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

 

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

941.518.7138
Mike@InfinityBusinessBrokers.com

 

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

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

941.518.7138
Mike@InfinityBusinessBrokers.com

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

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

941.518.7138
Mike@InfinityBusinessBrokers.com

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Business Buyers: Should You Put In A Backup Offer?

It can be very, very frustrating. You find a business you really like but discover that it is already under contract with another buyer. It can be tempting to give up and move on to the next business on your list, but there’s a savvy strategy that can significantly increase your chances of acquiring that dream business. Put in a backup offer. 

 

 

Why?

 

It secures your position in line.

 

One of the primary reasons for submitting a backup offer is to secure a position in line if the primary contract falls through. In the unpredictable world of business transactions, deals can and do fall apart for various reasons – such as financing issues or disagreements over terms. By having a backup offer in place, you position yourself as the next in line to acquire the business, giving you a valuable advantage.

 

It shows how serious you are about the business.

 

Submitting a backup offer demonstrates your genuine interest and seriousness as a buyer. Sellers often appreciate proactive buyers who are willing to invest time and effort into the deal. This can create a positive impression and potentially influence the seller to consider your offer more favorably in the event that the primary contract fails.

 

It might give you a leg up in future negotiations. 

 

In some cases, the primary contract may fall apart due to negotiation conflicts or disputes over terms. When you have a backup offer ready, it can provide leverage for renegotiating terms with the seller. Knowing that another viable offer is waiting in the wings may encourage the seller to reconsider certain terms, potentially in your favor.

 

An important note: submitting a backup offer typically does not require a financial commitment (like a deposit). You can, however, add a deposit to you backup offer in order to strengthen your position – just ask your business broker to add a fully refundable deposit clause in the event your backup offer is not needed. This means you can pursue other opportunities while keeping your backup offer as a safety net.

 

In the competitive world of business transactions deals fall apart every day. Putting in a backup offer when you really like a business that is already under contract can be a savvy move that pays off in various ways. It positions you as a serious buyer and can provide negotiation leverage. While it may not guarantee success, it significantly increases your chances of getting your hands on the business you really want if the primary deal falls through. Consider the strategic advantage of the backup offer – it just might be the key to unlocking your dream business.

 

Have you been looking at businesses and have only liked those already under contract? Would you like to know more about how to put together a backup offer? Ask us! Leave any questions or comments and we would be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

 

 

 

 

 

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Balancing Love + Business: How To Buy A Business With Your Spouse

Buying a business comes with its own set of challenges and rewards. When you add the dynamic of doing it with your spouse, it can become an even more intricate journey. While the idea of working together and building a business as a couple can be enticing, it’s essential to consider everything that will ensure the success of both your professional and personal lives.

 

 

Here’s some thoughts to consider:

 

Before diving into a business venture together, it’s crucial to have a shared vision and clear objectives. Discuss your long-term goals, such as the type of business you want, the level of involvement you both feel comfortable with and your financial expectations. Ensure your aspirations align to avoid potential conflicts down the road.

 

Establishing well-defined roles and responsibilities is vital to prevent confusion and conflicts. Determine who will handle specific aspects of the business – such as finances, operations, marketing, etc. Clear delineation of roles helps streamline decision-making and avoids arguments.

 

Consult with legal and financial professionals to determine the most suitable structure for your business. Options include forming a partnership, LLC or corporation. Each has its own tax and legal implications, and making the right choice can help protect your personal assets outside of the business.

 

Effective communication is essential in any business partnership, but even more so when your spouse is your business partner. Foster open and honest communication channels, and establish a process for resolving conflicts or disagreements. Remember that it’s okay to have differing opinions, but finding compromise is key.

 

Talk about how you’ll pay for the business. Are you using personal savings, seeking investors or taking out loans? Ensure both partners are on the same page regarding financial contributions and expectations. Be realistic about the financial commitment required to purchase a business – such as the extra capital needed to secure a commercial lease, pay for payroll, license/permit fees and the like.

 

Maintaining a healthy work-life balance can be challenging when you’re both deeply involved in the business. Set boundaries for work hours and designate specific areas for discussing business matters. Make time for personal and family activities to prevent burnout and maintain a strong relationship outside of work.

 

It’s essential to plan for the future, including scenarios where you may decide to sell the business or if unforeseen circumstances arise. Discuss and create an exit strategy that outlines how you’ll handle a business sale, succession planning or dissolution – and most importantly ensure it’s legally documented to keep it from becoming a massive issue if your personal relationship falls apart.

 

Buying a business with your spouse can be a rewarding because it allows you to share both professional and personal aspects of your life. However, it comes with its own set of complexities and challenges. Balancing love and business is possible with the right planning, communication and commitment to your shared vision.

 

Are you considering buying a business with your spouse but hadn’t yet considered everything we’ve listed here? Do you have questions about how to set up a well-defined exit strategy? Ask us! Leave any questions or comments and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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

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

941.518.7138
Mike@InfinityBusinessBrokers.com

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4 Ways: How To Finance The Purchase Of A Business

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

941.518.7138
Mike@InfinityBusinessBrokers.com

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The Issues You Find In Due Diligence – Is It A Big Problem Or Simply Less Than Ideal?

Due diligence. It’s the point in the business buying process where you start to really dig into the details (think contracts, inventory lists and the like). It’s a critically important step because it’s the step where you find out what you’re really buying. You should understand going in that you might come across some things that are less than ideal because all businesses are messy and complex. Absolutely every business has some sort of skeletons in the closet that will need to be addressed. Here are some common examples:

 

Long-Term Contracts

 

This could be anything from supplier contracts, employee contracts, your commercial lease and the like. You’ll inherit some of these contracts as-is and others (like your lease) will likely require some kind of renegotiation. Long-term contracts can be a problem if the owner before you chose (for example) a supplier whose products are inferior and/or more expensive than what you would have chosen but now you’re stuck. Although the supplier example here might not be ideal, the products are working as the business is able to remain operational – so you might just have to wait out the contract or find a way to buy yourself out. As far as your commercial lease is concerned, while you will need to renegotiate, you aren’t going to get a better deal than the owner before you. In many cases the rent will increase with a new tenant.  

 

 

Old Equipment

 

Once you really get into inspecting the equipment, vehicles, furnishings, etc. that you’ll be inheriting as the new owner of a business you might discover that these physical aspects are older and either need maintenance, repair or replacement. An important thing to remember is that most equipment doesn’t need to be brand new or pretty to do what it needs to do. It just needs to work. With that in mind you will probably be able to negotiate what you’re paying if the equipment you need is in such bad shape you’ll immediately have to replace it. 

 

Inflated Or Misrepresented Numbers

 

A cursory look at a single page P&L statement isn’t going to tell you much about how the business is actually doing. Neither will a simple chat with the seller. Once you really get into the numbers you might be disappointed that profits, margins and the like aren’t as good as you thought they were or were led to believe. The good news here is if the business isn’t making as much as the seller said it was you have a fairly strong argument for renegotiation to a lower price. 

 

The message here isn’t to immediately run away when you find problems during due diligence. Instead, look at the issues more closely to see if they are big enough issues to warrant action such as a renegotiation of your deal. 

 

Are you looking at businesses and want to know more about how to handle problems during due diligence? Do you have an experience to share where a business you were considering had much bigger problems than you were led to believe? Please feel free to leave any questions or comments, we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Are There Skeletons? Absolutely, Yes – Dealing With Issues Found During Due Diligence

If you are looking at buying a business, then the due diligence step will be in your future. This part of the business transaction process occurs when the seller accepts your initial purchase offer. Due diligence is important because it gives you a chance to peek behind the scenes, scour the books and dig up any skeletons lurking in your future business before you sign on the dotted line.

 

Wait, skeletons? What should I do if I find potential problems during due diligence?

 

 

First of all realize that it isn’t “if” you are going to find skeletons, it’s “when”. Small businesses are complicated, complicated things – and most have some kind of issue that you as a buyer will find less than ideal. Perhaps the largest customer contract is expiring shortly after you take over as owner. Perhaps the business has unpaid taxes. Perhaps the numbers initially provided by the seller don’t really add up. It really could be anything.

 

Once you come to grips with the fact that you are likely to uncover something potentially ugly – don’t freak out when it happens.

 

Think of it this way – if essentially all small businesses have issues, and these businesses with issues are still running and are appealing enough for you to have made an offer – then perhaps the issue that you’ve found can be dealt with without completely killing the deal.

 

Issues that can affect your bottom line as the new owner can mean a renegotiation of price and a price reduction to accommodate what you’ve found. Issues with things like unpaid taxes can mean adding provisions to the purchase contract. The point is not everything you find should send you screaming into the night. Concessions and negotiation may be able to solve the issues you find.

 

What if what I find is really, really bad?

 

Unfortunately, some skeletons are definite deal killers. You don’t want to take over a sinking ship, so if what you find is irreparable – you should absolutely walk away. The message here is just don’t jump the gun.

 

If you find something that makes you uncomfortable, ask your broker how bad it really is. A good broker has seen it all and will be able to tell you if a potential issue is negotiable or a deal killer. If it’s negotiable, take a deep breath and head back to the table with the seller to see what you can work out.

 

Do you have more questions about what can be done when skeletons come to light during due diligence? Would you like to know how to decide if an issue is a deal killer? Ask us! Leave any questions or comments and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Buying Businesses: Why You Shouldn’t Sign A Million NDAs

A million NDAs? Yes, that’s a profound exaggeration. It would be nearly impossible and ridiculous to sign a million of anything. The point we’re trying to make is your approach to buying a business will greatly impact your ability to get to a closing table.

 

How?

 

The NDA (non-disclosure agreement) is a document you sign before the name, location and any sensitive information about a business for sale can be revealed to you. It is a critical step in the business buying process, so if you’re in the market to buy a business – you’ll be signing NDAs.

 

 

What you shouldn’t do is sign a ton of them. Why? It’s an enormous waste of you time and energy.

 

The NDA should only be signed after you have completed a few other steps. First and foremost you need to figure out your goals for business ownership (a more flexible schedule or greater income potential, for example) and then decide how much money you have to invest in your new venture. The second step would be to have a conversation with an experienced and qualified business broker about your goals, the industries where you have interest/practical experience and your available capital. Your broker should then find you some cursory listings to review. If any of those listings look promising, then and only then would you sign the NDA for that particular listing.

 

If a business broker is doing their job the only people who are allowed to sign the NDA are people who would not only be a successful buyer of the business (they have enough capital) but also a successful owner of the business (they have the practical experience and passion to keep the business in the red). It serves absolutely no one to randomly send NDAs to people who can’t successfully buy and run that business. All it does is put the business at risk for disclosure of the for-sale status to the wrong person (read why that is bad here).

 

There are brokers out there who will automatically send NDAs to anyone who shoots them an email, no questions asked – so as a buyer it’s possible to ask for, receive and sign a ton of NDAs. The issue is those NDAs are likely for businesses that you either would be unable to buy or wouldn’t suit the life you’d like to have – so why waste your time?

 

Talk to the right broker – someone who asks you questions and helps you narrow down business listings. Then sign.

 

Are you interested in buying a business and have questions about the NDA? Have you signed a ton of NDAs without much success and are looking to try a different approach? Talk to us! Feel free to leave any comments or questions and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

9040 Town Center Parkway
Lakewood Ranch, FL 34202




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