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Why Business Buyers Should Consider Customer Diversity

Published April 11, 2022

When you are looking at buying a business, one aspect of any business you will need to consider is the size of the customer base. Ideally, you should look for businesses with a large number of clients spread out over many accounts where each client makes up only a small portion of the total revenue.

Why is this important?

A company that has one (or just a few) large client(s) who make(s) up a very large percentage of revenue can be problematic.

Here’s an example. A lawn service company has a handful of independent regular clients, but the majority of their business is for a large real estate firm that has a contract with them to maintain the lawns of homes that are on the market. This one client makes up 70% of their revenue. Say you purchase this business, and then three months into ownership the real estate firm is bought out by another company who already has a lawn service contract in place. In one swift move, 70% of your revenue goes up in smoke.

The way to avoid this pitfall is to look for a diverse customer base when you are screening prospective businesses. Ask yourself these questions as you consider a business:

What does the customer list look like?

How does the business acquire new customers?

What is the cost of customer acquisition?

What kind of customer retention does the business currently have?

On the other hand, what if you find a business that you really like, but the customer list isn’t very diverse? Does that mean you shouldn’t buy it? No, but it does mean that creating customer diversity needs to be priority #1 the day you take over as owner.

Only you can decide which business is ultimately right for you and for the goals you are hoping to achieve. You just need to be aware of the inherent perils that exist when you are buying a business with a very small customer base.

Are you looking at buying a business, but are curious about what a diverse customer base would look like for a particular industry? Do you have concerns about a business you are already considering? Ask us! Please feel free to leave a comment or question here, and we will be happy to help.

Michael Monnot

Buying A Business? Invest Your Time + Energy For Success

Published April 4, 2022

When you are serious about buying a business and ready to jump into the process, you aren’t going to show up one day and own a business the next. It’s going to take time. Probably more time than you thought. Most business transactions take months to get from the initial interest of a buyer all the way to a closing table, and that’s if both sides agree on most things.

Why does it take so long? Small businesses are complicated animals, and business transactions have a lot of moving parts. On the buyer’s side of the equation you will be putting together offers, going through documentation, getting your own licenses and permits sorted out, negotiating with sellers, meeting with attorneys and CPAs, talking to your business broker, touring physical locations, negotiating with your commercial landlord, having meetings and conference calls with the seller – you get the idea. It can at times feel like you have a new part-time or even a full-time job.

If you really want to buy a business you’re going to need to make the time to do the things that need to be done. You can’t come in and expect it all to be finished in a few days with very little effort on your part. You’re going to have to spend evenings researching. You’re going to have to be patient with the negotiation process. You’re going to have to be willing to put in the work to provide the information about yourself that’s requested. You’re going to have to get your license and permit applications done. You’re going to have to make lots of phone calls and have lots of meetings. It can feel like a long list – but it’s not impossible.

If you’re worried about the amount of time and effort you’re going to have to put into buying a business, don’t. Small business ownership is a life encompassing affair – so if you aren’t willing to put in the effort and energy it’s going to take to get through the business buying process you probably shouldn’t be buying a business in the first place. Remember that all the work that you do before you sign at the closing table is work you are doing to help yourself. All of the time and effort you spend up front will be instrumental for setting you up for success in your new business venture.

For example, the bureaucracy that is the licensing and permitting process for small businesses can be complicated and slow. If you drag your feet on licensing and permitting requirements, putting everything off until your closing date is looming, you’re going to be scrambling when the business keys get handed to you and you’re not properly squared away in terms of license requirements. In many cases if you haven’t worked out your licensing requirements you won’t be able to open the business until you get it straightened out. If you stay on top of what needs to be done you won’t cause yourself any issues when it’s your turn to take the reins.

The message here is you need to be prepared to spend some time and exert some effort if you want to become a business owner – but all the work you do will pay off once you get handed the keys.

Have you always wanted to buy your own business but are worried about what’s required for the transaction process? Would you like to know what businesses are currently available that would meet your goals for business ownership? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Planning Your Trip: 3 Tips For Relocating Business Buyers

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

Published March 28, 2022

Maybe it was the lockdowns of the pandemic. Maybe it’s just that you’re burned out. Whatever the reason, you’ve been daydreaming about moving somewhere else and buying a business. Guess what? There’s no better time than now to make the leap.

Want some tips on how to start? Here’s 3:

Do lots of research:

This one might sound obvious, but most people would be shocked at how little research most buyers do before taking a huge leap like this. Take a deep dive into the locations that interest you. If it’s somewhere you’ve only ever visited on vacation, research what it’s like to live there year-round. Is it a seasonal economy that you’ll need to account for when choosing the type of business to buy? Can you afford to buy or rent a home close enough to your business to make your commute make sense? If you have kids – what are the schools like and where do you need to live in order to get your kids into a school where they’ll be successful? What are the property taxes like? Are crazy weather events like hurricanes something you need to think about? The point here is you need to have a good handle on where you both want to and realistically can be long before you start a serious search for businesses to buy.

Find the right help:

If you’re serious about buying a business in a new area, a local business broker is going to be an immense help. They know the area, the local small business economy, the local licensing/permitting requirements, the major players in terms of commercial property managers – the list goes on and on. Having someone with local experience as your guide will make both finding the right business and navigating the buying process much easier than going it alone or using someone who doesn’t know the area.

Have the site visits planned way before you leave for your trip:

Seeing a business you are considering is an important step, but what many buyers don’t understand is this step never comes first. Businesses are bought and sold under the protection of confidentiality (see why here), so you can’t just fly into town and waltz into whatever business you please. The steps that are required before you set foot in a physical location go like this:

You talk to a local business broker about your goals for business ownership, the industries you’re interested in and the amount of capital you have to invest. They find you business listings that would match your goals and means. If any of those listings look promising you can request more information by signing a non-disclosure agreement for each business you’re still considering. After looking over the information a conference call with the sellers is next, so you can ask questions about the business and see if it’s still a good fit. If after your calls you’d like to see the physical location this can be arranged. It usually requires seeing the business before or after hours when no staff or customers are around and will need to be coordinated between the schedules of the seller, the buyer and the brokers involved. It should be obvious that this process can’t be completed once you’ve landed on your scouting trip and have called a local broker for the very first time. You need to plan your site visits when you are doing your initial trip planning – like before you’ve even bought your plane tickets. It is a colossal waste of your own time to fly in and see businesses you haven’t already vetted, so plan your trip with that in mind.

If you’re considering a big move – now is the time. Contact a local business broker and get the process moving!

Have you always wanted to move somewhere else and own your own business? Do you have more questions about the steps of the business buying process? Ask us! Leave any questions or comments and we would be happy to help!

Michael Monnot

You Can’t Sell “Might Be”: Prepping Your Business For A Better Return

Posted in Sellers Articles

Published March 24, 2022

Potential. It’s a powerful word. It gets thrown around in the business arena – but what does it really mean when you’re trying to sell your business?

Any business can have potential. Potential for growth. Like a small restaurant only open for lunch with a devoted local following who would love dinner hours as well. Potential for a new customer base. Like a pressure washing business that has never approached any large neighborhood communities with the hope of securing big accounts.

Here’s what potential isn’t. Potential isn’t worth a whole lot. You may love your business, and you may see the potential your business could have if you implemented some changes – but if you haven’t made those changes yet you can’t ask a buyer to pay a premium for something that MIGHT be. A buyer is only going to pay for what ALREADY IS.

Maybe you’ve been dragging your feet where marketing is concerned and haven’t been pushing for any new customers. You know you could land some new accounts, you just haven’t made the time. The only way to reap the benefits of that potential growth is to implement those changes yourself. An increase in customer base and rapidly growing cash flow are absolutely going to have value to a buyer. The potential for that future cash flow if you leave the work to the next owner? No value at all. No one is going to pay you a premium so they can do more work.

The message here is you can sell your business today, as is – or you can take the time to build the future of your business before you sell. Increasing numbers, increasing accounts, ramped-up marketing and new customers will make your business far more valuable in the eyes of a buyer than just the promise of potential down the road. Turn potential into cash by implementing those changes today.

Are you considering selling and are looking for some ideas on how to grow your business to get a better return? Does your business have potential but you don’t know how to turn that into action? Please feel free to leave any questions or comments and we would be happy to help.

Michael Monnot

It’s Never The Perfect Time – Why You Should Buy That Business NOW

Published March 21, 2022

We all have the dreams. Dreams of quitting the job we hate, of striking out on our own and finally becoming our own boss.

What stops us? Taking a huge leap into the unknown can be absolutely terrifying.

No one wants to fail, and to prevent that failure we try to get our ducks in a row before we make big changes. Like waiting for a housing market peak before listing your house for sale. Like detailing your car before you sell it. We all strive for things to be perfect when we’re about to take a big step.

Here’s the thing about that push for perfection. It can hold you back.

Entrepreneurs can’t be risk averse. Buying or starting a business, operating that business, growing that business – all of these come with their fair share of risk. Guess what? If you need to be comfortable with risk you can’t also demand perfection.

Any business you look at will have a few skeletons. The news is always going to look bleak. The timing could always be better.

You can always find a reason not to do something. That’s the path of least resistance. If you don’t let go of your hope for perfection you aren’t going to be able to achieve the dreams, take the leap or change your life.

Should you disregard what’s going on in your life, disregard global catastrophes or settle for something that isn’t ideal? Of course not. The point we are trying to make is you can’t chase your dreams of business ownership if you always wait for everything to be just right.

If you really want to own your own business but aren’t sure if you’re ready or aren’t sure that the timing is right – have a conversation with an experienced and qualified business broker. They can help you decide what types of businesses would fit with your dreams and goals for business ownership and also give you guidance on the current state of the market.

Don’t wait for the perfect time to buy a business because that time will never come. Instead, have a conversation about your goals for business ownership and get started on the path to the life you’ve always wanted – today.

Have you always wanted to have your own business but aren’t sure if now is a good time? Would you like to know more about the business buying process? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot

Are You Set Up For Success? 2 Ways Business Buyers Can Help Themselves

Posted in Buyers Articles

Published March 14, 2022

Buying a business? Congratulations on your start in the world of entrepreneurship! It’s hard work, but the benefits of owning your own business can absolutely outweigh the challenges – as long as you’ve set yourself up for success.

How can you get yourself off to the best start as a business owner?

Choose Something You Know

One of the most common mistakes new entrepreneurs make is they buy a business they know absolutely nothing about. For instance, if you’ve spent your whole career as a pharmaceutical salesman – you definitely shouldn’t buy a bar. Why not? Although it might seem like slinging a few beers isn’t that hard – the restaurant industry (or any industry where you have zero experience) can be impossibly tough. Do you know what your food and beverage costs should be to keep you in the black? Do you know enough about what it takes to be a good bartender so you can vet and hire the right staff or fill in when needed? Would you be able to tell if your current vendors are giving you the right stock and the best price? Probably not, and these are just a few points in the restaurant industry that can mean the difference between success and bankruptcy. Choose a business in an industry where you already know the ropes. Adding a brand-new industry to the already precipitously steep learning curve of business ownership is almost always a mistake.

Don’t Change Everything Right Away

Many entrepreneurs who buy an existing business walk into their new business on day one and decide they want to focus on something physical – like changing the color of the upholstery, buying new furniture or even a full renovation so they can make the space feel like their own. This a huge mistake and a big waste of resources. Why? You bought an existing business. That business has an already existing set of customers. Your mission in the first few months is twofold. One, don’t drive away your existing customers. Two, get as many new customers as you can. One surefire way to keep from accomplishing those two goals is to focus on physical things like aesthetics. Maybe the reason your new café is so popular is the regular clientele love the existing quaint atmosphere – redecorating to your sleek modern style might run them off. Instead, focus on building that customer base and take some time to learn why your current customers are there – before you make any changes.

Get yourself on the right path by buying a business you already know and don’t make any immediate changes.

Are you thinking about buying a business in an industry where you have no experience and want to know what other industries would fit with your specific skill set? Would you like to know more about how a new business owner can get new customers in the door? Ask us! Leave questions or comments here and we would be happy to help.

Michael Monnot

Buying/Selling? Why You Really Need A Broker

Posted in Buyers Articles, Sellers Articles

Published March 7, 2022

Buying or selling a business? Are you ready to negotiate?

No one has ever bought or sold a business without a great deal of back and forth between the parties involved – and many, many deals have died over the negotiating table. Nothing is more frustrating for buyers and sellers than the death of a perfectly good deal. If you are thinking about buying or selling a business, how do you keep your deal alive?

Use an experienced and qualified business broker. A good business broker is essential for success.

Of course you would say that – you’re business brokers. Yes, you have us there – but we would advise you to use the services of a business broker whether that’s what we did for a living or not.

Why? The business selling process and the businesses themselves are both complicated, messy animals. No where does that inherent messiness come out more boldly than during negotiations.

What needs to be negotiated? Essentially everything. The purchase price, the length of the due diligence phase, seller financing agreements, a non-compete clause, a new lease, the value of the inventory, the length of the training period, the value of the equipment and furnishings, the continued employment of certain staff, the closing date – the list goes on and on.

With such a monumental list of things that need to be agreed upon by two parties with vastly different goals it’s no wonder that many deals fall apart. A seller is dealing with handing over a business with which they have strong emotional ties as it has been a very big part of their life. Sellers are also nervous about selling themselves out of a job, essentially becoming unemployed the moment the deal is signed. They want to get as much as they can out of the sale of their business. Buyers, on the other hand, are dealing with writing a huge check to a complete stranger for a risky new entrepreneurial adventure. They want to spend as little as possible so they can keep working capital available.

How do you meet in the middle of such vastly different goals? An intermediary like a business broker.

A broker’s responsibility is to keep the deal together and help it get to the closing table. Your broker acts not only as an experienced advisor who ensures everything that needs to be done gets done, they also act as an all-important buffer between the two parties. Business sellers and business buyers are entrepreneurs at heart – and to be a successful entrepreneur you need a strong and driven personality. If you’ve ever tried to argue with someone who has this personality type – you should understand why a buffer is needed. Too many perfectly good deals have fallen apart because someone asked the wrong question, made the wrong request – and the other side was offended to the point of no return.

Don’t try to go-it alone. If you are serious about selling or buying a business, you need a business broker to help you negotiate your way to closing table success.

Are you thinking about selling your business and want to know more about how a business broker can help you? Do you want to buy a business and want to know more about the negotiation process? Ask us! Please feel free to leave any questions or comments and we would be happy to help.

Michael Monnot

A Business Is Not A House – And Why This Matters

Published February 28, 2022

Yes, we know. Obviously, a business is not a house. Here’s the point we’re trying to make:

Some prospective business buyers approach the business buying process as if they were buying a house or maybe even a car. This is an enormous mistake.

They typically call us when they’re already in town, a trip that’s been planned for weeks or months. Did they have the foresight while planning this trip to think of talking to someone about looking at businesses? Nope. They just call to say they’re here. They want us to drop all of the clients we already have meetings and calls with that day to drive them around so they can look at the physical locations of all of the businesses that are currently on the market. They then expect that we can waltz into any business that seems to interest them, introduce ourselves to the staff and management – and ask why the business is for sale.

This is NOT how you go about buying a business.

You can’t treat a business like a house for a lot of reasons. An operating business is just that – operating. It has a staff, vendors and competition. It has customers on site.

There is a misleading perception that any business for sale is a business on the brink of failure. It is this perception that can cause catastrophic losses and serious ramifications if the for-sale status of a business is disclosed to the wrong people (think the staff, vendors, the general public and the competition). An entire staff can quit. Customers can cancel contracts. The list goes on. Confidentiality in business sales is key, so anyone who is serious about buying a business needs to play by the rules of confidentiality. Those rules take planning and they take time.

How should you buy a business?

If you’re looking for businesses that aren’t in your current area, you should call and talk to a local business broker while you are buying your plane tickets or setting up your travel plans to visit your future relocation spot. Talk to the business broker about your goals for business ownership, the industries that you’re interested in and the areas where you have practical experience. You and the broker can spend a few weeks researching and searching – looking for the right business opportunities in your new area.

Once you have found a few businesses that interest you, you will be required to sign non-disclosure agreements before you are allowed to know the business name or location. The non-disclosures will also give you access to further information, things like P&L statements and past tax returns. You can use that information to narrow down your choices and then request a conference call with the sellers of the businesses that still interest you. By looking at the cursory financial information and talking to the other side you can decide if any of the businesses on your list will still fit with your goals. Those that do will be your final list, and these are the businesses worth seeing in person.

Some buyers have a hard time with this concept – that they can’t tour physical locations as the first step. Here’s what you need to remember: an operating business has value because an operating business creates cash flow. You are buying this cash flow – not a physical space, so seeing it in person isn’t as important as it would be for something like a house.

The veil of confidentiality is also so crucially important, even for you as a buyer. You wouldn’t want a business that you are seriously considering to be destroyed by someone else’s careless disclosure of the for-sale status – so understand that the process is built to protect the business that might be yours someday. You will need a bit of patience to see the process through to the end.

Don’t treat buying a business like buying a house. Remember that you are buying yourself a future life, and for such an enormous endeavor some pre-planning must take place – so call a business broker long before you get to town.

Are you thinking about buying a business and have more questions about the business buying process? Would you like to know what types of businesses are currently for sale in the areas you’re considering? Ask us! Please leave any questions or comments, we would be happy to help.

Michael Monnot

Buying A Business? Why You Should Be Decisive And Make An Offer

Published February 21, 2022

You think you’re ready to buy. You’ve researched the market and found that in the industry you’re considering there is room for growth. This industry will suit you because you already have practical experience and familiarity. You’ve searched for businesses and discussed the options available for sale with your business broker, and you’ve settled on one choice that really interests you. The next step is to make an offer – but that idea seems terrifying. What if it turns out this isn’t the business for you?

It’s hard to make big decisions. You can research, ponder and then research some more – but at the end of the day the only way to move forward is to act.

Here’s the good news.

There are two types of offers that you can make, and you should consult with your business broker to determine which would work better in your unique situation. One is a Letter Of Intent (LOI) and the other is a Purchase Contract (sometimes just called an Offer). Either way you choose to proceed – you can walk away from the deal if you decide (for whatever reason) that this business isn’t for you. It’s that simple. You will also get ample time to go through the business (financial records, contracts, commercial leases and the like) during a process known as due diligence.

Once you’ve submitted your offer you will have both the time and information you need to make an educated and carefully considered decision about a business.

What happens if you don’t make an offer? Well, nothing. You don’t get a chance to really look at a business because no owner is going to allow a due diligence level investigation of their business if you don’t have ay intention of actually buying it. If you never make offers you end up in a business buyer purgatory with everyone who is just there to kick tires.

If what you really want is to own your own business, you have to start taking those next steps and being decisive. Making an offer tells everyone involved in the deal that you’re a serious buyer and deserve to be treated as such.

Do you really want to buy a business, but making an offer seems like a daunting step? Are there questions about the types of offers you’d like answered? Have you made an offer on a business that you ended up not buying and have an experience to share? Please feel free to leave any questions or comments, we would be happy to help.

Michael Monnot