requires long hours, a fair amount of grit, resilience and enough passion for what you’re doing to sustain you long term. Sure, entrepreneurs own businesses so they can make money, but the making money part can’t be the only thing keeping you in the game. You have to have a business you won’t hate that allows you to maintain a life you don’t hate or there’s no way this path will be sustainable.

If you call a good broker and ask for any business that makes money they should immediately tell you you’re approaching the process from the wrong direction.

Here’s a better approach:

Why do you want to own your own business? Is it because you have a deep passion for something? Is it because you’re tired of working for someone else and want to be your own boss? Do you want your own business so you can be more in control of your schedule? Are you looking to incorporate members of your family into the business so you can work together? These broad, sweeping questions about your motivation for business ownership are very important. If you are buying a business because you want to have more control over your schedule (so you can spend more time with your kids) a large restaurant that requires you to work 7 days a week isn’t going to give you the flexibility to be the soccer coach for your kid’s team. A different type of business could. This initial soul-searching of sorts is critical for deciding what your most important goals for business ownership are and then focusing only on businesses that will fit those goals.

Once you have some goals and priorities in place – what are you good at? What kinds of practical experience do you have that could help you with your new business? Going back to the restaurant example above – if you’ve never worked so much as a minute in the restaurant industry you are going to have an almost impossibly hard time owning and running a large restaurant. The learning curve for an entrepreneur is a steep one, and if you add learning a whole new industry to the mix you are setting yourself up to to fail in spectacular fashion. Tell your broker about your education and experience. When combined with your goals information about your experience can be used to find great businesses that will set you up for success.

Have you always wanted to own your own business but aren’t sure what type would meet your goals and fit with your experience? Do you have questions about businesses currently on the market? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Don’t Download – Why You Need To Make Up Your Own Questions

Published June 6, 2022

You’ve found a business or two that you really like. You’ve filled out the NDAs and have the marketing packages in front of you. You’ve scheduled a conference call or a meeting with the sellers and the brokers, and your broker has asked you to come up with a list of questions.

So, what do you want to know?

It can be tempting in this situation to just Google “lists of questions for business buyers” and then bring that list of questions with you. Don’t do that. If you need to look up a list of questions to ask it’s likely that you haven’t done any research on your side.

Here’s what we mean:

Have you thoroughly read the marketing package you received once you signed the NDA? This one becomes blatantly obvious once you start asking boiler-plate questions that were clearly answered in the material you were already given. This tells the seller that you don’t really care about details and are willing to waste everyone’s time. If you were selling a business that was your blood, sweat and tears would you be willing to give the keys to someone who can’t be bothered? Probably not.

Have you researched the local market, the industry in general, the area where the business is located, etc.? If you are serious about buying a business you should want to know everything about not only the business but the industry and local area as well. Again it will show your lack of dedication to the process if you go into that first meeting and ask something a simple internet search could have told you or that you probably should already know if this is the business you’re hoping to buy.

Have you read the list of questions you’re going to ask? This one might sound crazy but it happens with frankly alarming regularity. People will either ask or send a list of questions to be answered that are from a completely different arena. Like a person looking at a small café who asks about the stock options available to investors. Once again this shows everyone involved that you probably don’t care.

See the recurring theme? Your meetings and calls with a seller are critically important opportunities to gather the information you need to make an informed decision about whether this business will be right for you. These interactions are also pivotal in terms of showing a seller that you’re a serious buyer and someone capable of taking over the business that they care about. Don’t waste your own time by not taking the opportunities to ask great questions.

Are you looking at businesses to buy and aren’t sure what types of questions you should ask? Do you want to know what kinds of information you would need for a particular industry? Ask an experienced and qualified business broker for help! You may also leave any questions or comments here and we would be happy to help.

Michael Monnot

How To Avoid 6 Big Business Buyer Mistakes

Published May 23, 2022

If you are considering buying a business for the first time you’d probably like to avoid any mistakes. No one wants to walk into their new business and immediately mess something up, right? One of the best ways to avoid mistakes is to learn about common missteps and then work to avoid the blunders of those who have come before you.

What are some typical blunders that inexperienced entrepreneurs make? Here’s six:

Naming the business after yourself:

When deciding on a name for your business it can be tempting to just name it after yourself. Here’s why you shouldn’t. Your business name is pubic information, and will also become your brand. While that might be fine for a social media influencer it can be an issue if you have a business that you want to be able to sell. You don’t want to work forever, so when the time comes to retire or move on to another venture you might have to also sell your name to a new owner. You can avoid this by coming up with an original name instead.

Buying a business you know nothing about:

First-time business ownership is hard enough without having to start from zero. If you have always wanted to buy a restaurant, but have never worked in one – it would be a big mistake to choose that industry. Choose a business in an area where you have practical experience because as the owner of a business, you need to know what the business needs.

Not doing your homework:

Why is the business for sale? Is it just because the owner is retiring, or are they jumping off a sinking ship? You will have the due diligence phase to determine what the problems are, and then you will have the opportunity to amend your offer or walk away from the deal all together. This is a critically important step, as you don’t want to discover problems after the business is already yours.

Changing too much too soon:

Unless you are buying a business with a horrible reputation, a new owner should tread carefully with regards to changing the business. You bought the business because it was an established company with a good reputation, and you don’t want to drive away customers familiar with the brand by immediately dismantling everything they know about the business. The established image may have more to do with the bottom line than you know, so make changes slowly.

Not leaving yourself enough cash:

It may take several months to get a business transitioning to a new owner in the black, so leave yourself enough operating capital to keep the doors open. Many new owners walk into a functioning business and immediately spend far too much on unnecessary improvements, digging themselves a very deep financial hole in the process.

Not understanding the importance of marketing:

You may have bought an already established business, but that doesn’t mean that you can forgo the push to keep the business growing. Most established businesses already have a customer base, but keeping those customers coming back and bringing new ones in is a responsibility that now falls to you. Advertising and marketing need to be a top priority as the new owner.

The most important thing you can do as someone who wants to become a business owner is find the right help. If this is a process you’ve never gone through before, find a good business broker to help you along the way. Having assistance through this process will save you from making many of the mistakes that first-time business buyers make.

Are you thinking about buying a business for the first time, but want to avoid the blunders listed above? Do you have additional questions about the business buying process? Contact us or leave a question here and we will be happy to assist you on the road to business ownership.

Michael Monnot

Buying A Business? Why Research & Questions Should Be Your Top Priority

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

Published April 25, 2022

We get it. Once you’ve decided that you are ready to make the leap and buy a business it can be hard to keep from going directly to the shopping phase. It’s fun to look at business listings and envision yourself as the owner. Guess what? Shopping for businesses in this way is unproductive and ultimately won’t get you what you’re hoping for from business ownership.

Why?

Any business, large or small, can be condensed down to one major thing. A business is cash flow. You are providing goods or services that you pay for and then your customers pay you. It’s the money in and money out that makes a business successful, and hopefully you’re making more than you’re spending.

If a business is essentially just cash flow it really doesn’t matter what color the walls are. Looking at pictures of businesses on the internet isn’t telling you much of the story. Neither is perusing vague P&L statements.

What you really need to know about a business is does it generate (or have the potential to generate) the amount of cash flow I need to live day to day as the owner – and is it possible for me to be successful in this industry.

How do you figure that out? Research and questions.

Research the areas where you’d like your business to be. Can you afford to live there? How much would you need to make to have that be possible? Will the area work for you and your family? If you’d love to live on the beach, but your target area has zero schools for your kids you might need to redirect your target area.

Research the different industry sectors possible in that area. Do you have any practical experience or education that would make a particular industry better for you than another? Will the industries available in your target area match with your skills? If you’ve always wanted to own a big restaurant but have never spent a single day in the restaurant industry, then looking at food service industry business is likely a mistake.

Once you’ve done some research, start asking questions. Have a conversation with an experienced and qualified business broker about the areas you’re considering, your practical experience and education, your goals for business ownership and the amount of capital you have to invest. Ask lots of questions – about the area, about the industries that do well in that area, about what types of businesses would both fit with your experience and with what you hope to get out of owning your own business.

Notice something? So far we haven’t said “look at listings” because it isn’t helpful until you know where you want to be and what you need to be successful.

Don’t waste a ton of time scouring the internet for your future business. Do some research and then get in touch with a business broker.

Do you have questions about the process to buy a business? Would you like to know what types of businesses would match your practical experience? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying A Business And Legal Advice: When To Take It With A Grain Of Salt

Published April 21, 2022

Buying a business is a huge deal. Businesses are complicated, there’s a lot of money changing hands, contracts can be long and need to be carefully negotiated. As a buyer you should absolutely have legal council and they should absolutely go over anything and everything you sign.

So why are we saying you might want to take legal advice with a grain of salt?

First and foremost, business ownership is inherently risky. Entrepreneurship can be rough and there’s no guarantee that the contract you put together for the purchase of a business is going to ensure that you as the new owner will be successful. Purchase contracts are also heavily negotiated, meaning one party (you) will not get everything you want. There will be concessions with the seller if you want a business transaction to happen.

Think about the job you’ve hired your attorney to do. Their job is to protect you from any and all risk. Their job is to make sure you get everything you want. See where the problem is?

Here’s another issue. There will be some documents that you need to sign that are industry standards, like the non-disclosure agreements necessary to receive most information on businesses for sale. These industry standard documents can’t be changed, so if your attorney asks to make changes the answer is likely going to be no. You will have to sign the agreement as-is or not get the information you’ve requested.

It’s also important to remember that there are many, many specialties in the legal field. Your family attorney who helped you with your uncle’s estate and the probate process isn’t likely to know very much about the legalities of a business transaction. It’s why you don’t go to your kid’s pediatrician if you have arthritis in your knee. You would be better suited hiring an attorney who works in the business transaction arena as they will know how to best protect you without hampering your ability to buy a business.

We aren’t saying you shouldn’t take your attorney’s advice. You definitely should. What we are saying that you need to take that advice as it is meant – to completely and totally protect you. You also need to be sure you are hiring the right type of attorney to give you the best advice possible.

Are you considering business ownership and hadn’t thought about finding a business transaction attorney? Would you like to know more about the documents that you’ll need your attorney to review as part of the business buying process? Leave us any questions or comments, we would be happy to help.

Michael Monnot