Buying and Selling Businesses: Deal Killers

Posted in Buyers Articles, Sellers Articles

Published May 4, 2017

Whether you are in the market to buy a small business, or you are a small business owner who is looking to sell, it is important to understand the reasons that business transactions fall apart in order to avoid this issue yourself.

 

 

Business deals can be destroyed by either side, so whichever side of the fence you are on, avoid these pitfalls:

 

The Buyer’s Side

 

As a buyer, you need to be sure that you really want to buy a business. Are you really ready to take on the responsibility and work that it takes to run a small business? Do you have the support of your spouse and family? Owning a business will mean sacrifices for your family too, even if it is just in terms of the time that you would be able to spend with them.

 

Another reason that buyers have trouble getting to closing is unrealistic expectations. Do you understand how businesses are priced? Do you understand the buying process? Many new buyers go into the process believing that buying a business is a lot like buying a house, but nothing could be further from the truth. Talk to a business broker about your expectations early on in the game, as it will prepare you for the realities of a business transaction before you get there.

 

Do some research on your own to be sure you understand small business ownership and operations. You will want a good grasp on small business ownership before you get to the closing table. You do not want to be faced with a crash course your first day as a small business owner. If you have any doubt in your mind, it might be wise to resolve those doubts before you begin the business buying process.

 

The Seller’s Side

 

Many sellers put their business on the market purely out of curiosity. They want to see what the market is like, and really don’t have any legitimate reason or motivation to sell. This is a big mistake, as it alienates any good potential buyers that come your way.

 

The major issue that keeps businesses on the market forever is the price. Many business sellers have completely unrealistic expectations about the price and the market for their business. Use a business broker to alleviate this issue, as they will be able to properly evaluate your business based on the current market.

 

In the same line as price, as a seller you may need to accept seller financing as a part of any potential deal. Although it does occasionally happen, most of the time buyers do not come to closing with all the cash up front. If you are serious about selling your business, accepting seller financing will get you more potential buyers than if you refuse to do so.

 

Another major deal killer is dishonesty. As a seller, you should not try to hide the negative aspects of your business from buyers, as they will likely figure these issues out on their own during the due diligence phase. Failing to disclose that the business is in bad shape, that there is a major competitor moving in, or that you are dealing with a serious environmental issue are sure fire ways to make a deal fall apart.

 

Be sure that all owners of the business are in agreement about the sale, and check with your business broker and attorney about any legal ramifications of selling your business. You will not want any legal surprises the day before closing.

 

Keep the Deal Alive

 

Business transactions are inherently complicated, so it is important to remember some key points. First, honesty is the best policy. Second, trust the judgment of your business broker. Third, keep your expectations in the realm of reality. Lastly, be patient with the process. If all parties are serious about getting the deal done, any potential problems can ultimately be resolved.

 

Are you a business buyer who has questions about the process to find and buy a business? Are you a business owner who wants to know when the right time to sell would be? Please leave any questions or comments here and we would be happy to help.

 

 

 

 

Michael Monnot

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

https://infinitybusinessbrokers.com

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Do I Have To Sign A NDA (Non-Disclosure Agreement) When Buying A Business?

Posted in Buyers Articles

Published April 27, 2017

The short answer is YES. You absolutely do.

 

 

The NDA (Non-Disclosure Agreement) is a crucial step. It is a legally binding document that protects both you and the seller.  This agreement shields the seller from those who have no real interest in actually buying the business, and protects you as the buyer from a business that may seem fine from the outside, but is hiding major problems.

 

How?

 

In a business transaction, it is necessary for a potential buyer to see the financial records of that business, but a seller does not want to disclose such proprietary information to just anyone. If it is determined that you are a credible buyer, you will be given the opportunity to sign a NDA so that you will have access to the business’s information.

 

The NDA ensures that any buyer who is given access to the financial and/or proprietary information disclosed by the seller will not disclose that information to any party who hasn’t also signed a NDA. This is necessary to keep the for-sale status of the business confidential and protects the seller and the business from potential harm that an inappropriate disclosure might cause. 

 

The parts of a NDA are as follows:

  1. The location, name, and type of business.
  2. The length of the agreement, typically several years.
  3. A list of those who are party to the agreement.
  4. What information cannot be disclosed (like financial records, contracts with staff and suppliers, etc).

 

Any buyer who refuses to sign a NDA is usually considered to be unnecessarily difficult and any business broker worth their salt will refuse to work with you. The NDA keeps the business you are trying to buy safe from those posing as buyers and from the disastrous consequences of a breach of confidentiality. If you consider yourself a serious buyer, be prepared to sign the NDA.

 

Are you thinking about buying a business and are worried about the legal repercussions of the NDA? Would you like to know more about how the NDA is good for business buyers? Ask us! Please leave questions or comments here and we would be happy to help.

 

 

 

 

 

Michael Monnot

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

https://infinitybusinessbrokers.com

8 Comments »



LOVE Going to Work: 3 Keys to Business Ownership Happiness

Posted in Become a Business Owner, Buyers Articles

Published April 24, 2017

It is unfortunate that so few of us jump out of bed every morning looking forward to our work day ahead.

 

If you are considering becoming an entrepreneur, this happy morning might be in your future. They key to achieving happiness as a business owner is to know what you want from the start. By taking the time to do some real soul searching before you begin the business search process, you can ensure you will end up with a business you can love. What follows are some ideas to consider:

 

  • If you already have a dream business in mind, are there aspects of running that business that you might not enjoy? Are these tasks that can be delegated to an employee or perhaps a business partner that has that interest? If your dream is to be a florist, and accounting is possibly your least favorite thing to do, then delegating this responsibility will let you focus on the portions of your business you are passionate about.

 

  • If you haven’t decided on a specific industry, what do you really love to do? A caveat here; if you have absolutely zero experience in an industry, it is probably not a good idea to enter that industry as a brand new business owner. If you have always wanted to own your own bar, but have never worked in any part of the restaurant industry, buying a bar will be a mistake.

 

  • What are your goals for business ownership? If you are looking to be able to spend more time with your family, buying a small pizza restaurant where you would be the only chef (and therefore have to work 7 days a week) this particular business is not going to get you that extra free time.

 

Don’t think that owning your business is always going to be fun, or that business ownership is easy. The benefit of entrepreneurship is that your efforts come directly back to you. Before you begin a serious business search, take the time to figure out what you really want out of this new journey and you will end up loving your work.

 

Are you considering taking the entrepreneurial plunge and are curious about the business opportunities out there? Would you like to know what types of businesses would fit with your goals for business ownership? Please 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

https://infinitybusinessbrokers.com

No Comments »



Ask Good Questions: A Business Buyer Must – If You Weren’t Selling, How Would You Grow The Business?

Posted in Become a Business Owner, Buyers Articles

Published March 29, 2017

 

If you are buying a business, you will have many questions – for yourself, for your business broker and finally for the business seller themselves.

 

Many business buyers go into the first meeting with the current business owner with a fairly lengthy and standard set of questions. Big lists like these might get you some of the information you need, but they typically cause more harm than good because no seller wants to be endlessly grilled with questions that could easily be answered by looking at the numbers or by reading the current lease. If you irritate a seller on day one, it will make the journey to a closing table that much harder.

 

Instead, you should go into that first meeting having done your homework. Go over the information you’ve been provided, do a little research on your own and come up with a few really good questions. Think quality over quantity. Many good questions can even serve multiple purposes. Here’s one:

 

If You Weren’t Selling, How Would You Grow The Business?

 

This is one of the best questions a business buyer can ask if they want insight into how their new business might be able to grow as well as key them in on any potential problems that have been ignored. Why? No one knows the guts of a business better than the current owner – and growth should be at the top of the priority list for any business.

 

If you want to make this question even more powerful, add a caveat. The caveat “if you had unlimited funds, time and resources” added to the question of business growth can reveal a wish list of possibly great ideas that the current owner, for whatever reason, wasn’t able to make happen. Here’s an example:

 

If you are looking at buying a successful, but small, ice cream shop – the current owner might tell you that they would have loved to open another location in a busy downtown area nearby, but they were never able to come up with the funds for a second location build-out because they spent the majority of their profits on a personal medical issue. This lets you know that there might be an immediate opportunity to grow the business once you take over. It also lets you know that the current owners had their eye on growth – they just couldn’t make it happen.

 

Answers to this question can also reveal potential problems brought about by owner neglect. If the current owner was capable of making a change to grow the business, why didn’t they? And what other aspects of the business have been left to slide?

 

If we revisit the ice cream shop scenario – say the current owner of a different ice cream shop says they probably could have done more marketing but they didn’t have time. Further investigation in to why there was no time for marketing reveals the owner spends very little time at their business and essentially leaves it (and the employees) to run on it’s own.

 

The point here is an owner who cares about the growth of their business has probably done a better job of running their business than someone who lets things slide. Asking this question will give you a good deal of insight into the health of the business you are considering. Do your homework – ask good questions.

 

Are you thinking about buying a business and are curious about how you can grow your new purchase right out of the gate? Would you like to now what other types of questions would be good to ask? Please leave any questions or comments and we would be happy to help.

 

Want to read about additional good questions? Click here:

Ask Good Questions: A Business Buyer Must – What Does The Seller Want Out Of The Deal?

Ask Good Questions: A Business Buyer Must – How’d You Come Up With That Price?

 

 

Michael Monnot

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

https://infinitybusinessbrokers.com

No Comments »



Ask Good Questions: A Business Buyer Must – How’d You Come Up With That Price?

Posted in Become a Business Owner, Buyers Articles

Published March 13, 2017

 

 

If you are buying a business, you will have many questions – for yourself, for your business broker and finally for the business seller themselves.

 

Many business buyers go into the first meeting with the current business owner with a fairly lengthy and standard set of questions. Big lists like these might get you some of the information you need, but they typically cause more harm than good because no seller wants to be endlessly grilled with questions that could easily be answered by looking at the numbers or by reading the current lease. If you irritate a seller on day one, it will make the journey to a closing table that much harder.

 

Instead, you should go into that first meeting having done your homework. Go over the information you’ve been provided, do a little research on your own and come up with a few really good questions. Think quality over quantity. Many good questions can even serve multiple purposes. Here’s one:

 

How’d you come up with that price?

 

As long as a listing price isn’t crazy, most buyers don’t tend to care how a seller came up with their price because a buyer will do their own valuation of the business during the due diligence period. While it is true that you as a buyer will be judging the value of the business on your own, you should consider why the current owner priced the business the way they did.

 

Why? The method used to come up with a listing price can vary. Sometimes multiples of earnings are used, sometimes the value of the business is based more on the assets – but there are many others as well. A typical seller will have an idea in their head of what they think they would like to get out of the sale of their business, then that number is tweaked to match the current cash flow of the business, the assets and inventory, the current market, etc.

 

While most valuation methods are pretty straight forward, like multiples of earnings, the method a seller used can tell you a lot about what parts of the business they find important and can help you understand where the sticking points of negotiations might be. For example, did they put a lot of value on the assets? Be prepared to give a little if you disagree with the seller on what those assets are worth.

 

The point here is although the question “What’s it listed for?” is important, the “Why?” is important too. It will tell you what parts of a business an owner focused on and it will better prepare you to sit down at a negotiation table.

 

Are you searching for a business to buy and are wondering how a seller came up with a price? Do you have more questions about the negotiation process? Ask us! Please feel free to leave comments or questions here and we would be happy to help.

 

Want to read about additional good questions? Click here:

Ask Good Questions: A Business Buyer Must – What Does The Seller Want Out Of The Deal?

Ask Good Questions: A Business Buyer Must – If You Weren’t Selling, How Would You Grow The Business?

 

 

Michael Monnot

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

https://infinitybusinessbrokers.com

No Comments »



Ask Good Questions: A Business Buyer Must – What Does The Seller Want Out Of The Deal?

Posted in Become a Business Owner, Buyers Articles

Published March 6, 2017

 

If you are buying a business, you will have many questions – for yourself, for your business broker and finally for the business seller themselves.

 

Many business buyers go into the first meeting with the current business owner with a fairly lengthy and standard set of questions. Big lists like these might get you some of the information you need, but they typically cause more harm than good because no seller wants to be endlessly grilled with questions that could easily be answered by looking at the numbers or by reading the current lease. If you irritate a seller on day one, it will make the journey to a closing table that much harder.

 

Instead, you should go into that first meeting having done your homework. Go over the information you’ve been provided, do a little research on your own and come up with a few really good questions. Think quality over quantity. Many good questions can even serve multiple purposes. Here’s one:

 

What does the seller want out of the deal?

 

The answer to this question will not only tell you the base from which negotiations will begin, it can tell you volumes about how an owner really feels about their business and it’s future.

 

A committed owner who cares about the future of their business will not only want a check from a buyer. They will also be concerned that their business continues to thrive and continues to be a good place to work for their employees. Owners that care about the legacy of their business have likely been very attentive to the business and it’s growth. They will be more willing to keep skin in the game by offering seller financing and will probably stay on for a time and train a new owner too.

 

If the answer to this question is “as much money as possible as soon as possible”, then you need to take a good, hard look at the business. Determine why the owner is trying to abandon ship. Is the business a house of cards with well-concealed debts? Did a big competitor just move in down the street and they’re hoping you don’t figure that out until after they hand you the keys?

 

The point here is an owner who cares about more than just the financial value of their business has probably done a better job of running their business than someone on a mission to get out. Asking this question will give you a good deal of insight into the health of the business you are considering. Do your homework – ask good questions.

 

Are you thinking about buying a business and want to know more about how to come up with good questions? Do you want to know what to look out for in those first conversations so you don’t end up with a problem business? Ask us! Please feel free to leave questions or comments and we would be happy to help.

 

Want to read about additional good questions? Click here:

Ask Good Questions: A Business Buyer Must – How’d You Come Up With That Price?

Ask Good Questions: A Business Buyer Must – If You Weren’t Selling, How Would You Grow The Business?

 

 

 

Michael Monnot

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

https://infinitybusinessbrokers.com

No Comments »



10 Commandments For Buyers

Posted in Become a Business Owner, Buyers Articles

Published March 6, 2012

 

 

Buying a business? Consider these commandments:

 

I.   Thou Shall Not Be Greedy!

Sellers deserve a fair price for the years they have spent developing the business.  Be prepared to pay for the goodwill of the business.

II.   Thou Shall Have A Good Reason For Buying!

Buying a business is hard work! It takes commitment! Spend time deciding why you want the responsibility of owning a business.

III.   Thou Shall Provide Background Information!

Be prepared with a resume and financial statement.  Remember, the seller will most likely be your banker and will want to know that you can run the business successfully.

IV.   Thou Shall Keep An Open Mind!

There are no perfect businesses.

V.    Thou Shall Keep In Mind Tax Benefits!

Remember tax benefits are realized from intangible as well as tangible assets

VI.     Thou Shall Offer A Reasonable Down Payment!

A low down payment indicates a lack of commitment. When sellers question commitment, serious negotiations are in jeopardy.

VII.     Thou Shall Realize Businesses Are Priced on Profits!

A business making huge profits with few assets could save you money later in capital outlay for expansion.

VIII.   Thou Shall Remember Time Is Of The Essence!

After all parties have agreed upon price and terms it is important to quickly proceed toward closing.

IX.     Thou Shall Be Prepared To Meet The Landlord!

Landlords usually have little to gain by cooperation.  Therefore, come to meetings armed with resume and financial statement.

X.       Thou Shall Avoid Surprises!

Disclose pertinent information early and avoid surprises that might destroy your credibility.

 

Are you thinking about buying a business and are curious about some of the commandments listed above? Would you like to know what types of businesses you could afford with the capital you have available? Please leave questions or comments here and we will be happy to help.

 

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Buying A Business – What You Should Know: What Happens When I Find A Business?

Posted in Become a Business Owner, Buyers Articles

Published March 5, 2012

 

What Happens Once I Find A Business I Want To Buy?

 

When you become interested in buying a specific business, we will help in the preparation of an offer or proposal.  This offer or proposal may have one or more contingencies. Usually, they concern financing and a detailed review of the seller’s financial records. They may also include a review of the seller’s lease arrangements, franchise agreement (if there is one), and other pertinent details of the business.  Your proposal will be presented to the seller for their consideration.  They may accept the terms of the offer or they may make a counter-proposal.  You should understand, however, that if the seller does not accept your proposal, you may withdraw it at any time.  We will submit all written offers to sellers for consideration.  Verbal offers will not be presented.

 

When you and the seller are in agreement, we will work with both of you to satisfy and remove the contingencies in the offer.  If you require financing, we can assist you with applications for traditional financing as well as helping to negotiate terms and conditions of seller financing when available.  It is important you are prepared to work quickly and efficiently in this process.  Infinity Business Brokers highly recommends you bring in outside advisers to help you review the information. When all the conditions have been met, final papers will be drawn and signed.  Once the closing has been completed, you will take possession of the business.

 

As your business broker professional, we will work with you throughout the entire search and sales process.

 

Do you have more questions about the steps after an initial offer is accepted? Would you like to know how an offer is put together? Ask us! Please leave questions or comments and we would be happy to help.

 

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

No Comments »



Buying A Business – What You Should Know: What Paperwork Is Required To Buy A Business?

Posted in Become a Business Owner, Buyers Articles

Published March 5, 2012

What Paperwork Is Required To Buy A Business?

 

 

To buy a business you will likely need to complete several documents.  These documents include a buyer profile, a non-disclosure agreement, proof of financial viability and a summary of experience.  Providing a buyer profile, proof of financial viability and a summary of experience to the broker prior to the start of a search can expedite the process and save you a lot of time.  The broker has spent considerable time learning about the business for sale and documenting the key facts, it is only fair to the seller they document the key facts regarding prospective buyers.

 

A buyer profile is a one-page summary listing your name, contact information, industry and location preferences, owner benefit required, cash available for down payment, timing, key decision-makers, and other critical information about you, the buyer.  A broker may ask you to complete the buyer profile, or they may complete it for you over the phone or in a face-to-face meeting.

 

A non-disclosure agreement (NDA) protects the seller and broker for a specified period of time.  These protections include:

 

1.      Assures you work through the broker and not directly with the seller.  Respect the fact the seller hired the broker to communicate with, and qualify, all prospective buyers.

2.      Informs the buyer all documents containing non-public information are considered confidential and the buyer is responsible for maintaining this confidentiality.

3.      Advises the buyer to seek the advice of their own attorney and/or CPA when purchasing a business as the broker is communicating information on behalf of the seller and cannot guarantee the accuracy of this information.

4.      Informs the buyer should they consummate a deal with the seller and/or landlord without the broker’s involvement within a two years of signing the NDA, they will be liable for damages including commissions due the broker.

5.      Warrants the buyer is acting on their own behalf and not as an agent of a third-party, government agency or competitor.

 

A signed NDA allows you to receive a business summary, also refered to as a BLI, or Business Listing Information sheet.  A signed NDA does not permit you to receive the name and/or address of the business.

 

Proof of financial viability is a critical step.  Experience has shown less than 25% of all buyers have the necessary liquidity and/or available funding to purchase the business they are inquiring about.  Sellers have little patience sharing time and confidential information with buyers who do not have the financial means to purchase and operate their business.  Most sellers require their broker to have prospective buyers verify financial viability.  This can be accomplished by one of three methods:

 

1.      Complete and sign a personal financial statement.

2.      Producing a letter from a CPA or other fiduciary stating you have a specified amount of liquid capital and/or access to a specified amount of funding or they have looked at the terms and conditions of the sale and assure you are qualified.

3.      Statements from a bank, retirement or other savings account.

 

A summary of experience can be provided to a broker in written format, e.g., a resume, work history or other similar document, or verbally during a phone call or face-to-face meeting.  Most sellers want to be reassured by the broker the buyer has the experience and skills to successfully operate the business.  The more you share about your skills and experience, the better the broker can represent your interests to the seller.

 

Only after the broker has accumulated the necessary paperwork from the buyer and believes they are qualified to purchase and operate the business, will the broker and seller feel comfortable in releasing the name and address of the business.

 

Are you looking at businesses to buy and have more questions about the process and what will be required from you? Would you like to know more about the NDA? Feel free to leave us any comments or questions here.

 

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

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Buying A Business – What You Should Know: How Long Does It Take To Find A Business?

Posted in Become a Business Owner, Buyers Articles

Published March 5, 2012

Buying A Business – How Long Does It Take To Find A Business?

 

 

It generally takes, on average, up to six months to find a solid, profitable businesses to buy in an industry where you can excel.  Keep in mind that an average is just that.  Timing may be dependent upon the industries and locations you prefer or specific revenue and owner benefit targets you require.  The sooner we have all the information needed to begin the search process, the shorter the time period should be.

 

It is also important that you understand what your personal strengths and weaknesses are from the start.  Some buyers, operating under the premise they can run any business, often buy the wrong business.  This theory often backfires, because without relevant experience, buyers fail to move down the learning curve fast enough to compete against a competent, well skilled marketplace.

 

It has been shown that the amount of the down payment may be the key ingredient to a quick sale.  The higher the down payment, generally 50 percent of the asking price or more, the shorter the time to a successful acquisition.  A reasonable down payment also tells a potential seller that the buyer has confidence in their ability to operate the business and make any loan payments.

 

 

 

 

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

No Comments »



Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

9040 Town Center Parkway
Lakewood Ranch, FL 34202



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