what should i know about buying a business Archives - Page 22 of 29

Published September 9, 2019

If you are considering a foray into small business ownership you may have a very common misconception – that any business that would be offered for sale must be a business on the brink of failure. This misconception probably comes from media portrayals of huge multi-million dollar mergers and acquisitions with the purpose of preventing bankruptcy or saving a major brand name. The truth is, however, that perfectly good businesses go on sale every day, from the small main-street shop to businesses that employ thousands of people.

Think about home sales. A home that is listed on the market might be a tear-down, but for the vast majority of home listings the house is in great shape. The same goes for businesses.

If good businesses do go up for sale, why? Why would someone sell a great business?

Business owners decide to sell for a myriad of reasons. Many of these reasons are similar to reasons one might give for listing a house. Maybe the current owner is looking to get a financial return so they can retire. Maybe they are looking to move to another area. Perhaps they have some sort of family situation that is forcing them to sell – the point is not every business on the market is teetering on disaster.

Ok, so how do you tell if a business on the market is in good shape (or not)?

Do your homework and ask questions. When you inquire about a particular business you will be given access to cursory financial information. You can use that initial information along with general research (like the business website, reviews, social media accounts, etc.) to determine if you want to move ahead in the business purchase process. If you are very serious about a business then conversations with the current owner, site visits and the like would happen next. After your offer to the seller has been negotiated and accepted you will enter the due diligence phase, where you will be able to pour over everything and decide if the business is still right for you.

You will have ample time and opportunity to discover any issues the business has, and then you will have the choice to proceed or stop based on what you find. Even if a business isn’t in amazing shape, it could be a good buy because you could pay less up front and then work to turn the business around. This is typically the path a serial entrepreneur takes, buying a business in trouble and then growing it with the intention to sell once the business has met certain markers for success.

The point is that there are lots of good businesses out there, and your path to business ownership will give you all the information you need to make an informed choice about what you are buying.

Are you thinking about buying a business but have more questions about the process? Would you like to know what kinds of business ownership opportunities are currently available? You can click here to search, or leave us any questions or comments here.

Michael Monnot

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

Am I Buying The Building? Commercial Leases And Business Buyers

Published September 2, 2019

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

Do I have to buy the building too?

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

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

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

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

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

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

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

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

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

Michael Monnot

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

Business Buyer? Must-Haves – The Right Help

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

Published August 26, 2019

If you are considering taking the plunge into entrepreneurship by buying a business, you should know that the best way to be a successful business buyer is by using all of the resources available to you – namely the experts who can help you along your path.

Why do I need help? Aren’t experts expensive? Wouldn’t I be saving a ton of money by buying a business on my own?

You absolutely, positively need to have the right help when making a purchase as large and life-encompassing as buying a business. That help needs to be experienced in their field and have the knowledge to properly guide you through the business transaction process.

Going it alone may seem like a good idea because there aren’t any fees or commissions to pay, but you will more than likely end up in hot water if you don’t know what you are doing – and that can mean way more money spent cleaning up the mess on the back end than you ever would have spent hiring the right help.

What kind of hot water could you end up in? You could be shut down if you don’t handle licensing and permitting issues correctly, you could end up signing a purchase contract that doesn’t cover what you thought it did, you could end up discovering surprise debts the business owes after you’ve signed on the dotted line and that business is now your problem alone – just to name a few. In addition, most businesses you buy do not come with the corresponding real estate, so a commercial lease will need to be negotiated – and commercial property managers are notorious for being difficult, more so if they feel like you don’t know what you are doing.

What should you do instead? Employ the right help, they will be worth their weight in gold.

What help might I need?

A Business Broker

This person will be the main adviser you use for the purchase of a business. They will assist you with your search, help you obtain the information needed for due diligence, help you make sense of the numbers, negotiate with the sellers for the best price, negotiate and play middle-man with the landlords and property managers, help you get the appropriate licenses and permits, help you transfer utilities and vendor contracts – the list goes on. A good, experienced business broker has already seen everything that could possibly go wrong in a business transaction, so they can help you avoid the pitfalls and come out with the right business for you.

A Business Transaction Attorney

Notice we didn’t just say “attorney”. A family law attorney will do you no good in a business transaction in the same way a plastic surgeon isn’t going to be of much help if you have back pain. An attorney who specializes in business transactions will be best equipped to help you navigate your purchase contract and help you on closing day.

A Business Transaction CPA

Again, we didn’t say just “CPA”. Not all accountants are familiar with the very tangled web of numbers one finds in a small business. The one or two numbers on the bottom of a tax return are not going to tell you everything you need to know about how much money the business makes. For example – has depreciation been taken into account, have the personal benefits of vehicles and cell phones been added back, has the value of the inventory been accounted for? Having a CPA who has business transaction experience will be your best bet for understanding the numbers.

The moral of the story? Your best bet for the successful purchase of the best business for you is to have the right help along the way.

Have more questions? Don’t believe us? Leave questions, comments or concerns here and we will be happy to talk to you more.

Michael Monnot

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

Buying A Business? The Value Of Your Future Life

Published August 19, 2019

Figuring out what a business is worth is a difficult thing – especially if you are a first-time business buyer.

What do the last several years of tax returns say about what the next few years might be like? How much is the inventory worth? Should you even care what the inventory is worth? How much cash flow does the business generate? What kind of monetary benefits does the current owner get from the business? What are multiples and how were they used to come up with a price?

These are all great questions that you and your broker will discuss when deciding if a particular business is worth what they’re asking. You’ll also use the answers to those questions to decide if a business fits with the goals you have for business ownership. What you may have noticed about this list of questions is they all have a numerical answer of some sort. Businesses are, however, far more complex than just numbers can explain – so let’s look at one marker for value that you may not have considered – the value of your future life.

Two businesses may appear nearly identical on paper – but in terms of value to you as a buyer and in terms of list price they may be very different. Why? One business has far better non-monetary benefits for the owner than the other. Here’s an example:

There are two nearly identical pizza shops in the same area of town. They both generate $100,000 a year, but in one the owner works 80 hours a week – the other owner only works 20 hours a week. Which shop would be worth more to a potential buyer? The one with the vastly better work schedule, right?

There is far more to owning and running a business than just the numbers. You are buying yourself a job and a lifestyle, and for a better job and lifestyle you are probably going to have to pay more. The day-to-day schedule of the current owner, having a strong management structure in place that allows an owner to do things like take vacations – these bonuses are going to cost you more up front, but will give you as an owner a far better lifestyle down the road.

These non-monetary benefits can be hard to put a number on when deciding if a listing price is fair or deciding what to offer the seller, but they are an important part of the value of the business and can’t be overlooked. Talk to your business broker about how to put a value on these perks when drafting your offer. They will be able to help explain the nuances of a particular business listing price.

Are you looking at businesses to buy and feel like the prices are all over the map? Do you have questions about how to evaluate listing prices? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

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

Last-Minute Greed: The Business Deal Kiss Of Death (And How To Avoid It)

Posted in Buyers Articles, Sellers Articles

Published August 12, 2019

Buying or selling a business is a large undertaking. From start to finish it can take months of back-and-forth to reach and agree on a deal. One you get to that point, where a purchase contract is ironed out, you should be able to coast through the home stretch – right? Not always. This home stretch period should be a breeze, where sellers tie up loose ends and buyers get geared up to take over the helm – but in many transactions something strange happens. Last-minute greed.

What do we mean?

Buying or selling a business typically involves large amounts of money changing hands. It is completely normal to get 11th hour cold feet and panic for a moment with the thought that you are either paying too much or aren’t getting enough. Maybe you came to this thought on your own, or maybe a friend or family member has chimed in late to say they think you’re getting ripped off.

Momentary panic is one thing, but if you let this fear get the better of you it can have disastrous consequences.

For instance, in this panicked state you call your broker and demand to put the deal on hold while you reconsider or demand to head back to the negotiation table. The other side of the transaction is then appalled at your insinuation that the deal has somehow (very suddenly) become unfair and balks at the suggestion that you renegotiate. Guess what? Your deal is probably dead.

You have spent weeks and months negotiating, looking at numbers, pouring over books – and after all of that you have arrived at a number that both sides agreed was fair. Why the last minute doubt?

It’s just cold feet. The way you are feeling is completely normal, but remember that while you were in a more rational state of mind you decided that this deal was one you wanted. It was a deal you thought was fair. You have had many conversations with your broker, with the other side – and you felt comfortable moving ahead. Everyone always wants the most they can get for their money, and business transactions are no different. The emotional swings are just larger because there’s more money involved.

Last-minute greed isn’t going to get you a better deal. It’s more than likely going to end with no deal at all, and a colossal waste of time for everyone who’s been involved – including you. We’re not saying that you should agree to a deal that’s unfair. What we are saying that if you were fine with a deal until days or moments before the money starts changing hands – you’re probably just momentarily overwhelmed.

If you do suddenly feel like the deal isn’t right and you should be either paying less or getting more – give your broker a call. They’ve seen 11th hour panic many, many times and can help walk you through the ramifications of trying to renegotiate with the other side. They’ve also seen deals where something does come up at the last minute that requires renegotiation – and they can help you decide if that’s really the scenario you’re in.

Don’t destroy a perfectly good business opportunity because it’s scary to take a big plunge. Look to your broker for help, and do your best to remain calm and rational all the way to closing.

Are you thinking about buying a business but are worried about writing such a big check? Have you considered selling your business but want to know how you decide if an offer is fair? Do you have a story about last-minute greed in a business transaction you think would help other buyers or sellers? Feel free to leave any questions or comments here, we would be happy to help.

Michael Monnot

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

Don’t Be Underfunded: A Big Business Buyer Mistake

Published August 5, 2019

You’ve decided to buy a business, congratulations! Entrepreneurship can be one of the most rewarding journeys you can take in life. It can also, however, be your worst nightmare.

The difference between success and a nightmare scenario can come down to just two, very basic things – money and reality.

Let’s look at money first.

Guess what? You have to have money if you want to buy a business.

Of course you need money to buy a business! This may seem like a silly thing to say, but a fair number of the people who come into the business market are working with little to no capital at all and expecting someone else to pick up the rest. These prospective buyers are relying on funding sources like family members, bank loans, Small Business Administration (SBA) loans and seller financing – but the fact of the matter is the small business world just doesn’t work that way.

Family Money

You may have had a conversation or two with your well-off uncle or with your parents at Christmas about helping you get the money together to invest in a business, but we almost never see one of these deals actually go through. Once you start the serious conversations about what dollar amounts you’ll be needing, how long it would realistically take you to pay them back – the checks never get written. If you are depending on a family member footing the bill for your business purchase – you should probably think again.

Bank Loans

Even pre-recession it was tough to get a traditional lending institution like a bank to fund the purchase of a small business, but in the wake of all of that financial mess it can be nearly impossible to get a bank to approve a small business loan – even though the economy has improved substantially.

SBA Loans

Yes, it is possible to get funding through the SBA to purchase a small business, but there are some very big hoops that need to be jumped through in order for this to happen. First, you as the buyer need to be approved, and if you don’t have a fair amount of capital to invest already – your chances of that approval are going to be slim to none. If you do manage to get approved, then the business itself will have to be vetted and approved – and like any lending institution post-recession, the SBA is going to be very conservative with how much they are going to lend, who they will lend it to and what businesses will even qualify for that buyer.

Seller Financing

Yes, seller financing is very common – but what most first-time buyers don’t understand is that these deals usually mean the buyer is going to pay at least half, if not quite a bit more, of the purchase price up front. No seller is going to take a tiny down payment and hand you the keys, it involves way too much risk on their part.

Ok, now let’s look at reality. You have to buy a business you can afford.

Again, this might sound silly, but business buyers are usually caught up in the hopes that one of the capital-raising schemes we just mentioned will pan out and therefore look at businesses that are ridiculously out of reach. Think coming to the table with $30,000 and looking at businesses in the $500,000 range. Again – no family member is going to write you a check that big, banks will laugh, the SBA will never approve you or the business in that situation and sellers definitely won’t take you seriously.

Even if you could get, say, a family member to loan you the money to buy a business that far out of your current reach – you will be setting yourself up for failure. What new business buyers leave out of the equation is working capital – that is the money you need to both get the doors open under your ownership and then keep them open long enough to get the business turning a profit long enough to pay back your backers.

Just like renting a new apartment or buying a new house, there will be costs at closing that need to be paid – think deposits on a new commercial lease, deposits on utilities, first (and probably last) month’s rent, payroll and inventory starting the moment you take over, transfer fees for licensing, inspection fees – the list goes on and on.

If you only have a small amount of capital to invest in a business, that’s totally acceptable and doesn’t preclude you from business ownership! If you start small, with a $15,000-$20,000 business, you can grow that business into something larger. It just takes some time and some hard work. Many entrepreneurs start small and grow their businesses to a size they initially wanted, or some sell the business after a time for a profit and move up the business ladder that way. Either way, you will have a far better chance at success if you stay within your means.

Don’t make the mistake of starting out underfunded or ignoring reality!

Are you a business buyer who doesn’t have a lot of capital to invest? Are you curious about what’s out there in your price range? Ask us! Leave any comments or questions here and we would be happy to help.

Michael Monnot

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

Buying A Seasonal Business? Understanding And Surviving The Off-Season

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

Published July 29, 2019

Here in Southwest Florida, we have a very unique business climate, but our lessons about seasonality in the business market translate to just about anywhere that sees a seasonal fluctuation.

Our area is known as a fantastic place to retire and also as a family-friendly vacation spot, so throughout the year our local businesses see a fairly regular fluctuation in the amount of business they do month to month. Our beautiful wintertime weather means that from October to April our population swells as retirees from the northern states come down to ride out the bad weather in our sunshine.

You can blatantly see this fluctuation if you visit at different times of the year. For instance, going to dinner on a Saturday night during “season” (October to April) means a 2-3 hour wait, go to the same restaurant in July and you will likely be one of only two tables in the whole place.

What does this mean if you are thinking of buying a business in this area (or in any area with seasonal fluctuation)?

It means you will need to be a bit open-minded when looking at the numbers, and compare multiple years of numbers instead of looking at only the last several months. In a place without much seasonal fluctuation the most recent numbers may be sufficient, but in our area or any like it – recent numbers won’t tell you the whole story. For instance, if you are looking at buying a business April, then the numbers from January to April will not be a reflection of the next handful of months in the summer. Likewise, if you are considering a business in September, abysmal numbers here might mean the business is doing just fine – you are only looking at the very slow summer months.

How do you figure out how to navigate these types of fluctuations? Find a knowledgeable and experienced local business broker who can help you to understand the seasonal fluctuations and can assist you with determining if a business is dealing with a seasonal slump or is in real trouble overall.

Another major seasonal business consideration? Keeping some cash on hand. If you are buying a business in Southwest Florida in the spring, then you had better find out how much capital the sellers have needed in previous years to weather the sparse summer and save some money for getting yourself through the lean times. Once business picks up and then explodes in the fall, you will also need to know what staffing considerations you will have to address (like bringing on new staff or bringing back the former owner’s seasonal workers).

Your business broker will be invaluable in helping you ask these pivotal questions of the sellers while you are in the negotiating process, and will also ensure you have a proper training period with the former owners post-sale to cover all of the bases.

Do you have more questions about how to look at the numbers of seasonal businesses? Would you like to know what types of seasonal businesses are for sale in this area? Ask us! Please feel free to leave any comments or questions here and we will be happy to help.

Michael Monnot

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

Need Capital? Business Buyers & Seller Financing

Published July 22, 2019

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

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

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

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

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

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

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

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

Michael Monnot

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

Business Broker 101: Making The Right Choice

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

Published July 15, 2019

Our industry sometimes gets a bad rap, but as professionals who deal with other business brokers on a daily basis – we get it.

Like any industry, there are great brokers who excel at their job, and then there are those who are not so great. This article is meant as a peek into the business broker world and a quick education of what business brokers (should) do with the hope of helping business buyers and sellers choose a professional who will be a help – not a hindrance.

For starters, what is a business broker? A business broker is someone who assists business buyers and business sellers with the business transaction process. They (depending on the state) are licensed and insured to do this type of work, and although the business world is very different than the real estate world – they are often licensed as real estate brokers.

You can liken what a broker does to the buying and selling of homes, but with some MAJOR differences. First, business brokers aren’t typically selling property. They are selling existing businesses, and most businesses don’t own the property where they are located – they lease it from someone else. Second, the marketing and sales process for a business is very different from the same process for a house. For example, business sales are inherently much more complex and the for-sale status of a business must be kept in the strictest confidentiality (businesses for sale are perceived to be businesses on the verge of failure, which is rarely the case – and without confidentiality the whole staff might quit, clients might cancel contracts, etc.).

A business broker is hired by a business seller to list their business on the business market, and also hired by business buyers to help them find and then purchase a business. The commission paid to a broker (or brokers) involved is typically paid as a percentage of the final sale price by the seller.

Not all business buyers who come into the market end up buying a business, in fact the rate is probably something like 10% of those who inquire about businesses actually end up buying. For this reason, many buyers find it difficult to get the attention of brokers and sellers until they are forthcoming about their financial information and are ready to make serious offers.

Not all businesses that get listed on the market sell, this is also just a fact of the industry. The average rate most brokers hold is somewhere between 20-25% of businesses they list actually sell. If that rate sounds abysmal to you, we agree. Ours is typically closer to 60%, and most good brokers will be in that range. Why don’t businesses sell? Why isn’t the rate higher?

There are a litany of reasons why businesses don’t sell. Some businesses are priced way too high right out of the gate, and as such won’t sell because they are far outside the range of what the market will allow. In some cases the sellers refuse to take anything but a full-price, all-cash offer, which almost never happens. Some brokers take listings just to load up on potential calls, but do little to nothing to actually sell all of the businesses they list. We see “marketing packages” that consist of three poorly photocopied pages of old tax returns and nothing else. We deal with brokers (and sometimes sellers too) who rarely, if ever, respond to requests for information. In other cases, a business may not sell because of the time constraints of the sale on the seller’s side. If you have a very niche business, you will need to wait for a very niche buyer. Even if you don’t have a niche business, patience is necessary as most businesses take somewhere between 9 to 12 months to get from listing to closing.

Now that you have an idea of how the business of buying and selling businesses works, how do you pick a good broker instead of a bad one? Ask questions. Lots of them. A good broker will have no problem supplying you with answers.

If you are a seller, ask to see what a typical marketing package looks like. If you’re a buyer, see how quickly your requests for information and phone calls are returned. Ask any broker what percentage of their clients come from referrals (a high percentage here is a great sign). When you listen to answers to your questions, is the broker being honest with you, or are they just telling you what you want to hear? How important is confidentiality to this broker? How many closings do they typically have a year? Does this broker have their own shop, or are they a part of a much bigger company (and if part of a big company, are the numbers of businesses closed and number of listings just theirs, or are they including the corporate numbers)? Are they properly licensed and insured to do this type of work? Is this person only a business broker, or is this a side job that they don’t focus on?

The help of a good business broker can mean the difference between success and failure in the business market, so ask questions. Once you’ve found a good broker you can work with – listen to their advice. A good (or great) broker is there to help you, and by helping you and others like you, help the small business community they depend on.

Are you a seller who wants to help your business sell with the right help? Are you a buyer who’s had trouble getting attention from anyone in the business? Do you have more questions about the business buying and selling process? Contact us today or leave us a question or comment. We would be happy to help.

Michael Monnot

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

You Have Enough Time: Due Diligence For Business Buyers

Published July 8, 2019

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

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

Due diligence.

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

How long do I have once due diligence starts?

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

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

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

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

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

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

Michael Monnot

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