what should i know about buying a business Archives - Page 16 of 29

Published December 21, 2020

If entrepreneurship is your goal, there are more decisions to make than just picking a business off a list of listings. Figuring out the RIGHT business to buy is crucial to success. Here’s how you do it:

Dig deep.

What do we mean by that?

You need to figure out what you want. When you buy a business, you are buying yourself a life-encompassing job – a job where the buck stops with you. What do you want your future life to look like? Figuring out what really means the most to you, as well as what tools you have to help yourself be successful can mean the difference between buying yourself a successful new business and buying yourself a nightmare.

What factors should you consider?

Your background.

Why is your background so important? Owning and operating your own business is tough. It can sometimes mean long hours, tough decisions and navigating lots of issues. Your background matters because the steep learning curve that happens whenever someone buys a new business will become impossibly steep if you add learning an entirely new industry to the mix. Don’t do that to yourself. Pick a business that compliments the practical experience you already have. If you’ve spent the last 15 years in the manufacturing industry, and have never worked a single day of your life in the restaurant industry – buying a huge bar on the beach isn’t going to end well. Talk to your business broker about your experience and strengths – they can help you find business choices that will compliment your background and set you up for success.

Where you want to live vs. what type of business is actually possible in that area.

It should go without saying that some types of businesses can only be successful in certain areas. For instance, service-type industries (think restaurants, landscaping, housekeeping) do really well in places like southwest Florida where people are coming to second homes for vacation – and probably don’t want to be doing a ton of housework or cooking while they’re here. The same type of service business probably isn’t going to be as successful in a very rural part of Montana, for example. Take a look at the area where you’d like to live. What works there? What doesn’t? Talk to your broker about what businesses do better – and worse – in the area you’d like to end up.

What is your ultimate goal for business ownership?

Are you looking for a goal of making a certain amount of money in the next 5 years? Are you looking for a challenge and are willing to push the envelope with a business that will require more work on your part for a potentially bigger return? Or would you prefer a nice, safe and steady shop without a ton of room for growth – where you won’t have to push as hard but returns won’t be as big either? Your ultimate goal for business ownership will obviously have a big impact on your search. Talk to your broker about your income goals as well as about how much of a challenge you are willing to take on.

Can you realistically get the licenses required?

Red tape can be very strange. There are certain industries in certain states that require a business owner to have prerequisite requirements for an operating license that might be hard to get. Think requirements to have x amount of years doing a specific type of work before you can even apply for a license. Some licenses require background checks, fingerprinting and the like. Ask your business broker about the industries you are interested in. The licensing requirements for an industry might preclude you from owning the business you think you want, so figuring out licensing limitations will be important early on in your search.

The message here is buying yourself a new life needs more than a cursory search through listings. You need to dig deep and decide what you want your life to look like, then have a discussion with your broker about what type of businesses will fit with those goals.

Are you considering buying a particular type of business and have questions about whether or not it will meet your goals? Do you have questions about licensing requirements? Would you like to know more about the business search process? Ask us! Leave questions or comments and we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

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Are You A No-Offer Business Buyer? How To Be Taken Seriously

Posted in Buyers Articles

Published December 14, 2020

If you’ve been looking for a business to buy for a while, you may have run into a problem that some buyers encounter – no one will take you seriously.

Maybe it’s your broker or the seller’s brokers that you have come across, maybe it’s the sellers themselves. Whoever it is, they don’t look at you as someone who is serious about buying a business. What they see is someone who is on an eternal search, and therefore someone who isn’t worth their time and energy.

How can you prove them wrong and show that you are a serious buyer? Make an offer.

“I don’t want to make an offer on every business I look at.”

Of course you don’t, and you shouldn’t. What we mean here is if you are seriously considering a business, the only way to know for sure if the business is going to fit your goals is to get to the due diligence process. In this process, you are allowed an in-depth look at all aspects of the business, from financial statements to contracts – then you can decide if it really is the right business for you.

“If I make an offer, I’m stuck with that business whether I like it or not, right?”

Absolutely not. If, during the due diligence phase you come across a reason why you don’t want the business – you will have the opportunity to back out of the deal before anyone reaches the closing table. The system is designed this way because businesses are inherently complex, so your ability to get a good look at what you’re purchasing is part of the process. Then and only then do you have to make a final decision about buying.

If you’ve been looking at businesses for an extended period of time without even entertaining the idea of making an offer, then don’t be surprised if brokers don’t take you seriously.

There are plenty of “tire-kicker” buyers out there who inquire about countless businesses – over enormous amounts of time – without ever making the move to buy one. On the other hand, serious entrepreneurs come on the scene with goals in mind, do a targeted search of available businesses, then make offers.

If you were working in the business market or trying to sell your own business, who would you take more seriously?

Are you a buyer who has trouble getting sellers to take you seriously? Do you have additional questions about why it is a good idea to put an offer on the table? Please leave us a comment or question here, and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Do You Have Enough Capital? The Big Question For Buyers

Published December 7, 2020

When the dream is owning your own business, you have a lot of questions.

A big one is “how much money do I need to buy a business?“

There’s an issue with this question. The issue is the answer – it depends.

It depends on what type of business would be right for you.

Many new business owners walk into the business market under the mistaken assumption that anyone can own and run any type of business. Nothing could ever be farther from the truth. To keep your new business profitable, you will need to be able to both navigate and compete in the market you are in. If you have little to no relevant experience in your business, there is likely no way for you to stay competitive. To avoid this pitfall you should look for businesses in industries where you have practical experience. By staying with what you know you will avoid the potentially catastrophic learning curve that comes with learning a new business and a new industry at the same time.

Every industry is going to have options in terms of price. There will be some larger, well-established – and thus highly priced businesses as wells as smaller, more affordable businesses with room for growth. Focus first on the type of business, then look at price.

It depends on how much capital you have available, and how you allocate that capital.

Do you have enough money ready and available to buy and run a business? You should really have at least 50% of a purchase price if a seller is offering seller financing, and all cash or third-party financing already in place if seller financing is off the table. You need to allow for not only the purchase price, but all of the other costs involved in a business sale – like fees for licensing and money available to keep the business running until you are able to start turning a profit at the helm.

Be honest with your business broker about how much capital you have available for your new venture and then listen to their advice about what you can reasonably afford.

It depends on what your goal for business ownership is.

Are you looking to invest almost all of your capital in order to buy a well-established, highly profitable business – or are you looking to hang onto more of your funds and buy a business that has lots of room for growth? You will likely have to work a bit harder in the second scenario, but you will have the benefit of having enough funds to ride out any issues that you come across.

You will have to decide what you want your day to day life to look like, and discuss those desires with you business broker.

The message here is there’s more to look at than just the price of a business. You need to figure out your goals, look for industries where you can be successful and then decide how you’d like to allocate the money you have available.

Are you thinking about buying a business? Do you have questions about seller financing and the best type of business for you? Ask us! Leave us a comment or question here, and we will be happy to help you on your business ownership journey.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Metrics Of Health – Why Buyers Should Consider More Than Price

Published November 30, 2020

If you are a prospective entrepreneur looking to buy your own business, you may have already noticed the unique nature of business listing prices – they seem to be all over the place.

How do you as a buyer interpret the listing price of a business as it relates to its fiscal health?

Listing prices are typically based on the cash flow the business generates, but there are other aspects that will speak to the overall health of a business which buyers should pay attention to. Here’s a few to consider:

Consistent Numbers

If a business has very consistent numbers, it might mean less risk for a buyer. Remember that the value of a business to you is the earnings it will have in the future. Consistency year over year is what you are looking for. Many businesses will have seasonal fluctuations that have everything to do with the local economy and seasonal shifts and nothing to do with the health of the business. If you are seeing large annual fluctuations, ask your business broker if those fluctuations are merely seasonal or something more problematic.

Operating Profits

In order for you to pay yourself and pay back any debt you incurred with the purchase of the business the business will need to be generating operating profits. A business with numbers that consistently show operating profits will be a better bet than a business that is only breaking even. A caveat here – a business that isn’t doing so well but has easily remedied issues (like staffing changes, adding a marketing plan where none exists, etc.) might be a good deal if you can get it for a great price.

Diverse Customer Base

In a business that has a diverse customer base the loss of a single customer will not be as catastrophic as it would be for a business with only a small handful of clients. Look for both a large number of clients and clients across a diverse spectrum.

Reputation and Brand

A business with a great reputation or a very well established brand will have a more loyal clientele, meaning less work for you as the new owner. Instead of having to spend your time rebuilding a poor reputation you will be able to focus your marketing time on acquiring new customers.

Good Managers

If a business is well managed by the staff without the owner having to be present 100% of the time – and if those managers/staff are willing to stay on if the business changes hands, it can be a good sign for a potential buyer. It will mean less disruption when the business changes hands and less of a learning curve for you as a new owner because there will be staff present to help with many aspects of day-to-day operations.

If you need help determining if the listing price of a business really reflects reality, talk to your business broker. They know the current market, what recent comparable businesses have actually sold for and what aspects of a business can bring the most to a new owner.

Are you a future business buyer who has questions about the value of businesses you have seen for sale? Have you come across businesses that seem over or under priced? Leave us a comment or question and we will be happy to assist you with your business search.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Advice About Your Business Deal – The Good, The Bad And The Unhelpful

Posted in Buyers Articles, Sellers Articles

Published November 23, 2020

In the business transaction world, it happens all the time. A deal between a buyer and seller seems to be headed to a happy closing table and then suddenly the deal is dead. What happened to kill the deal? More often than not, someone got some bad advice.

What kind of advice is bad advice?

When you are trying to buy or trying to sell a business, advice from anyone who has little to no experience with the process of buying and selling businesses is probably not going to be very productive. Here are a few examples:

A listing agreement (which gets your business listed on the market) includes protections for both the seller of the business and the business broker who makes the transaction happen. These agreements are fairly standard, and if you as a seller refuse to sign one, you are going to have a hard time trying to find a decent business broker to help you with your sale. These agreements are a legal document, so some sellers give the agreement to their lawyer (who has no business transaction experience) to look over before they sign it.

Another standard document (geared toward buyers) is the non-disclosure agreement (NDA). NDAs exist to protect the business itself during the transaction process as buyers are privy to the for-sale status of a business, confidential financial documentation and potentially proprietary information. The NDA is something you are going to have to sign if you want access to information about businesses on the market, and you’re going to have to sign one for each business you inquire about. Like the listing agreement, the NDA is fairly standard across the industry and is a legal document that some buyers will hand off to their lawyer before they sign it.

There is something essential about lawyers to point out here. Your attorney’s job is to make sure you are legally covered and completely free of any risk. As a business owner (or future business owner) you should already know that any business deal is going to come with a bit of risk – it’s the nature of the beast. So how do you reconcile the opinion of someone you have hired to protect you from any and all risk with a business transaction that may carry some risk on your part? The short answer is you don’t. If you give your attorney who helped you with your divorce or the one who helped you sue a contractor for negligence a business listing agreement, a NDA or for that matter any agreement you may become a party to during a business sale, they will likely tell you not to sign it, or only to sign it if they are allowed to make a lot of changes (which is likely out of the question).

What should you do then? Hire a business transaction attorney instead. A business-specific attorney will be able to advise you during your business sale because they have done it before and know what they are doing. They are already familiar with typical agreements, they know the ins and outs of the process, and will be a far better legal guide.

Another example of advice that can be counter-productive is advice from the CPA who usually does your taxes. Unless they have been a part of business transactions in the past, they are going to be a problem for the same reason that your regular attorney is – it is their job to cover you and you alone. The issue that arises with a CPA who is unfamiliar with business transactions is they may not understand the way businesses are evaluated and how they are priced. With many types of businesses, the value comes from more than just what shows up as black and white on a profit and loss statement. When you ask your regular CPA to take a look at the business you may end up with inaccurate advice. Instead, hire an accountant familiar with business transactions because their advice will be far more valuable.

What about advice from your friend’s brother-in-law who used to be a commercial real estate agent, from your neighbor who owned and sold a business 25 years ago, or from your good friend who’s a dentist? Listen to all of the advice you get, but remember to filter what you hear because professionals who do business transaction work for a living are probably best qualified to answer your questions. If unsolicited advice leaves you second guessing your choices in the transaction, by all means talk to your business broker, transaction attorney, and transaction CPA before you decide to back out of a deal. You don’t want to miss a great opportunity because you got terrible advice!

Have you been in a deal that fell apart because of bad advice? Share your experience here! Do you have more questions about the roles of business brokers, transaction attorneys or transaction CPAs? Please feel free to leave us any questions or comments – we would be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Business Sale? When To Tell The Staff

Posted in Buyers Articles, Sellers Articles

Published October 19, 2020

When a business is larger than a one-man shop, what the employees know about the sale of the business and when they know it are of major consideration and concern.

Keeping the employees in the dark is extremely important.

Breaches of confidentiality about a business and it’s for-sale status can cause massive issues.

There is a reasonable concern that once an entire staff knows the business is for sale, it will be impossible to keep that for-sale status confidential for any future time the business is on the market.

Employees may also jump ship. This usually occurs within the lower-level employees – think servers in a restaurant or clerks in a retail shop. The typical fear is a new owner will come in and clean house or that the business is for sale because it is closing the doors for good (rarely true).

What many sellers and their employees fail to realize is the jobs of critical staff (and maybe even the staff as a whole) are probably never safer than during the time frame when new ownership takes over. New owners need trained staff in place to keep the business up and running while they learn their new responsibilities.

My employees found out, now what? I don’t want to lose my whole staff.

If you are a seller whose employees somehow know the business is on the market (either intentionally or by confidentiality breach), make sure your employees know that you are expressing the importance of those employees to a new owner – this can greatly help to calm fears.

For the buyer of a business, meeting the staff before deciding whether or not to buy the business may seem necessary, but there are usually very few instances where this will be able to happen. Lower-level staff will likely have to be met after the deal is closed.

The employees a buyer will most likely be able to meet pre-closing will be key employees like managers and other staff members who are crucial to the operation and would be very difficult to replace. In most situations, the buyer will meet these employees only after all other aspects of due diligence have been satisfied and the deal is still moving forward. This protects the seller’s business from any damage that could be done by revealing the sale to the staff too soon.

The message here is that maintaining the confidentiality of the business sale will be paramount to the successful sale of the business, so both buyers and sellers will have to work together when it comes to the staff in order to keep everyone in place.

Are you a business seller who is concerned about your staff knowing the business is for sale? Are you a business buyer who feels they need to meet the staff before you get to the closing table? Please feel free to leave us a question or comment, and we will be happy to address any concerns you may have.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Future Entrepreneur? A Few Thoughts

Published October 12, 2020

We would all love to be our own boss, to be completely in charge of our own destiny. If entrepreneurship seems somehow out of reach, you should know there are easier paths to business ownership than coming up with a groundbreaking and inspired idea and building a successful and thriving business from the ground up. What follows are a few thoughts for the entrepreneur inside of you – waiting to succeed.

You can skip the build-out and buy existing.

The inspired idea would be nice, but it’s not necessary – or the easiest path. Typically, buying a business is a safer bet than building one from scratch. You get to take over as owner of an already built-out location with trained employees and a proven set of operating procedures. This can be a fantastic first step into business ownership because it skips all the disadvantages a start-up will encounter, like establishing a customer base and building cash flow.

It is not, however, a fool-proof way to enter the world of business ownership. You need to choose a business that is profitable, or one that has easily-remedied issues that will make it profitable quickly (like customer service issues that could be handled by replacing some of the staff). You need to choose a business that has room for growth, and if it is a retail business, one with inventory that customers still want.

Look for something in your wheelhouse.

When you are beginning your foray into business ownership a big step is choosing the type of business you will buy. Be very careful with this step because it is where many new entrepreneurs get into hot water. DO NOT buy a business you know absolutely nothing about. If you are someone who has enjoyed the bar-scene for a long time, but you have never spent so much as a minute working in the bar/restaurant industry, then buying a bar is a terrible idea.

Look at industries where you have some knowledge or experience, as this familiarity will save you from complete disaster. Taking over a business for the first time is hard enough – you don’t want to add starting from scratch in a brand new industry to the equation.

Find the right help.

The smartest step any budding entrepreneur can make is to talk to an experienced business broker. That first conversation can tell you what your options are, help you figure out your next steps and get you launched on the path to business ownership. A broker will be an invaluable asset. They can help you find businesses that are right for you, be a buffer during the negotiations between you and the seller, assist you with licenses/permits, help you put together contracts – the list goes on and on.

The message here is if entrepreneurship is your goal, there’s really no reason you can’t start planning a way to reach that goal. Talk to a business broker today!

Are looking for help with finding the right business for you? Do you have questions about the business buying process? Ask us! Please feel free to leave us a comment or question, and we will be happy to help you on your journey to business ownership.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Why You Need A Transaction Broker: Protect The Deal Itself

Posted in Business Broker Why & How, Buyers Articles, Sellers Articles

Published October 5, 2020

Business sales are inherently complex. There are many aspects of the process of buying or selling a business that can be very different from the buying and selling of anything else.

If you have bought or sold a home, for instance, the business sale process will seem very foreign. There is usually more money changing hands, more complex financial issues, commercial leases needing to be negotiated, licensing and permitting concerns – the list goes on. How does one navigate this complex process? You employ the services of a professional business broker.

What is a business broker?

They are sometimes also known as transaction brokers, meaning they represent the transaction itself.

Typically each side of the deal will have their own broker, and both essentially represent their party’s part of the transaction instead of representing the people themselves. This is why it is possible to have one broker for both the buyer and seller side of a deal. If both parties can trust the broker involved, having only one person as a go-between can make negotiations less difficult.

Why is the business broker representing the transaction itself a good thing?

When a lot of money is changing hands things can get out of control very quickly. Business deals are messy. If the deal starts to go south, as most do at some point in the process, the broker is there to protect the deal. This is different from what an attorney might do in the same situation – an attorney’s job is to protect their client from any and all risk. If business brokers were employed to do the same thing, prevent any and all risk, it would be impossible to get a deal to closing because all business dealings – business sales included – come with a fair amount of risk.

The broker or brokers representing the transaction is what gets deals done.

Having someone to keep the deal moving is truly helpful, but you should also be able to trust the broker or brokers involved. Your broker is there to help you navigate this incredibly complex process and to help you either successfully sell or successfully purchase the right business for you. A good broker will go the extra mile for their clients because your eventual success as a business owner or seller leads to your broker’s success within a healthy small business market.

Are you thinking of buying or selling a business and want to know more about the role of a business broker in the process? Please leave us a question or comment here, and we will be happy to help.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Buying A Business? Commercial Lease 101

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

Published September 28, 2020

You’ve found a great business and are excited to start negotiations with the sellers – but here’s a thought you may not have considered. That’s not the only negotiating you’re going to have to do.

When you buy an existing business, you typically are not buying the physical space that the business occupies.

Most businesses come with a lease, and that lease comes with a landlord and/or property manager.

Most landlords accommodate transfers easily, but not all do. Deals can get hung up on the lease when the landlord refuses to grant the transfer or has decided to change the lease terms dramatically. They can also get hung up if you don’t start working on the transfer until the last minute.

The most important thing you can do as a buyer is get your hands on a copy of the current lease as soon as possible, and then deal with any lease issues long before the day you are supposed to close your deal.

Once you have the lease, the language you would typically want to see is in the section of the lease that has to do with transfers or assignments of the lease. Does it say something along the lines of “any assignment will not be unreasonably withheld”? If it does, you are probably in good shape. This type of language means the landlord would have to come up with a very good reason to keep from transferring the lease to you.

Landlords, for the most part, are concerned with keeping a rental space filled and generating rental income. Some, however, are unwilling to reassign leases (at least initially).

This is a part of the business sale process where your business broker will be an invaluable asset. They can act as a buffer between you and a difficult landlord, and can help to negotiate your new lease or the reassignment of the old lease to keep the lease rates reasonable.

Another way to keep the lease from holding up your closing is to be forthcoming with your financial information when the landlord asks for it. Most landlords are going to want to see some kind of financial statement that proves you have the capital to keep the business open. It would be foolish for them to rent to a tenant who will be forced to close the business doors only a third of the way through the lease. Some landlords also want to see some kind of resume or work history to show you have the experience necessary to keep the business running and profitable.

You should also be aware that in some cases the rental rate will slightly increase from what the seller is currently paying when you get a new lease. You can negotiate a lease extension at the same rate, but eventually your new lease may come with a new rental rate. You will also be responsible for coming up with the deposits necessary for the lease.

The message here is your business won’t be much of a business if you can’t get a lease assigned to you for the space. Deal with lease issues early on and the won’t become a big headache in the end.

Are you a business buyer who has questions about business leases? Have you had a deal fall apart because of a difficult landlord? Please feel free to leave us a comment or question here, and we will be happy to assist you with any lease questions.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242

Could Vs. Should – Buying A Business Without The Right Help

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

Published September 21, 2020

If you’ve ever bought a house or have even just rented an apartment, you know the importance of agents in those transactions. Your real estate agent or your rental agent helped you with locating potential properties, let you in to take a look around, assisted with your purchase or lease contract and was there throughout negotiations. While it is possible to buy a house on your own or rent your own apartment, it’s definitely easier with someone who knows what they’re doing by your side. When it comes to the small business market, the same will be true. It’s going to be much easier with help.

Business transactions are inherently very, very complex.

If you’ve never been through a business transaction before you are probably going to have an impossibly difficult time navigating everything that needs to happen. That’s where business brokers come in.

A business broker is a transaction agent. Their job is to get a business sale from start to finish. They help buyers by guiding you through from you initial contact all the way past the closing table.

Your broker will talk to you about your goals for business ownership, the amount of capital you are able to invest, the areas where you would like your business to be located and your education/experience. Your broker will then help you with your business search, narrowing down the choices based on your feedback. Once you have found a business or two that interests you, you will sign nondisclosure agreements to gain access to the business name and some cursory financials. If you like these businesses your broker can schedule conference calls with the sellers as well as site visits when there are no employees or clients around. Your business broker will then help you write your offer which, if accepted, will become the purchase contract. The business brokers will act as buffers during negotiations between you and the seller – a very important role. They will also negotiate with your future commercial landlord and property manager to ensure you get a fair lease. Your broker will also help you with the licenses and permits required for you to take over as owner.

This is a big list – and it would be quite an undertaking for someone who has never been through it before. Very few business transactions go through successfully without help. An experienced and qualified business broker has not only been down this road many times before, but they know where the pitfalls are going to be and can help you avoid them.

The message here? Could you buy a business without a business broker? Maybe. Should you? Definitely not.

Are you considering buying a business but aren’t convinced you need a business broker? Do you have more questions about what a business broker can do to help you throughout the transaction process? Please feel free to leave any comments or questions. We would be happy to help!

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242