Learning To Love The NDA – Thoughts For Business Buyers

If you are a business buyer, you should absolutely love the business transaction process – especially the tenant of confidentiality and the need to sign non-disclosure agreements (NDAs). Why? Let’s first talk about why some business buyers hate NDAs.

 

 

When you enter the market to buy a business, many new buyers assume the process will be very much like the process to buy a house. Nothing could be farther from the truth. Buying a business does NOT involve looking up businesses for sale and then driving around to look at them before you pick one to buy.

 

Why? When you buy a business you are buying an existing, operating business.

 

In order for that business to stay existing and operating the fact it is for sale needs to stay a closely guarded secret. Confidentiality is key.

 

A breach in confidentiality and the disclosure that a business is for sale can mean very bad things. People naturally assume a business that is for sale is a business that is on the brink of failure, although this is rarely true. When a business sale is disclosed the staff can quit en masse, vendors can cancel contracts, clients can go elsewhere – the list goes on.

 

These potentially catastrophic consequences mean anyone who is interested in buying a business must sign the NDA before the name and location of that particular business is disclosed. Some buyers hate this and refuse to sign the NDA or fight with brokers about providing their own information to receive the NDA.

 

The information you provide in order to sign the NDA for a particular business is both simple and straightforward. You must provide your full name, your home address, your phone number and your email. Why do we need this information? Why can’t you use your P.O. box or a business address instead of your home address? The NDA you are signing needs to be tied to one individual – you – so the same address you use on your driver’s licence must be used.

 

If you really feel uncomfortable providing this information, you should consider that your simple identifying information is paltry in comparison to what a business discloses to you once the NDA is signed. Not only will you now know the name and location of the business that is for sale, you will likely gain access to financial information as well.

 

You should also consider that the information you provide to get the NDA is the same information you would provide when signing up for a discount card at a grocery store. It’s really not a huge disclosure of personal information when you think about it.   

 

So why should you love the NDA? The business transaction process, including the NDA, ensures that the business you end up buying hasn’t had a catastrophic disclosure of confidentiality by you or any other prospective buyer before you get handed the keys. It means your new business will transfer to you intact and still operational.

 

Still need convincing that the NDA is a great thing for you as a buyer? Do you have additional questions about the business buying process? Ask us! Please feel free to leave questions or comments here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

 

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The Toxic Myth Of The Perfect Business – How To Handle Messy Books

It is a very common complaint in the world of business sales. A buyer comes to the market with money in hand and ready to buy the right business – but every time they request financial documentation what they get is poorly assembled numbers, difficult to understand tax returns and no current financials of any kind.

 

Do they want to sell their business or not?

 

What you have to remember about the small business world is owning your own business is a tough and time-intensive enterprise. Small business owners are great at what they do, but most are not trained accountants. Many times record keeping and financial documentation fall down the priority list, and what a buyer is left with is what the seller was able put together in the short time the business has been listed.

 

 

When we take on a listing for a small business we often get handed nothing more than a big box of crumpled papers and register tapes – and have to figure out the numbers from there. This is not true of all small businesses, as some owners are better record keepers than others – but you have to remember that even a great business may not have the world’s most organized books.

 

It is also typically true that the larger the business is, the more likely it is that they have an accountant on payroll and therefore the more complete the records will be – but if you are in the market for a small business you probably don’t have the couple of million dollars you would need to buy one of these higher-priced and more-complete-records businesses.

 

What should I do then? How can I decide with seemingly incomplete records?

 

Have patience, and understand that you will never get perfectly organized books. What you will get is the opportunity to look at all of the financial records of a business once you have entered the due diligence phase. Your business broker will be there to help you, and if the books really are a mess then perhaps an accountant familiar with business transactions will be brought in.

 

What you can do as a buyer is use that not-so-pretty cursory information you get with your first requests – like P&L statements and tax returns – to weed out businesses that don’t suit you and focus a more thorough look on on the ones that do.

 

Are you in the market to buy a business, but are disappointed with the information you’ve been sent so far? Would you like to know more about how we as brokers turn that jumbled box of paperwork into use-able numbers? Please feel free to leave any questions or comments here, we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

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Am I Buying The Building? Commercial Leases And Business Buyers

If you are new to the world of buying a business, then you likely have some basic questions that need to be answered before you really get rolling. One very common question we get from the curious future entrepreneur when discussing businesses to buy is:

 

Do I have to buy the building too?

 

 

The answer to this question is almost always no, as commercial leases are the norm in the small business world.

 

What do I need to know about commercial leases when I’m looking to buy a business?

 

First and foremost, you can’t simply look at the amount of rent the current owner pays and the length of time left on the current owner’s lease to understand the nuances of the commercial lease market. It is also very important to understand that while you as a new owner will get a new lease, the rent amount itself is unlikely to change in a major way (and if it does change it will probably go up, not down) – especially if the current lease has quite a bit of time left. The property owner already has someone who is committed to paying that rate for the remainder of the lease term, so they have no motivation to change the terms of the lease for a new owner.

 

Commercial lease rates depend on a large number of factors, but in general it will depend on where the business is located. In some parts of town you may be able to get a commercial lease at $8 per square foot, while in another part of town not far away the typical lease rate will be more like $40 per square foot. A property on a main street or in a plaza with a strong anchor business will fetch higher rent than a business somewhere off the beaten path. A location on the water will also have a higher rent rate.

 

If you are in the initial phases of searching for a business and think a particular rent rate looks ridiculous, don’t make a judgment on the business or the lease until after you have spoken to your business broker. They will be able to tell you if a lease rate is truly ridiculous, or (more likely) if a lease rate is in line with the current location of the business. It is also far more important to look at the cash flow of a business than to get hung up on the lease.

 

In terms of renegotiating the lease rate, it will depend on a number of factors – like the length of time left on the current lease and other factors (like location) that we’ve already discussed. In some business transactions there will be a little wiggle room on price – but for the most part a property owner is not going to cut a lease rate significantly for a new business owner.

 

While you won’t be able to cut the lease rate in half, you will more than likely get a chance to renegotiate other parts of the lease, like the length. For instance, if the current owner only has six months left on their commercial lease, you certainly can’t be expected to pay $100,000 for a business with no guarantee on the current location for anything more than that short amount of time. Your lease will likely be renegotiated for a much longer term, sometimes 5 or 10 years. Each situation and each property is different – so you will need the expertise of your business broker for this part of the renegotiation.

 

If you are new to the process of buying a business, don’t get hung up on seemingly high lease rates or on short lease terms. Your business broker is there to help you understand any lease and also to renegotiate a lease to best suit your interests as the new owner of a business.

 

Are you searching for businesses and have questions about why certain lease rates are so high? Do you want to know which areas typically have lower lease rates? Ask us! Please leave any questions or comments here and we will be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

 

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Need Capital? Business Buyers & Seller Financing

Seller financing can make small business deals possible, as it allows buyers (who don’t have all the capital necessary or who are unable to raise funds through more traditional lending sources) the opportunity to buy a great business.

 

 

 

Our economy is in much better shape than it was during the recession, and as such the business market has changed. In the midst of the recession nearly all deals came with a fair share of seller financing as traditional lending was essentially nonexistent and any buyers in the market weren’t flush with cash. This was great news for buyers as they could consider businesses that would have otherwise been out of their range.

 

Now that the economy has dramatically improved, the tides of seller financing have turned.

 

First and foremost, the improved economy means there are more cash buyers coming to the table that will directly compete with those who need a seller financed deal. In terms of recently completed deals, seller financing still holds as a close second to cash, but now buyers need to come with at least 50% down if they hope to compete with other buyers and get a deal to closing. There are, of course, exceptions to this rule as every business deal is different – but the days of financing more than half of a transaction are probably gone for good.

 

It is also easier now than it was just a few years ago to get more traditional bank financing or a SBA (Small Business Administration) loan, but many financial institutions are still gun-shy about risky small business deals as the memories of the recession are still relatively fresh in everyone’s mind.

 

What if I can’t get a bank loan and the business that I’m interested in doesn’t qualify for a SBA loan? How can I get seller financing?

 

If you are interested in seller financing, let your business broker know as it will help in narrowing your purchase options. Your broker can look for business sellers who have indicated they would be open to a deal that includes some seller financing. Next, you need to be prepared to offer at least 50%, if not more, of the purchase price up front if you want any seller to take your seriously. No one is going to finance 100% of the deal or anything close to it.

 

Do you have more questions about financing options for the purchase of a small business? Would you like to know what the terms look like for a typical seller financed deal? Contact us today or leave us a comment or question here. We would be happy to help!

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

 

 

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You Have Enough Time: Due Diligence For Business Buyers

 

 

If you are looking for businesses to buy, then you are probably frustrated by the paltry amount of information you are initially offered when a business peaks your interest. You sign a non-disclosure agreement and you may get nothing more than a few years of P&L statements and a highly abbreviated tax return.

 

How are you supposed to decide if a business is right for you if you can’t find anything out about the business you want to buy?

 

Due diligence.

 

Due diligence is the period of time after an initial offer is accepted where you as a buyer get to go through the business with a fine-toothed comb. Business sales are conducted this way because unlike other purchases – like a home or car – information about an operating business is often proprietary and needs to be kept strictly confidential in order to protect the business itself throughout the sales process (more information about why confidentiality is important can be found here). During due diligence you will be provided with basic business documentation and will also be given a chance to request other documentation you deem necessary.

 

How long do I have once due diligence starts?

 

The due diligence period is typically two weeks – plenty of time if you are using your time wisely. Two weeks is also plenty of time because due diligence doesn’t officially begin until AFTER all of your requested documentation is provided.

 

Two weeks? Are you serious? That hardly seems like enough time.

 

It absolutely is. By the time you get to the due diligence period, you will have had conference calls with the seller, face-to-face meetings, cursory information and initial questions already answered – the due diligence period is strictly a deep dive. Two weeks will be more than enough, especially if (as often happens) you are given a good chunk of the information you requested and it takes a week or two to get the rest. That will lengthen your due diligence period considerably and give you ample opportunity to decide if the business is right for you.

 

If, during your due diligence period, you decide that you don’t want to buy the business – you can walk away. This is another reason due diligence is relatively short. This period pulls a business off the market, so holding a business this way for an unnecessary length of time isn’t fair to the seller or to other buyers in the market who are also interested.

 

The message here is trying to force a seller to agree to a long due diligence period isn’t going to help you decide if a business is right for you. Using your time wisely during a two week due diligence period absolutely is. Ask your business broker about your concerns, and use their guidance during your due diligence period to get the most out of your time.

 

Are you considering buying a business but still don’t think two weeks is enough time for a proper due diligence? Would you like to know what types of special circumstances would lead to a longer due diligence period? Please ask us! Leave any questions or comments and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Problems Later: What To Do When Due Diligence Wasn’t Enough

 

Buying a business can be a scary, scary thing. You’ve been over the numbers, you’ve sought expert advice and you’ve spent the entire due diligence period going over everything with a fine-toothed comb. Surely if there was some underlying issue or skeleton in the closet you’d have found it by now, right?

 

Well, maybe.

 

Businesses are complex, messy creatures. Taking the step into entrepreneurship by buying a business will require a bit of a leap of faith on your part.

 

Even if you go over everything line-by-line there’s a good chance there’s something you missed or something that couldn’t be foreseen.

 

Wait, what? I don’t want to buy a disaster!

 

If you’ve asked the right questions and spent your due diligence period actually doing your due diligence you probably won’t be walking into a mess. You will, however, be walking into a small business that will have it’s issues and ups and downs – it’s the nature of business ownership. There are going to be things that are completely out of your control, and you need to be mentally prepared for the things you will have to face.

 

Going into the process of buying a business already knowing that there will more than likely be problems somewhere down the line will better equip you when those issues come up. It’s far easier to deal with a problem you were expecting than to be blindsided.

 

This isn’t to say that you should be paralyzed by fear that the business you are buying has some hidden fatal flaw. You just need to remember that business ownership is inherently risky, so mentally prepare yourself for those risks and you will be ready to handle them when they happen.

 

Are you thinking about buying a business but are worried about hidden issues? Would you like to know more about the due diligence process? Please ask us! Leave any questions or comments and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Don’t Drag Your Feet – It’s Costing You Money

Buying a business is a huge decision. You are deciding on a whole new life and are about to write a very big check.

 

We get that.

 

A minor case of cold feet is absolutely to be expected with a decision this big, but the mistake many business buyers make is they allow their cold feet to become a major problem. They let their hesitation overshadow their rational side – and they slow the buying process to a near halt.

 

This will always cost you money.

 

We aren’t saying that you should immediately buy the very first business you look at. You should absolutely take a reasonable amount of time to make decisions about the business you ultimately buy.

 

What we are saying is you shouldn’t procrastinate indefinitely. If you’ve found a good business put in an offer. If you don’t, you risk several scenarios that will mean more money out of your pocket.

 

 

The sellers could decide to raise the price. Many new buyers think that this move is unfair, but a seller is completely within their rights to raise the price of their business if no written offers are currently on the table. If the business is experiencing a period of tremendous growth or if the sellers are seeing a lot of interest in their business and are hoping to cash in on the popularity of their listing – they might decide to get more bang for their buck and jack up the price. If you haven’t put in an offer, your only choice will be to pay the new price or move on.

 

You risk taking over the business out of season. If the business you are considering is in a seasonal market where businesses do well for part of the year and then have to survive the lean off-season (common in areas where tourism is big) dragging your feet could mean you get handed the keys right as the slow season starts. This could force you to eat up your working capital surviving until the busy season starts again instead of using that working capital to grow the business during the period of the year when customers are flocking in your door. Help yourself by using the timing of the sale to your favor. Don’t procrastinate yourself into a rough six months.

 

Another buyer might buy the business out from under you. Time is money, so if you are constantly losing out on good businesses because you are waiting too long and other buyers are pulling the trigger before you do – you will be perpetually stuck in the search phase of buying a business. It takes a fair amount of research time, search time, conversations, meetings, conference calls and the like to narrow down your business choices. Don’t waste all of that time (and therefore money) by prolonging your decision and losing out to a more decisive buyer.

 

You have every right to be nervous about your decision to buy a business, but the most successful small business owners are those who can be rational and decisive when it counts. Do yourself a favor and don’t wait.

 

Are you thinking about buying a business but are nervous about taking the plunge? Would you like to know more about the process to buy a business? Please feel free to leave any questions or comments and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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The NDA – Important Information For Business Buyers

If you are new to the business buying process, there are several steps that can seem very uncomfortable – like having to give potential sellers, business brokers and your possible new landlord access to proof of your finances (so those involved in the transaction can see proof that you can, in fact, afford the business you are about to buy). While initially unpleasant these steps are critically important for a successful business purchase.

 

One of the steps for new buyers that can seem unpleasant is the signing of non-disclosure agreements, or NDAs – but it is also one of the most important.

 

What is the NDA and why do you need to sign it?

 

The NDA is an agreement that says you will not disclose any of the information you are about to be given on a particular business – including the fact that it is this particular business that is for sale. Each business you request access to will require it’s own NDA, so the longer you shop for a business to buy, the more NDAs you will have to sign.

 

Confidentiality in business sales is of the utmost importance, so for the protection of the business and the protection of the seller the NDA is a must before any information is given to any potential buyer. It provides the seller of the business with legal protections – meaning legal consequences for a careless buyer who discloses anything about the business to someone they shouldn’t, even telling someone inappropriate that the business is for sale. Without this confidentiality people like the staff, the customers and the vendors might think the business is for sale because it is on the brink of failure (almost never true when a business is for sale) and will leave the business for better prospects somewhere else.

 

The importance of non-disclosure means if you as a buyer are uncomfortable with signing the NDA, you aren’t going to be able to buy a business. The NDA can’t be changed to suit your tastes, it can’t be amended to take the legal risks for you away – it is what it is. Sign it or don’t, but no seller in their right mind will allow a buyer anywhere near their business or their books without this all-important legal protection.

 

If it is the legal repercussions you are concerned about – you shouldn’t be. All you have to do is keep the information you are given to yourself. That’s it. If you tell your neighbor’s wife in a casual conversation at the mailbox that the business is for sale or you talk to your barber about the last three years of tax returns you’ve been shown – those potentially devastating disclosures will land you in hot water. If you talk to your broker, your attorney or your CPA about this business you are thinking about buying – there will never be a need to enforce the legal repercussions of the NDA.

 

NDAs are good for you as a buyer because they keep all potential businesses on the market safe from the disasters an inappropriate disclosure can cause. You don’t want you brand new business adventure to have been damaged by another careless buyer. You also want access to all of the proprietary and financial documentation possible before you buy so you can sure about your purchase before you write a big check. The NDA provides for both.

 

Don’t be nervous about signing the NDA, as long as you do what’s asked of you by keeping the information to yourself – it will get you one step closer to owning your own business.

 

Do you have questions about the legal repercussions of the NDA? Would you like to know more about the process of buying a business? Ask us! Please feel free to leave any comments or questions here and we will be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Dishonesty, Procrastination And Red Tape – A Cautionary Lesson For Business Buyers

 

Buying a business involves a lot of paperwork and red tape – what can sometimes seem like mountains of the stuff.

 

When mired in this sea of required documentation and applications, there can be times when you are tempted to skip a few steps and just bet on not getting caught.

 

This is a HUGE mistake, for a number of reasons.

 

Reason one? It could be considered fraud.

 

If you are filling out those mountains of applications for financing, fudging the paperwork could ultimately land you in very hot water. Lying about anything, even something small, will almost assuredly come up when the lending institution (be it a bank or the Small Business Administration) goes over everything with a fine tooth comb before they write you a check. It would be very bad for their own business if they were in the habit of overlooking items that would otherwise prevent a loan from happening. Cover yourself from fraud charges or denial of funding down the line and be absolutely honest.

 

Reason two? It could mean your licenses get revoked.

 

If you are buying a business that requires some type of licencing, like most do, your applications for those licenses will seem never-ending. Skipping necessary steps, fudging a bit in your answers, procrastinating and missing deadlines or just not applying for the license at all will likely mean you have to close the business doors when you get caught. Licencing agencies get paid to ensure everyone is following the rules, and they have the right to revoke your licenses and close your business if they catch you trying to bend or break those rules. Do yourself and your investment a favor and don’t skimp on your licencing requirements.

 

Reason three? Fines, fines, fines.

 

Even if you manage to escape fraud charges or license revocations, if you get caught or miss an important deadline you will absolutely be slapped with what can quickly add up to debilitating fines. Again, the bankers and agencies you are dealing with have punishments like fines in place to ensure everyone follows the rules. Don’t spend exorbitant amounts of money unnecessarily. Do the paperwork right the first time.

 

We aren’t trying to scare you, we are trying to give you an honest look at what can happen when you think you can bend or break the rules.

 

The paperwork might seem never-ending, but it’s very manageable if you stay on top of it – and every operating business out there got it done.

 

There is also help available if you feel overwhelmed. Ask your business broker for help, or you can hire someone who specializes in licenses for businesses. The message here is do it right so you won’t get caught.

 

Do you have questions about the licensing requirements for the types of businesses you are interested in? Would you like to know more about the services available to help you? Ask us! Please leave questions or comments here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Buying A Business? 3 Financing Options

 

If you are looking at buying a business, you may not have the full amount you would need to make an all-cash offer – so financing options might need to be considered.

 

If I need financing, what options are available? 

 

Traditional Loans

 

You may be thinking that you can just head down to your local bank and take out a loan to help you buy a small business, but this option will probably have to be taken off the list. Traditional lending institutions are very gun-shy about financing small businesses.

 

If you are entering the world of small business ownership you already know that starting a small business is a risky venture. You are trying an unproven product or service in an unproven location with unproven operating methods.

 

Buying an existing small business removes the “unproven” part of the equation – good news for business buyers – but a traditional lending institution is only looking at the risk. For most prospective business buyers, a traditional loan from a traditional lending institution probably isn’t on the table.

 

The Small Business Administration (SBA)

 

Some businesses on the market and some buyers who are considering those businesses will qualify for a loan from the U.S. Small Business Administration – just be aware that because this is a government program it comes with it’s fair share of paperwork and red tape.

 

Both the business and the buyer themselves will have to meet the qualifications necessary, but in some instances this can be a great financing option for those looking to buy a small business. If you would like to know more about financing options from the SBA, click here to visit SBA’s website or click here to contact us with questions about this lending option.

 

Seller Financing

 

Most small business transactions involve this third type of financing, where a buyer puts down a down payment (typically 50% or more) and the seller finances the rest.

 

This is a great financing option for several reasons. A seller who is willing to keep some skin in the game speaks volumes about their confidence in the future of the business – and it gives opportunities to future business owners who may not have been able to find more traditional lending options.

 

If you can’t get a traditional loan, and SBA financing isn’t in the cards – talk to your business broker about the possibility of seller financing and about what businesses on the market are currently offering this type of financing. Want to learn more about how seller financing works? Click here to read Seller Financing: The Business Buyer’s Guide.

 

The opportunity to buy a business can come in many forms. The financing option that suits you best and is available for the business you are interested in will vary – just ask your broker about your options.

 

Do you have questions about how to qualify for a loan from SBA? Would you like to know what currently available businesses are offering seller financing? Please feel free to leave comments and questions here and we would be happy to help.

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

www.InfinityBusinessBrokers.com

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Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907




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