what should i know about buying a business Archives

Published November 14, 2024

If you’re in the process of buying and selling businesses you know that such transactions are done under a strict veil of confidentiality – and for good reason. There is a pervasive thought that any business that’s for sale must surely be a business on the brink of failure, right? Why would anyone in their right mind sell a perfectly good business?

It turns out there a lot of good reasons to sell.

According to the Q3 Market Pulse Executive Summary retirement tops the list. In deals under $500,000 some 38% of sales are reported as occurring due to retirement of the owner, and that number jumps to 71% if the deal is for a business in the 5 million to 50 million dollar range. This makes sense – you own a business because that business helps you build wealth and you can cash in on that wealth for your retirement years. The Baby Boomers are at this stage, so there are likely to be many businesses in the market in the next few years as that generation passes the torch to the next.

For smaller businesses (think $500,000 or less) burnout is the next most reported reason for selling – at 19%. Larger businesses, however, don’t usually fall into this category (think less than 5%). In a small one or two-man shop, the daily grind can be intense and sometimes an owner wants to do something else. It doesn’t necessarily mean the business is in bad shape, it just means the person currently at the helm wants something else from life. Larger businesses are insulated from this because they naturally have a far larger staff and more resources to lessen the load on an owner.

Next up is new opportunities, although this reason for selling is most common in mid-size businesses (think 500K-2 million), coming in at around 17%. This is an unlikely scenario with very large businesses (think 5-50 million), where recapitalization is reported 16% of the time.

In smaller businesses relocation or family issues make up a decent chunk of the seller pool at 11%. Think a medical emergency that will pull an owner’s focus away from a business or having to move for a spouse’s job or to help an ailing family member in another state. This reason for selling drops to almost zero in larger deals, as again a larger staff can make it possible for an owner to shift their focus to personal issues.

What does this mean for you as a business buyer? It’s important to ask a seller why they’ve decided to put their business on the market, but reasons like retirement or a family emergency have little to nothing to do with the business itself. Take into account that there are a lot of really good reasons to sell a perfectly good business!

Are you looking at businesses to buy and have questions about how important the reason for selling is? Would you like to know more about how to determine if the reason for selling should be a concern? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

How To Keep Your Deal Alive When Someone Says Something Crazy

Posted in Buyers Articles, Sellers Articles

Published November 11, 2024

Scroll any social media platform you’ll eventually see footage of someone saying out loud what should probably have stayed an intrusive thought. It feels a little like people in general have less of a filter – and this can be an issue if you are trying to buy or sell a business.

Business deals are precarious things. They’re the culmination of seemingly endless hours of research, work and negotiation. One would think that a deal so carefully constructed would be sturdy in nature, but they aren’t. Business deals can and do fall apart all the time. Getting to a closing table is nothing short of miraculous because you are dealing with large amounts of money changing hands between people who have their livelihoods riding on even the smallest detail. It doesn’t take much to derail something that feels so high stakes.

Sometimes the thing that derails a deal is so simple it doesn’t feel like it should have that much power. Someone says something crazy.

Maybe the seller divulges way too much information about the personal lives of employees, details which have nothing to do with an employee’s performance but make the buyer uncomfortable dealing with the seller going forward. Maybe an accountant (who has no experience with small business transactions) tells a buyer that the business is on the brink of failure even though it isn’t (and the accountant had no idea what they were talking about). Maybe someone’s father-in-law comes in at the 11th hour and tells one side that the contract they’ve negotiated for almost a year is invalid even though nothing could be farther from the truth. Maybe one side brings up something politically charged at a meeting and the meeting devolves into a screaming match.

What do you do if you end up in situations like these? Be ready for it to happen.

The chances of a deal going 100% smoothly from beginning to end is essentially zero. Know going in that the people who buy and sell businesses are a tough bunch. Big type-A personalities can clash over almost anything. Then there’s someone’s blood, sweat and tears being exchanged for a lot of money. Add to that someone opening their mouth when the smart move was to say nothing at all and you can be left with a big mess.

Keeping your cool when someone says or does something crazy will help you step back and look at the situation with a clear head. Does it really matter if the person one the other side of the closing table shares all of your political views? No. Does the opinion of someone’s father-in-law or an accountant who have very little to do with a deal matter? Not really.

The only way to determine if what you are dealing with is something that needs to end a deal (or is just simply someone opening their mouth when they shouldn’t) is with an objective view. When something in your deal goes sideways, when someone says something completely nuts, when unnecessary opinions poison the well – take a step back. Talk to your business broker about your concerns. Decide if what’s going on is really something that should kill your deal. If you are mentally prepared for something crazy to happen you’ll be ready to look at the situation with clarity.

Are you a business buyer or seller who had a deal go sideways and have a story to share? Do you have questions about how your business broker can be instrumental in navigating issues? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Business Buyers + Sellers: Why You Should Prepare For The Last Minute Panic

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

Published October 28, 2024

This one feels like it happens in every deal. The contract is nearly complete, the licensing is in the works, the closing date is finalized – and BOOM. Someone in the deal panics.

It’s usually over something seemingly small. A minor discrepancy in the inventory. Needing to change the date of closing to accommodate the schedule of an attorney – something that probably wouldn’t have mattered early on in the process.

In the closing days and weeks at a transaction, however, these minor issues can become deal killers. Not because they should be, but because everyone’s cold feet only need the tiniest of excuses to run for the hills.

Why are we talking abut this? As business brokers, this is one of the many parts of our job. We get deals through to closing by keeping everyone from panicking over something that isn’t significant enough to lose a well-prepared, fully-researched and amicably-negotiated deal. If you know going in that the other side (or you!) might try to back out of the deal over something that can be easily remedied as the closing day approaches – you’ll be less likely to be surprised by these last-ditch cold-feet moments.

Instead, you’ll see what’s really going on. A lot of money is about to change hands. Someone is giving their blood, sweat and tears to a stranger. Someone else is buying a job you can’t really quit on a whim. EVERYONE is nervous. The key is to keep your nerves from getting in the way of your better judgement.

If you’re in the home stretch an the other side suddenly wants to burn the deal to the ground over something trivial, don’t panic. Let the business brokers do their job and understand that these last minute issues can and do get resolved every day in the business marketplace. If it’s you that suddenly wants to bolt, call your broker and talk to them before you blow up your deal. Tell them about your concerns. Last minute doubts are sometimes valid, but it’s best to figure out if what you’re worried about is legitimate or just your cold feet talking – before you alert the other side that you’re out.

Remember that business transactions are a long process that sometimes get mired in the emotions of those involved. If you know going in that one or both sides might be apprehensive near the end you will be better prepared to deal with this potential issue.

Have you been a part of a deal that fell apart and have a story to share? Would you like to know more about what types of issues cause problems at the end of a transaction? Ask us! Leave any questions or comments and we would be happy to help!

Michael Monnot

Why Florida Business Buyers Should Research (Not Freak Out About) Hurricane Risks

Published July 29, 2024

If you’ve considered moving to Florida and buying a business, then the news cycle during the hurricane season might have you considering somewhere more inland. And north. And away from the ocean.

Don’t let it.

Natural disasters happen everywhere – the up side to a hurricane (as opposed to a tornado or raging forest fire) is you get lots of time to prepare. Boarding up windows, sand bagging doors, moving expensive electronics and important papers out of harms way, etc. works to lessen the blow by these large, but infrequent, storms.

Let’s talk about that frequency for a minute. It might seem like hurricanes are a part of everyday Florida life, but the big and bad ones really don’t happen that often in one location. Southwest Florida, where hurricanes Irma and Ian caused havoc, hadn’t seen the impacts of a big storm since 2004 (Charley) – a 13 year break between large storm impacts.

If you want to be in Florida and are worried about the impact of storms remember that the majority of Florida is inland – most business owners can’t see the ocean from their front door. Only those businesses very close to the beaches, bays and rivers need to be extra vigilant and worry about concerns like storm surge – and those businesses can successfully recover if they properly prepare and keep up to date on their insurances. Your location is going to matter a lot if you’re worried about hurricane impacts, so do your research and see what areas you would be most comfortable in – then work with your business broker to find businesses in those areas.

Once you own a Florida business, preparation is the key to success in a storm. Although some business owners can have hard road ahead in the aftermath of a storm (because of the damage they sustain), most businesses who plan ahead are able to reopen relatively quickly. Generators and full spare gas cans mean that some businesses are even able to open their doors before the power comes back on. New construction codes (like hurricane windows and roof tie-downs) that were put in place in the last few decades have also dramatically decreased the amount of damage a storm can do.

The point here is you shouldn’t let hurricane season dissuade you from the chance to be a part of the booming Florida small business economy. In fact, if you’re considering a business in the construction, fencing, tree service or roofing industries – then our occasional bashing by a big storm means more job security for you.

Have you considered buying a business in Florida but are concerned about how hurricanes can affect your business? Do you have questions about what areas are more prone to the effects of a hurricane? Ask us! Please feel free to leave any questions or comments here and we would be happy to help.

Michael Monnot

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

Posted in Buyers Articles, Sellers Articles

Published July 22, 2024

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

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

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

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

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

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

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

Michael Monnot

What Type Of Business Owner Do You Want To Be?

Published July 15, 2024

Someone who wants to buy a business needs to consider many things, like what industry they want to be in and what they can realistically afford. What many prospective business buyers miss, however, is a more basic question.

What type of business owner do you want to be?

Why does this question matter? The answer fundamentally changes your approach to the business buying process, as well as narrows the focus of your search to just those businesses that meet with your ultimate goal.

Let’s look at some of the basic categories of business owners:

Category 1: The Franchisee

If you are looking for a turn-key business where everything from operating procedures to marketing plans is already spelled out, a franchise might be for you. Franchises do require that you follow the instruction of the franchise at large, so you will have less control over things like decor and products/services offered, but they do come with the added benefits of brand recognition, established business practices and an existing franchise will already be built out with a fully trained staff. Franchise businesses are good for someone who wants to be a business owner, but is willing to give up some of the decision making in return for having much of the planning work done by someone else.

Category 2: The Serial Entrepreneur

The serial entrepreneur is very similar to someone who likes to flip houses. You look for a business that may not be in the best financial shape, but has potential for growth – and then build it to a pre-determined level before selling and moving on to the next business opportunity. This type of entrepreneur is someone who gets bored or burned out quickly, but likes to work very hard and doesn’t mind a big challenge.

Category 3: The Long-Term/Family Business Owner

If you are looking to get into business ownership because you want to buy your dream business and potentially pass it on to your children, you would be a long-term business owner. You are looking for a business you will own until you retire or pass on the reins, so an established business that is already a fixture of the community might be right for you. This type of business buyer might also look for a business with potential for growth, but they typically look for a less-risky investment.

Do any of these types of business owners resonate with you? Do you see how different the “right” business would be for each of these types of buyers? Have a conversation with an experienced and qualified business broker about your goals for business ownership, and then the two of you can really narrow the field of potential businesses to those that would help you achieve those goals.

Have you always wanted to buy a business but don’t know what type of business would be right for you? Does one of the types of business owners above sound like you? Would you like to know what businesses are currently available that would work for you? Ask us! Leave any questions or comments and we would be happy to help!

Michael Monnot

Buying A Business? Confidentiality + Why It Matters

Published July 1, 2024

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

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

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

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

What do we mean by that?

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

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

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

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

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

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

Michael Monnot

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

Posted in Buyers Articles

Published June 3, 2024

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

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

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

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

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

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

Michael Monnot

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

Posted in Buyers Articles, Sellers Articles

Published May 27, 2024

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

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

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

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

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

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

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

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

Michael Monnot

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

Published May 21, 2024

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

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

1. Do your homework

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

2. Stay within your skillset

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

3. Make yourself a business plan

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

4. Don’t kill all of your capital

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

5. Don’t focus on the wrong things

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

6. Don’t ignoring marketing

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

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

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

Michael Monnot