what should i know about buying a business Archives - Page 8 of 29

Published September 5, 2022

Southwest Florida (and all of Florida for that matter) is a very seasonal place. Starting in October our population swells with retirees and vacationers from northern climates where the weather has just turned cold. This is great news for our local economy as businesses are packed, wait times at restaurants climb exponentially – so profits rise. It stays this way until the spring when the weather improves for the northern latitudes. Then local businesses feel the pinch of the approach of the off-season summer. The tourists and retirees are gone, so the year-round locals are all that’s left.

This seasonal rise and fall in business happens in many places, so if you are trying to buy or sell a business, you will need to understand what this seasonality means in terms of a business deal.

Buyers

You will have to realize that the numbers during a peak month are not the numbers for every month, and likewise the months on the low end of the profit spectrum shouldn’t necessarily scare you away. Buyers who are coming to a seasonal area from an area without such fluctuation need to look at the numbers on a yearly basis instead of on a month-to-month basis. If every year the business is slow in July and August, but then rebounds and does well for the remainder of the year, then the business is probably in good shape.

Sellers

Most sellers want to sell their business in the slow months, just after the busy season has ended – thereby taking the lion’s share of the yearly profits when they go. Although this is a smart move financially, most buyers won’t agree to take the wheel with a handful of bad months directly in their path. As a seller, you will need to be realistic about a closing date and be willing to negotiate with a buyer so that both parties end up happy. This is especially true if you will be offering seller financing, as you won’t get paid if the business folds in the first few months after the ownership transition. You will likely need to give up a few lucrative months so the new owner will have enough cash flow to keep the doors open.

The message here is you will need to consider the cycles of businesses in a seasonal area before misinterpreting numbers or trying to set closing dates that will benefit you alone. By allowing some room for negotiation both sides can end up with a fair deal.

Do you have a seasonal business that seems to scare away buyers when they look at the slow months? Are you looking at businesses in a seasonal area and want to know what is acceptable in terms of fluctuation? Please feel free to leave us a comment or question, and we would be happy to help.

Michael Monnot

Why Are Sellers So Difficult? Understanding The Other Side

Posted in Buyers Articles

Published August 29, 2022

If you have just entered the business market, you may have noticed that sellers are not falling all over themselves to court you and sell you on buying their business. Considering how much money you are about to spend, you may feel like sellers should be doing more to entice you – but business sales don’t work that way.

It’s not like buying a really expensive car or a really nice watch where sales people fight over you and do everything they can to close a deal.

When you own and run a business, it is a life-encompassing affair. Your business is your baby, so selling that business – which involves handing over the keys and walking away – can be a very emotionally difficult thing to do.

Whether it’s productive or not, many sellers look at buyers as the villain in the story. They see questions as a personal attack. They get offended when you find issues. They get easily insulted during negotiations. You get the idea.

Another issue arises because most business information is inherently private and proprietary, so it can be hard for a seller to hand over that information to someone who is essentially a complete stranger.

When sellers first list their business, they put together a package of general information, and that information is probably all they are comfortable handing over. Trouble can start when you as a buyer want more information than a purposefully vague listing or a basic marketing package.

As a buyer, you are entitled to all the information you need to make an educated decision, just try to see your requests from the seller’s point of view. Would you be willing to answer a 90 question list after you had provided the answers to those questions in a marketing package the buyer clearly hasn’t read? Would you love the idea of complete strangers digging around your financial records?

The key to working together with sellers is to have a bit of patience and to use your intermediaries (your brokers and attorneys) as a buffer between the two sides. A good broker, for example, will ask you to read any information already supplied and pare down that 90 question list so as not to offend the seller.

Working together with the seller is of the utmost importance if you want your deal to reach a closing table – and keeping things amicable will make the training and transition period (where both sides will be working together) from being an awkward disaster.

Are you a new buyer in the market and have had trouble finding cooperative sellers? Do you have questions about what information you will be able to access and what kinds of questions are appropriate to ask a seller? Ask us! Please feel free to leave a comment or question, and we would be happy to help you on your road to business ownership.

Michael Monnot

BIG Changes Are A BIG Mistake: Why Smaller Is Better For Your New Business

Posted in Buyers Articles

Published August 22, 2022

We see this one all the time. A buyer walks into a functioning (and profitable) business and decides that they want to make changes – big changes.

They bought this business because it had some potential for growth coupled with a fairly successful track record. They gut the infrastructure, they completely remodel, they toss out all of the old operating procedures, they expand. In less than a year they are completely belly-up and have to shut the doors.

What happened? They went TOO BIG TOO FAST.

What do we mean by that?

We mean that as a new business owner, you need to be very careful about decisions that will drastically change the functioning business you bought. The reason the business functions is the current methods work – so instead of fixing what isn’t broken you will need to take some time and figure out what you should change before you change anything.

Here’s an example. If you bought a restaurant that serves pizza but hasn’t been turning the best profit, you shouldn’t change the menu to burgers and redo the décor to try and increase profits. You should spend some time figuring out why the profits aren’t where they should be. In this example, the reason the numbers are down is because the grumpy long-term staff have been driving customers away. Your new menu and fresh décor will only make the problem worse by driving away the faithful regulars who were willing to put up with a grouchy waitstaff for amazing pizza. All this business needed was a new set of employees, not a costly remodel.

Here’s another example. If you bought a small but profitable manufacturing business with the goal of expansion, you probably shouldn’t spend a small fortune expanding the manufacturing facility as soon as you get the keys. In this example, the reason the company is profitable is because they have stayed small. They are able to fill the niche they are in without the major overhead that a much larger facility would require. By spending a few months understanding why the previous owners never chose to expand you can save yourself the horrific and expensive failure of a facility too large to be profitable.

The lesson here? Don’t try to go big without understanding why going big hasn’t happened before. Learn from the mistakes (and the successes) of the previous owner before you try to implement any big changes of your own.

Are you considering buying a business and you have questions about what you should and shouldn’t change? Have you bought a business in the past and made too many changes too soon? Please feel free to ask questions or share your experiences here!

Michael Monnot

What Do We Do About The Employees? Suggestions For Business Buyers & Sellers

Published August 18, 2022

A business is for sale, and this business has employees. The employees have been kept in the dark about the for-sale status in order to protect the integrity of the business throughout the transaction process, but now that a buyer and seller have come to an initial agreement and the sale is moving forward – how do you handle the employees?

This is one of the most important (and by nature carefully handled) aspects of the sale of a business. The sale of any business that has employees (especially a business with critical “key employees”) will need to be handled delicately.

As a buyer, do you demand that you meet with employees before closing as you feel they are critical to the business? As a seller, do you let this happen? What if the buyer walks away or approaches the employees the wrong way?

Although a seller might feel that their employees will only be loyal to their ownership and won’t accept a new boss, in most cases employees can view a new owner as a positive – if the transition is handled properly.

How? Focus your discussions with employees on the benefits a new owner will bring – and wait to tell them until after the sale.

Here’s a few thoughts:

Long term businesses often become stale as sales efforts and marketing may have lagged or become non-existent leaving the business just gliding. A new owner can bring that new energy, marketing ideas, additional employees, new clients and just a new way of doing things which can invigorate a business and push it to the next level. As the business grows and changes for the better those employees who stay can reap the benefits of those changes. This is especially true if the business is being acquired by a larger firm or if the business is ripe for expansion.

One of the reasons why you don’t tell employees too early is most of the time the employees really do want or need to keep their job. Telling employees too soon can make them feel very insecure and can leave them wondering if they will have a job after the sale closes. They might worry that they will be replaced, they might have concerns about getting along with a new owner or they may worry that they won’t be able to handle the changes a new owner will make. These worries can cause an employee to panic and quit – which is bad news for both sides of the deal. This is why both sides should wait until after the sale to tell the employees. Knowing that they’ve made it past the end of the transaction will assure an employee that their job is safe. Buyers should let their new staff know that no major changes are planned and immediately set expectations.

The message here is typically the loyalty of employees is to the business or their job and not necessarily to the seller. It’s also critically important to wait until after the sale to tell employees anything.

Instead (after the sale), both sides should focus on open and honest communication, ask for input about what the business can do better, be clear on new roles and reinforce that the new owner is counting on the existing staff. Hopefully that will build confidence and loyalty on both sides, thereby creating a positive environment as the business moves forward to the future.

Have you sold a business and told your employees too early about the sale? Are you buying a business and want to know more about why it’s a bad idea to talk to the key employees before closing? Please feel free to share your story or ask questions here.

Michael Monnot

A Business Buyer’s Options For Corporate Structures – Which Is Best For You?

Posted in Buyers Articles

Published August 8, 2022

There are a lot of important decisions to make when you are buying a business, but one you may not have considered is choosing the corporate structure. You will need a corporate structure in place before you do many of the licensing/permitting applications that will be necessary for you to officially take over the reins. Your corporate structure also defines who owns the business and how the business will be taxed.

What are my options?

Corporation

Probably the most frequently used and preferred type of structure for forming a company is the corporation. By presenting the Articles of Corporation to the Secretary of State, you can form a corporation fairly quickly. If you are forming the company in Florida, then the registered office is also in Florida and the corporate structures are governed by the laws of the state of Florida. A corporation formed in Florida can carry out business in every state, although all of the states require a registration. Foreign nationals can also form a corporation in Florida. A registered agent (a person headquartered in Florida) has to be named to receive and deliver documents.

Limited Liability Company (LLC)

The Limited Liability Company is not accepted in all states, but it is in Florida. The shareholders are personally liable for taxation and the accountability is limited to the assets of the business. Just like the corporation, an LLC requires the filing documents to be registered with the Secretary of State. In most cases at least two shareholders are required for a Limited Liability Company.

Sole Proprietorship

If the business is privately owned, it is a Sole Proprietorship. In the majority of cases a single person is the owner of the business. This type of corporate structure does have some downsides. The owner is liable with all of their personal assets and the owner is also liable for taxation.

General Partnership

In this type of corporate structure, the partners lead the business together and all of the partners are absolutely liable for accounts payable. This setup usually requires more administrative effort and can be more cost-intensive.

Limited Partnership

The Limited Partnership consists at least of 2 people, a General and a Limited Partner. The Limited Partner has a supervisory role, both available and limited. He or she can’t be part of the management and acts as an investor. The General Partner leads and is liable for the business. A shareholder contract has to be prepared for the forming of the business. With this type of corporate structure, you have to request a Certificate of Limited Partnership from the Secretary of State.

Before you make a decision it is important to contact a certified public accountant familiar with corporate structures and small businesses, a business attorney or a business broker because they will be able to advise you about what type of structure would be right for the business you want to purchase. Are you a business buyer or budding entrepreneur who would like help? Please feel free to contact us or leave a question here and we will be happy to help or refer you to one of our partners.

Michael Monnot

Why A Realistic (And Fair) Buyer Will Always Win

Posted in Buyers Articles

Published August 1, 2022

If you are entering the business-for-sale marketplace, then you may have already come across the phenomena that happens when some small, usually family or individually owned business go up for sale. The prices can seem high, even ridiculous in some cases.

Why are they priced so high?

The owners of these businesses are setting a listing price based on their emotional attachment to the business instead of pricing it to sell. In the business market, there are brokers who will tell an owner what they want to hear, allowing a crazy initial listing price just so they can get the listing.

This is a major disservice to the seller and to any potential buyers who have an interest in the business. By allowing an owner to think they will be able to get whatever amount they want, these brokers shut down any real chance of negotiating for a fair price before negotiations can even begin.

The harsh reality of the business marketplace is that a business is only worth what someone is willing to pay for it. While the tug of war between heartstrings and financial reality is the subject for another article entirely (one for those emotionally-attached business owners), as a buyer you need to tread this path carefully.

First, you are not dealing with a large corporation with a dozen board members, you are probably dealing with one person, a person so personally invested in this business that one wrong move from you can become a deal-killing offense. If you understand this personal investment, and then act accordingly, you will have a far greater chance of getting a deal done.

Should you pay them whatever price they are asking for? Certainly not, but the super-low-ball offer, just to kick a tire and see how low a seller is willing to go is a big mistake.

A low-ball offer tells a seller that you have no regard for all of the time, energy and money they have invested in their business. Anyone (including you) would be offended by such a move. Once a seller is offended, there is usually little chance of getting them to cooperate and agree to work with you on a deal, no matter how much you want the business or how much you are willing to pay.

With that said, use the advice of your business broker when putting together those crucial first offers. You want to open negotiations at a reasonable point. When you start at a fair number, you are saying a great deal about yourself as a buyer – letting the seller know you will treat their business and the deal you are about to negotiate with respect.

Are you a buyer who has questions about what a good initial offer should look like? Would you like to know more about how to negotiate with sellers? Ask us! Please feel free to leave us a question (or comment) here, and we will be happy to get you an answer.

Michael Monnot

941.518.7138

Mike@InfinityBusinessBrokers.com

Business Buyer: What’s In An Offer?

Posted in Become a Business Owner, Buyers Articles

Published July 18, 2022

If you’ve found a business you really like, and you are ready for the next step, congratulations!

The next stage in the business transaction process is the initial offer, sometimes called a “purchase contract” or an “offer to purchase”.

Once a buyer makes an offer, the seller decides if they are willing to accept the offer. If they are, then the business transaction heads into a period called due diligence. Just like you can’t do an inspection on a house until you’ve had an accepted offer – in business sales an accepted offer will give a business buyer a chance to look over every aspect of the business and decide if they want to go ahead with the sale.

What goes into an offer?

This document will contain the terms, conditions, non-compete conditions, financing, inventory, transition details like training, warranties and any other aspects of the purchase.

Should I write my own offer?

In most cases, you will want to have a business broker put together an offer to purchase for you, although there are some standardized versions you may be able to use in the most simple of transactions. Business transactions are inherently complex, so having someone who writes these types of contracts all the time to help you will keep you from having issues (like if you unknowingly leave out what could be a crucial part of the contract) down the road. If you really want to write your own, just make sure you have your broker look it over before it gets handed over to the seller.

Is an offer set in stone?

Absolutely not! Your initial offer is contingent upon what you discover in due diligence. If what you uncover during this period makes you unwilling to go ahead with the purchase, you will have the opportunity to back out. If what you find during due diligence isn’t enough to kill the deal, but you discover, for instance, that the business is earning 15% less than was initially stated , you will be able to adjust your offer accordingly.

The moral of the story? An offer is an important part of the business transaction process, so use the experience of your business broker to guide you through this step.

Are you a buyer with your eye on a particular business but you aren’t sure what will need to go into the initial offer? Was your initial offer rejected by the seller and you need to know what to do next? Please leave us a comment or question and we would be happy to help you.

Michael Monnot

Why You MUST Have A Great Website: Thoughts For Business Buyers & Sellers

Published July 11, 2022

We spend a lot of time getting to know businesses inside and out – and for the most part entrepreneurs (both those who are selling and those who have just purchased a new business) are really smart people. They care about marketing their business in such a way that the business is put in the best light possible. The décor is nice, their local advertising is top-notch, etc. Then you look at their website…

This is a digital age, and like it or not, many future customers will come to you (or won’t come to you) based solely on your presence on the web. The first thing a prospective client is going to do when they learn your name or search for a service in your industry is hit an internet search engine. Your website is the face of your business, even more so than your actual physical location, so your web presence needs to be great. Really, really great.

We come across businesses with alarming regularity who have dreadful websites or no websites at all. This is a HUGE mistake.

But I’m not in IT and I don’t know how to write code! Having a website built is expensive!

Neither of these issues should prevent a business from having a nice-looking and informative website. Long gone are the days when you had to know how to write code. There are a plethora of services out there that will help you build a great website – and most of them are free or very affordable. Think drag and drop template services like Squarespace or Wix.

But I’m not creative! I don’t know what to put on a website!

Again, issues that are easily solved. Almost all of the services that will supply you with a free or low-cost website come equipped with templates – all you have to do is pick one, then copy and paste your information in. You should look up your competition and similar businesses in other areas to see what you are up against. Some templates are too simple or look to hokey, and by spending a few minutes researching you will quickly see what is appealing and what isn’t and then apply what you find to your own site.

A note here, have someone proofread your site before you publish it! There are a ton of websites out there that would otherwise be great except they have major spelling or grammatical mistakes. Mistakes like this show a lack of attention to detail and a lack of professionalism. Is that the impression you want to give to prospective clients? Hopefully not.

Another note: make sure you edit the mobile version of your site as well. Most people are looking things up on their phones – and a layout that looks good on a computer screen doesn’t necessarily translate well to a mobile site.

If you are trying to sell your business and don’t already have a great website in place – changing this needs to be a priority. Buyers will absolutely look you up on the web while they are considering buying, so put your business in the best light possible by improving your internet presence.

If you are buying a business with a terrible website or no website at all, creating a great online presence can be a quick and easy change you can implement immediately. This will help to bring in new business by allowing customers to find you online, and can let those customers know what kinds of goods or services you offer.

A professional-looking, visually appealing and informative website can be your very best marketing tool. Don’t sell your business short by ignoring how you are perceived online!

Are you a business seller who needs some advice about improving your web presence? Are you a business buyer who would like to know what to look for when you are looking at the websites of prospective businesses? Ask us! Please leave us a comment or question here, and we will be happy to answer any web presence questions you have.

Michael Monnot

Should I Use Multiples? Advice For Business Sellers & Buyers

Published July 4, 2022

The most important number in the sale of any small business is the price. The listing price is what a seller hopes to get and the purchase price is what someone is actually willing to pay.

Where do these numbers come from?

There are a few ways that business prices come to be. They typically come from an analysis of the financial records of the business, coupled with what the assets and inventory are worth. In some cases, it is appropriate to use the sold price of comparable businesses in the area, in others it comes down to multiples:

What’s a multiple?

In the simplest form a multiple takes the average sale price for businesses in a particular industry and compares that number to what a business earns. For example, the multiple for a restaurant might be two times earnings – meaning you should price a restaurant at twice what it earns in a particular year.

Now that you know what multiples are, how should you use them?

Multiples should really only be used to determine a ball-park figure for the value of a business. Take the restaurant example. Restaurants are very complex businesses, so most restaurants sell for a number very different than an oversimplified two times earnings.

If multiples only give you a ball-park figure, should you use them at all? Yes and no. When you are looking to sell your business, multiples can help you get a starting point for where you might want to set your listing price. It is critically important, however, that you not stick with a simplified number that could cause you to over or under value your business on the market.

If you are a buyer, you can use multiples to help you gauge if the listing price of a business is in line with industry standards – just remember that the justification for a listing price probably includes much, much more than just the multiple.

Are you a business seller who wants help using multiples to set a listing price for your business? Are you a buyer who has questions about how to use multiples when analyzing business prices? Ask us! Please feel free to leave us a comment or question here, and we will be happy to help you with multiples.

Michael Monnot

Is It Too Ugly? Why You Need To Look Beyond The Mess

Posted in Become a Business Owner, Buyers Articles

Published June 27, 2022

When you first start searching for a business to buy you might have an idea in your head of what that business will look like. In your mind the location is perfect, the windows are clean and everything is new and organized. When you are shopping for something like a house or a car this is often the case – as a clean home shows much more successfully than a dirty one. In the small business market, however, this expectation of perfection is going to be problematic.

Why?

Most small businesses are a mess because a small business is complex by nature. Sure, the parts that the customer sees are usually tidy – but walk into most back offices, kitchens, garages – and the reality will show itself. And the mess might not be just physical. As you start to peel back the layers on most small businesses problems will spill out. There might be interpersonal issues with the staff. The financial records might be an unorganized disaster. You get the idea.

Here’s the good news. If your first impression isn’t great it doesn’t mean it’s not a great business. It just means you need to dig a little deeper to see if the mess that’s in front of you is something manageable or something you aren’t going to want.

Here’s a few examples:

You walk in and it’s ugly.

The equipment is really old. The décor is really dated. The vehicles look worn out. When your first aesthetic impression of the physical parts of a business isn’t great, it doesn’t necessarily mean the business itself is bad or doesn’t make money. Instead of instantly deciding the business isn’t up to par – ask why the current owner keeps things the way they are. To you the outdated décor in a café isn’t appealing, but perhaps it’s the old school charm that keeps the loyal clientele coming back. The vehicles might look worn out, but upon further inquiry you discover that the vehicles always look like that because this construction business is rough on their equipment and the internal parts of the vehicles are very well maintained. You can’t let aesthetics alone sway your decision about a business.

You find out there’s a ton of employee drama.

If the business you’re considering requires employees then you’re likely going to encounter some sort of staffing issues (particularly when you first take over). If it seems like there’s an issue among the staff, ask the current owner why they haven’t dealt with it. Maybe what seems like drama is simply a culture that works as this staff has been working together successfully for a very long time. Maybe the employees who have issues with each other are able to keep it professional in front of customers and are really great at their jobs. In this case the issues don’t actually impact the business itself. Perhaps the current owner is a bit burned out and has become apathetic to employee issues that could be easily handled by you as a new owner laying some new ground rules.

You have to understand going in that a small businesses is going to be messy. Parts of it will likely be ugly. The mess and ugliness probably don’t tell you the full picture. Make sure you are delving a bit deeper to understand why things are the way they are – before deciding to walk away from what could be the perfect business for you.

Are you starting the search process for businesses and want to know what you should look for during site visits? Do you have questions about the kinds of small business issues that are relatively easy to fix as a new owner? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot