what should i know about buying a business Archives - Page 2 of 29

Published May 6, 2024

A smart, capable guy who has never worked a single, solitary second in the restaurant industry buys himself a bar – and within six months he’s out of business. How does that happen?

We like to use the classic bar example because it illustrates a really crucial point that all business buyers must consider. You really need to have some practical experience if you want to have hope for success.

Why?

Getting handed the keys and walking in to run the business you now own is a daunting, uphill task. You have EVERYTHING to learn. How the business runs, what the standard operating procedures are, how to run payroll, how to keep the books, how to manage the staff, what contracts need to be fulfilled and renewed, how to fix equipment, how to keep on top of your licenses and permits, etc. – the list is incredibly long.

What you don’t want to do to yourself is add learning an entirely new industry to the mix. You really need to know something about what a business like this is like, day to day. Otherwise you’ve just created an alarmingly steep learning curve for yourself. One that many, many failed business owners have been unable to overcome.

We’ll go back to the bar example. The guy who bought the bar wasn’t necessarily bad at running a business, the issue was the type of business he bought.

Bars are fun when you patronize them, but many people mistakenly assume that owning a bar will be just as fun – particularly those people who have never worked in one.

The hours are long and brutal because your day starts in the morning for deliveries and the like and then ends extremely late at night after last call and cleaning. The margins can be razor thin, you constantly have to monitor your staff as theft is easy, you have to stay on top of your inventory, employee turnover is high so training new staff is a constant (as is having to work the shifts yourself for said staff when they can’t or don’t show up), you have to watch for fake ids, overserved patrons, support your staff when it’s busy – all things a former bar employee would know.

Lots of people leave their 9 to 5 jobs and buy a bar because they think owning a bar will allow them to make their own schedule, be able to attend their kid’s baseball games in the evenings and sit at their own bar having drinks with their favorite regulars a couple nights a week. See how vast the difference is between the dream and reality? That vast gap is the reason people fail.

How do you keep this from happening to you?

Buy a business in an industry where you have some practical experience. An accountant doesn’t have to buy an accounting firm, but they can buy a business that uses the practical skills they’ve acquired as an accountant.

And if you really want to buy a bar, go spend a couple of months working in one first. Learn the ins and outs. See if you really want that life. If you do, fantastic. You can now use those skills and practical experience to make the purchase of a bar successful.

Have you always wanted to own a particular type of business but hadn’t considered the importance of practical experience? Would you like to know what types of businesses could work for you with your specific set of practical experience? Ask us! Leave questions or comments for us here and we would be happy to help.

Michael Monnot

Why You Can’t Offer Less Because You Don’t Like Something

Published April 29, 2024

Think about buying a house. You assume going in that the house is priced based on comps and the current market. As you walk in you see that the current owners painted the kitchen a color you hate, and you aren’t a big fan of the style of cabinetry in the bathrooms. Should a difference of aesthetic opinion mean you should get a steep discount on the house? Obviously not. The house is worth what it’s worth – as is.

The same holds true for businesses. You don’t’ get to steeply discount an offer just because there’s something about the business you would have done differently. The business is listed for the price it’s listed for – as is.

Perhaps you feel differently about the salary the owner takes. Maybe you aren’t a fan of the way contracts with clients are structured or you wouldn’t have as many employees. Differences of opinion do not mean that you can change the value of a business. The business operates and generates cash flow today because of the decisions of the current owner. You can either accept the value that the owner has placed on their business or not.

If you hate the choices of the current owner, guess what? You can easily change those choices when you become the new owner.

We aren’t saying that you have to accept a listing price or a counter offer. The point we are trying to make here is there’s a difference between disagreeing with the value of used commercial kitchen equipment and negotiating for a lower price and trying to negotiate a lower price because you hate a choice the current owner made.

A word of caution here. It’s a terrible idea to walk into a currently operating business and immediately change everything. The business operates and generates the cash flow it needs to survive based on all the choices then previous owner made. If you change too much too soon you risk missing the reasons why the business works.

Perhaps the quaint, vintage-style of the café you just bought is the entire reason your regular clientele frequents the place. Changing the decor and style might drive your bread-and-butter regulars away. Keep the business as-is for a time after you take over – then make small, incremental changes to better suit your ownership style in ways that don’t hurt your bottom line.

If you don’t like the way a business is run or choices an owner has made you have two paths to take. You can walk away from that business or make changes when you take over. Your opinions of past ownership choices don’t change the value.

Are you considering buying a business and want to know more about how sellers price businesses? Would you like to know what you should look for in a business when comparing the listing price to what the business should be worth? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Why Do You Need That? Why Business Buyers Have To Provide Financial Statements

Published April 15, 2024

Talking about how much money you have is well, uncomfortable. It would be profoundly odd to approach someone at a party and ask how much cash is in their checking account. It’s considered extremely private information, and as such it’s not something most people want to be forthcoming about.

This natural resistance to disclosing your financial situation becomes a problem, however, if you’re trying to buy a business. Business brokers, sellers, commercial landlords and the like are all going to ask you how much money you have and to put that information into writing. Yikes, right?

Not really. Try to buy a house (or even look at houses to buy) without written preapproval from a bank. Most real estate agents won’t allow you in the door of their listing without proof you have the funds necessary to buy that house. Why? If you don’t have the money, it’s a colossal waste of everyone’s time.

The same rules apply in the business-for-sale world. You have to prove that you have enough to buy a business, have enough collateral to qualify for special funding, have the capital available to pay your lease and make payroll out of the gate, etc. No one wants to waste valuable time disclosing a business to someone who can’t actually buy it.

Notice we said disclosing and not showing. You can’t just go see a business for sale. Business sales are conducted under a veil of confidentiality – for many reasons. Sellers don’t want the entire staff to find out the business is for sale and quite en masse. They don’t want to lose critical contracts. They don’t want vendors to switch to the competition. They don’t want the profoundly powerful (and almost always profoundly incorrect) assumption that a business for sale is a business on the brink of failure to drive their regular clientele away. Confidentiality is very, very important.

What that means for you as a buyer is you can’t just waltz in anywhere, whenever you feel like it. You have to look at relatively vague business listings and then pick a few you like. You’ll then have your business broker get you the non-disclosure agreements (NDAs) for those businesses so you can find out the name, location and other confidential information like P&L statements.

In some cases, the sellers are going to request a financial statement from you before any NDA will be available to sign. This is a completely fair thing to request. They have the right to ensure that you’re a real buyer before they disclose to a complete stranger potentially damaging information. You’ll likely have to provide a statement about how much cash you currently have, stocks and the like, property you own and so on. And you’ll have to share this information with not only your broker, the seller’s broker and the seller but your future commercial landlord as well. So get comfortable with the idea early.

The point here is although it might initially feel like you’re divulging a lot of private information – you need to consider the trade off. You’re proving you’re a real buyer and a business owner is trusting you in return with everything about their business.

Are you looking at businesses to buy but aren’t comfortable with providing a financial statement? Would you like to know more about why confidentiality (and ensuring buyers are real buyers) is so important in business sales? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

The Power Of Preparation: Why A Comprehensive List Of Questions Is Better

Published April 1, 2024

When you’re in the process of buying a business, you’re going to have questions – lots of them. It might be tempting to ask each question individually and as they come to you, but the best approach (and the true power) lies in preparation – in assembling comprehensive lists of questions that not only makes a more efficient use of time but also helps you to better understand the business you are considering.

Why can’t the seller just answer my questions as they come to me? Why do I need to make lists of questions instead?

To begin with, asking a question and then getting an an answer during a business transaction isn’t a simple process. You come up with a question, you send that question to your business broker, they send it to the seller’s broker, that broker then sends your question to the seller, the seller has to get you an answer and then the process repeats itself in reverse. This takes time, time a seller has to find somehow while running the business you’re trying to buy. Sending question after question after question will only bog down the deal, annoy all those involved and won’t help you figure out exactly what you need from your seller.

Instead, look at the initial information you are provided and make a list of questions. Bounce that list of questions off of your business broker and see if they already have some of the answers. Focus on the areas that are of real importance – for instance it would be beneficial to ask about the length of employee contracts but a complete waste of time to ask what color the walls are painted.

Every question of substance holds weight because every answer to those questions is a potential pivot point. This is why it’s so important to only ask questions that matter, and to ask them in batches. Asking one question at a time can lead to a disjointed and inefficient exchange of information – as well as a frustrated and annoyed seller. Well-structured lists also keep you thinking about the different aspects of the business. As you make and edit your lists invariably new thoughts and questions will come to you – as well as ideas to help your new business grow with you at the helm. Your lists will keep the conversation (and your thoughts) focused and organized, maximizing the use of time and resources. This efficiency is particularly crucial in negotiations, as an irritated seller is going to be far more difficult when it comes to the big pieces of your deal.

The most successful business buyers are efficient partners in negotiations. By demonstrating your preparedness with thoughtfully curated lists of questions, you signal to the seller that you are serious, diligent and committed to a fair process – and you aren’t going to waste their time. This fosters trust and goodwill, paving the way for smoother negotiations and a stronger foundation for the future relationship you’ll need throughout the training period and the transition from one owner to another.

Are you looking at businesses to buy and hadn’t thought about asking questions in bunches instead of individually? Would you like to know what some common business buyer questions are? Ask us! Leave any questions or comments here and we would be happy to help.

Michael Monnot

Practical Experience: Why Buying A Business In An Industry You Know Matters

Published March 18, 2024

In the world of entrepreneurship, the decision to buy a business is a significant step that demands careful consideration. While the allure of diving into a new industry might seem like a good idea, there’s a compelling argument for purchasing a business within an industry where you already have practical experience. This approach brings with it a host of advantages that can significantly enhance your chances of success.

Let’s delve into why buying a business in an industry you know matters.

The first big benefit of buying a business in an industry you’ve worked in is the depth of knowledge you bring to the table. Practical experience provides insights that Google searches, books and market analyses can’t replicate. You understand the nuances, challenges and opportunities specific to your field – giving you a distinct advantage. This familiarity breeds confidence in your decision-making process, reducing the likelihood of costly mistakes.

Secondly, business is built on relationships – and your existing network within the industry can be a game-changer. When you buy a business in your field, you’re not starting from scratch; you’re tapping into an established ecosystem of suppliers, customers, and collaborators. Leveraging these connections can fast-track your growth.

Third, stepping into an entirely new industry comes with a steep learning curve, but buying a business in an industry you know can significantly flatten that curve. You already have the basic knowledge – no training or education required. You can focus your efforts on refining existing processes, optimizing operations and implementing improvements from day one because you don’t need to learn EVERYTHING.

Buying a business in an industry where you have practical experience isn’t just a good business decision – it’s a strategic advantage that can set you up for long-term success. Your insider knowledge, network and ability to navigate the intricacies of your field position you ahead of the curve. This enables you to make informed decisions and capitalize on opportunities effectively.

While venturing into uncharted territory may hold its allure, the importance of buying within an industry you know can’t be overstated. Before you embark on your entrepreneurial journey, consider the power of practical experience.

Have you been considering business ownership but didn’t think about focusing on businesses where you have practical experience? Would you like to know what businesses are currently on the market in your areas of expertise? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Empowering Yourself: Why Business Buyers Need To Do Their Own Independent Research

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

Published March 11, 2024

In the complex list of necessities when buying a business, one aspect often overlooked is the buyer’s role in conducting thorough research. While your business broker can offer valuable guidance and expertise, you can’t relying solely on them to make every decision. They can’t. At the end of the day, all decisions are yours – so business buyers need to take a proactive role in their research and decision-making process, empowering themselves to make informed choices.

Here are some thoughts to consider:

Be Realistic About What Your Broker Can And Can’t Do

Before delving into the buyer’s responsibilities, let’s first acknowledge the vital role that business brokers play in the acquisition process. A reputable broker brings a wealth of knowledge, experience and industry insights to the table, guiding buyers through every step of the journey. From finding potential businesses to negotiating terms and navigating due diligence, a skilled broker acts as a trusted advisor – helping buyers make informed decisions and achieve their goals. However, it’s essential to recognize that while brokers can provide valuable support, they cannot—and should not—make every decision on behalf of the buyer.

You Must Must Must Do Independent Research

Business buyers must recognize the importance of conducting independent research to supplement the guidance provided by their broker. While brokers can offer insights based on their expertise, it’s ultimately the buyer’s responsibility to thoroughly evaluate potential businesses/locations/terms and assess their suitability. Independent research allows buyers to gain a deeper understanding of the market landscape, industry trends and competitive dynamics. By conducting market analysis, financial due diligence and risk assessments of their own, buyers can mitigate potential pitfalls and make well-informed decisions.

Your Broker Is There To Help, But They Aren’t You

Relying solely on a broker to make decisions simply isn’t going to work. This is your money that will be spent, your day-to-day life as a business owner that needs to be lived and your choice as to what that ultimately looks like. You also have to live and work in this community. Does the area have the amenities or lifestyle you’re looking for? Are there places to live nearby the business where you could potentially buy or rent a home? Where are the schools your kids might need? Are there local concerns, like crime or frequent natural disasters that you will need to account for? The point here is only you can make choices on the litany of variables you need to consider before you buy a business.

In the world of business transactions, the importance of independent research cannot be overstated. While business brokers play a valuable role in providing guidance and expertise, buyers must take an active role in conducting their own due diligence – on everything (from the business to the school districts and beyond) to ensure the life as a business owner you’re after is the one you end up with.

Are you looking at businesses to buy but hadn’t thought about researching the community? Would you like to know more about how a business broker can help you find a great business? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

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

Published March 4, 2024

You’ve made the decision – you’re going to bite the bullet, buy a business and move to Florida. You buy plane tickets and head down, ready to drive around and scope out the local small business scene. When you get to town, you try calling brokers to have someone drive you around to see what’s for sale – but you aren’t having any luck. No one is answering or returning your calls, and those that do tell you there’s no way you can see any businesses today.

What gives? You’ve got money to spend – why won’t anyone help you?

Buying a business is a very complicated process that contains a multitude of moving parts, and as such the business buying process is nothing like buying anything else. When you buy a house or a car the process involves driving around and taking a look, but houses and cars are physical things. A business is different because a business has customers, has employees, has contracts, has leases, requires licenses and permits, has vendors – the list goes on. When you buy a business you aren’t buying a thing, you are buying cash flow. Since you aren’t buying a physical thing, the process is more complicated.

For starters, business sales are confidential. Confidentiality is important because there is a very powerful misconception that a business for sale is a business on the brink of failure. Think about it. The last time you saw a “For Sale” sign in the window of a business your immediate thought was that the business was in trouble, right? Why would anyone sell a perfectly good business?

Great, profitable businesses are sold every day. Business owners sell for a myriad of reasons. Retirement, a desire to change industries, personal reasons, or because a financial milestone has been reached. Sure, there are businesses for sale because the owner is in trouble and the business is faltering – but those businesses are fairly rare and can be a great opportunity for growth.

The fact that a business is for sale says nothing about the financial health of that business, but the misconception that exists can cause catastrophic damage to an existing business if the for-sale status is disclosed to the wrong people – like if the staff finds out the business is for sale and quits en masse.

The need for confidentiality means you will have to sign a non-disclosure form for each and every business you want to see, and you will most likely need to see the physical location before or after hours when the staff isn’t there. In addition to the required paperwork and the need to avoid a staff, physical visits to a business require aligning the schedules of the buyer, the seller, the buyer’s broker and the seller’s broker. This type of schedule wrangling takes time, so showing up in Florida and demanding to see businesses isn’t going to work.

What should you do instead? PLAN AHEAD. Before you get on a plane, call and have a conversation with an experienced and qualified business broker. They can help you find businesses that fit with your goals and your financial means, then you can narrow your field to just a few choices. Your broker can set up conference calls, meetings and site visits long before you land so you can see the businesses you want in a way that works with everyone’s schedule.

Don’t hop on a plane cold – plan ahead and you will be set up for business buying success.

Are you thinking about buying a business and want to know more about why confidentiality is important? Would you like to know what businesses are currently available that might work for you? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Bad Advice From Strangers: Why You Really Need A Business Broker

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

Published February 5, 2024

We all do it. We have a question about something, so we pick up our phone and ask Google. Or Reddit. Or Facebook Groups. While some of the information you can glean from online sources can be useful, it is a terrible idea to take online advice as absolute fact if you don’t know the qualifications of the person giving you that advice. The chances of the anonymous person commenting on your post being an expert in their field is probably pretty slim.

This is particularly important in the sphere of the purchase and sale of small businesses.

Why? The small business marketplace is a small world, and as such there really aren’t that many professionals overall who specialize in the sale and purchase of small businesses – and there’s even fewer who actually know what they’re doing.

Aside from the fact that the professionals who help people buy or sell businesses, known as business brokers, are relatively few in number there is an entire cohort of part-time or fly-by-night imposters who don’t think they need special expertise to help someone with a business transaction. We’ve encountered real estate agents, attorneys, accountants – even dentists pretending they are business brokers that can help you sell or buy a business as their side gig.

What this means is the people (well meaning or not) who are giving you advice on how to use EBITA to value a business or how to properly market your business for sale via a Reddit thread are unlikely to have any idea what they’re talking about.

Business transactions are inherently delicate for a number of reasons. There’s a lot of money changing hands. One person is selling their blood, sweat and tears while another is buying themselves the job they’ll be doing for the foreseeable future. Complex contracts are involved. Everything needs to be done under a veil of confidentiality so the business can stay in one piece.

A transaction involving so many moving pieces needs a careful hand to guide it. Someone who is experienced, qualified, has the industry connections and know-how, understands the possible pitfalls and has the integrity to keep everything above board. That person is a business broker, and probably not the person commenting in your Facebook Group.

What you need in the place of anonymous online advice is a conversation with a practicing, experienced and qualified business broker. Talking with a real person who knows what they’re doing will be exponentially better for you path to business ownership or your business sale than taking terrible advice from people who have no clue what they’re talking about. Calling a business broker can save you from untold amounts of agony by going into the business transaction process with real, factual information.

Do yourself and your future a favor. Don’t take advice from anonymous groups and call a business broker instead.

Have you fallen into the rabbit hole of online advice about buying or selling a business and can’t tell the good advice from the bad? Do you have questions about how a business broker can help you through the transaction process? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Embrace The Digital: Why Small Businesses Need To Cater To Gen Z & Millennials

Posted in Buyers Articles, Sellers Articles

Published January 2, 2024

Most entrepreneurs aren’t young. There’s a large cohort of small business owners (and those looking to join their ranks as business buyers) who grew up before the start of the digital age. You know who you are. You ask the kids in your life to fix things on your phone. You prefer walking into a store and cash over digital purchases and Tap to Pay.

Most small business brick-and-mortar stores reflect this. Sure, you’ve got a business Facebook page – but no one can see what you’ve currently got on your shelves, read a proper menu provided by you or order something online and have it promptly shipped. Even for those businesses that do have an actual website they are often rarely updated, have clunky ordering systems and aren’t mobile-friendly.

If all of this is resonating with you – guess what? You need to embrace the digital age so you can attract the next generation of customers. Gen Z and Millennials are of working age, earning money and your future bread and butter. You need to be actively looking for ways to attract them away from huge retailers that make buying a one-click affair. These generations value small businesses, but you have to make it easy and meet them where they are.

How?

First and foremost you need a virtual presence. Your business Facebook page won’t cut it. You need a proper website that has all the information one would get if they walked into your physical business. What do you sell? When are you open? Where are you located? What is your business all about? How do they buy from you online? What’s currently in stock?

You also need social media channels. Instagram, X (Twitter) and the like are important if you want to reach the newest consumers to the market. You also need to update your virtual presence ALL THE TIME. If your last business Facebook post was in 2018, we’re looking at you.

If you aren’t super tech-savvy, you don’t have to be. There are many, many services out there from free website templates you can put together yourself to full-service digital companies that will run everything for you. Digital marketing is where your focus should be, so if you can afford it pay for all the help you can get.

If you are considering selling your business, a virtual presence is going to be crucial if you want to attract younger buyers who will care a lot about whether or not you exist online. If you’re buying a business, you need to look at ways you can revamp the marketing strategy of a business that doesn’t have much of a virtual presence from day one.

The message here is simple. The next generation of working and money-spending people are online, so that’s where you need to be too.

Are you a business owner who hasn’t updated your digital marketing in a while? Are you looking at businesses to buy and want to know more about how to revive a business without a virtual presence when you take over? Do you have questions about how to reach the newest cohort of customers and want to see businesses that are currently doing this well? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Walk Before You Run: Why New Owners Should Take It Slow

Published December 26, 2023

When you buy an existing business it comes with the seller’s personality, whether you like it or not. Their choices are everywhere – from the paint color on the walls to the employees they keep. It can be tempting to want to make your mark and change it into the business you’ve always dreamed of right out of the gate – but that is a colossal mistake.

Here’s why.

You bought an existing business because it’s existing. The doors are open and it makes money. It runs. Before you go gutting the interior, tossing the furnishings and replacing the staff you need to take a breath and instead start paying attention.

Why does this business work?

What parts of the decor, the current menu, the personalities of the staff, the operating procedures, the equipment, etc. add to the functionality and value of the business?

What is it about this business that keeps customers coming back for more?

If you rush in and change everything, you are missing the opportunity to learn what makes the place successful. Listening and learning should absolutely be your number one priority in the early days of owning your new business. Take every chance you have to learn from the seller, even if you aren’t a fan. While you negotiate ask lots of questions and pay attention to the answers. Be willing to take advice. Most business purchase contracts come with a two week training period – use that time to absorb everything you can.

When the reins are finally yours, slow down. Run the business as-is for as long as it takes for you to truly understand what works and what doesn’t. Talk to the staff – ask them to give you their thoughts about what is important and what they would change if they could. Talk to the customers and ask them the same thing. What would they like to see changed and what would they like to see stay the same?

Take all of this data that you collect and then make small, incremental changes that will benefit the business. Don’t make changes just because it’s something you would prefer.

Are you considering buying a business but hadn’t thought about when and why you should make changes? Do you have questions about the training period in a purchase contract? Ask us! Leave any questions or comments and we would be happy to assist.

Michael Monnot