what you should know Archives - Page 6 of 60

Published June 19, 2023

Coming up with a brand new business idea is a big challenge. You have to figure out a concept, find a location, come up with operating procedures, hire and train a staff, build out your space – the list is a long one.

If you’ve ever wanted to own your own business there’s a way to do so without having to start at ground level. You can buy an existing business instead – one that has a proven location, concept and track record.

If this sounds like it might be the right path for you, here’s your next question.

How are you going to pay for it?

In the small business world there are essentially 4 ways to finance the purchase of a business. Let’s take a look at your options:

Seller Financing

This one is probably the most common. A buyer comes up with a substantial down payment and then the seller of the business finances the rest. This option is popular because small business funding can be difficult to get from a traditional lending institutions like a bank, so sellers will offer creative financing to open up the pool of buyers for their business. This is also popular among buyers because a seller who is willing to keep some skin in the game tells you volumes about how they view the future profitability of their business. They don’t get paid unless you succeed. A few caveats for this financing option. You will need to bring a large down payment, 10 or 15% isn’t going to cut it. Also, if you do end up defaulting on this loan the seller will get the business back.

SBA Loan

The Small Business Association (SBA) does offer loans in the right situation to people buying a small business. There will be a fair share of bureaucracy with this financing option, as well as certain metrics both the buyer and the business itself will have to meet in order for the loan to happen.

Investor/Family Funds

In some situations a buyer is able to procure funds from loans made by family, friends or investors. This option should include a contract or written agreement by all parties that spells out every aspect of the loan – how it will be paid back, what metrics are necessary, how one or more parties can be bought out of the agreement should the need arise, etc.

Your Own Cash

Lastly, you can always use your own cash to fund the purchase of a business. Perhaps you have a decent amount of money in savings, maybe you’re considering refinancing your home or pulling funds out of investment accounts. This option will alleviate you from owing money to others but must be considered carefully if you are going to be investing all of your available cash into the purchase of a business.

If one or more of these financing options seem doable for you, the next step you should take is to have a conversation with an experienced and qualified business broker. They will be able to talk you through the options available to you and help you decide which option will best meet your goals for business ownership.

Have you always wanted to own your own business but weren’t sure how you would fund such an endeavor? Would you like to know more about how seller financing works? Do you have questions about the process required for a loan from the SBA? Ask us! Leave any questions or comments here, we would be happy to help.

Michael Monnot

I Have A Business Idea: Should I Buy A Business Or Start One Instead?

Published June 12, 2023

If you want to own your own business there are basically two avenues to make that happen. You can start your own original business from the ground up or you can purchase an existing business. The path you choose will depend on many factors that relate to the risks involved in starting a business versus the risks for buying one.

In general it’s probably easier to buy an existing business. The concept, location and operating procedures are all proven because the business is currently open and running. The employees have already been hired and trained, the licensing and permits needed have already been approved, the inventory or goods for sale will work because they are currently selling – you get the idea. A tried and true method almost always works better than an unknown.

If it’s easier to buy a business, is it always a better choice than a start-up? No, it depends on what your vision for business ownership is.

You might be someone who just wants the flexibility and control business ownership affords you, and while you do have industries and types of businesses that would suit you in mind you aren’t stuck to one particular idea of how a business must be. Good financials, a good location, a good reputation – these are the things that matter to you. If your desire to be a business owner is born out of wanting to reach life goals but the path doesn’t need to be a certain way – purchasing an existing business is probably the right idea for you.

On the other hand if you have an entirely new business idea and the means to bring it to fruition coupled with needing that business to be exactly the way you envision it – a start-up is likely a better route.

A caveat to the start-up route. Say your dream is to open your own café to sell the baked goods from your grandmother’s recipes and coffee. Sure, you could find an empty commercial space and build it out to your liking – but you’ll have no idea if the location and concept are going to work. A likely safer bet is to find and purchase an existing café that is similar to what you envisioned and then make small changes (after you’ve run it for a while and have a gauge on what your current clientele will accept as far as changes) until it’s exactly the way you want it.

Whichever path you think might suit you a great first step is to have a conversation with an experienced and qualified business broker. They will be able to point you in the right direction, either by finding you listings that would suit your needs or by referring you to a commercial agent to find your new space.

Do you have a vision for business ownership and aren’t sure which path is right for you? Would you like to know what businesses currently for sale might work for your goals? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying? Why You Need To Stay On Good Terms With The Seller

Posted in Buyers Articles

Published May 29, 2023

The people who buy and run businesses are a strong bunch. Lots of drive, lots of passion and typically a very type-A personality. When you get two people in a room with this personality type it can sometimes go south in a big way without a lot of provocation. This is an enormous problem if the people having issues are the buyer and seller of a business.

You aren’t going to like everyone you meet, and if you are buying a business you’ve fallen in love with you might very well hate the seller. Maybe the two of you have drastically different world views. Maybe you have drastically different visions for the future of the business. Maybe the negotiation of your deal got a little ugly at times. Whatever the reason you and the seller aren’t fans of each other it is absolutely in your best interest to maintain an amicable relationship with the seller.

Why? You will need them for a bit.

Business deals take a long time to get to a closing table. You might need to work with this seller for months on a deal and that will be vastly easier if you can be cordial to each other and keep things professional. It will also be easier to find points of compromise within the purchase contract.

In addition to the time it takes to put a deal together, most purchase contacts contain language spelling out the terms of a training period for a new owner – usually two weeks of training after the closing happens. If you can keep your relationship with the seller peaceful this training will be pivotal to a smooth transition and ensuring you know how to successfully run your new business. If a clash of personalities causes major problems you probably won’t have a very useful training experience.

The good news is if you aren’t a fan of the person selling your business – you don’t have to be. You just need to be able to keep it professional throughout the negotiation of your deal and then through the training process.

Have you considered some businesses for sale but weren’t a fan of the owners? Would you like to know strategies for dealing with a seller you don’t like? Ask us! Leave any questions or comments here, we would be happy to help.

Michael Monnot

The Issues You Find In Due Diligence – Is It A Big Problem Or Simply Less Than Ideal?

Posted in Buyers Articles

Published May 22, 2023

Due diligence. It’s the point in the business buying process where you start to really dig into the details (think contracts, inventory lists and the like). It’s a critically important step because it’s the step where you find out what you’re really buying. You should understand going in that you might come across some things that are less than ideal because all businesses are messy and complex. Absolutely every business has some sort of skeletons in the closet that will need to be addressed. Here are some common examples:

Long-Term Contracts

This could be anything from supplier contracts, employee contracts, your commercial lease and the like. You’ll inherit some of these contracts as-is and others (like your lease) will likely require some kind of renegotiation. Long-term contracts can be a problem if the owner before you chose (for example) a supplier whose products are inferior and/or more expensive than what you would have chosen but now you’re stuck. Although the supplier example here might not be ideal, the products are working as the business is able to remain operational – so you might just have to wait out the contract or find a way to buy yourself out. As far as your commercial lease is concerned, while you will need to renegotiate, you aren’t going to get a better deal than the owner before you. In many cases the rent will increase with a new tenant.

Old Equipment

Once you really get into inspecting the equipment, vehicles, furnishings, etc. that you’ll be inheriting as the new owner of a business you might discover that these physical aspects are older and either need maintenance, repair or replacement. An important thing to remember is that most equipment doesn’t need to be brand new or pretty to do what it needs to do. It just needs to work. With that in mind you will probably be able to negotiate what you’re paying if the equipment you need is in such bad shape you’ll immediately have to replace it.

Inflated Or Misrepresented Numbers

A cursory look at a single page P&L statement isn’t going to tell you much about how the business is actually doing. Neither will a simple chat with the seller. Once you really get into the numbers you might be disappointed that profits, margins and the like aren’t as good as you thought they were or were led to believe. The good news here is if the business isn’t making as much as the seller said it was you have a fairly strong argument for renegotiation to a lower price.

The message here isn’t to immediately run away when you find problems during due diligence. Instead, look at the issues more closely to see if they are big enough issues to warrant action such as a renegotiation of your deal.

Are you looking at businesses and want to know more about how to handle problems during due diligence? Do you have an experience to share where a business you were considering had much bigger problems than you were led to believe? Please feel free to leave any questions or comments, we would be happy to help.

Michael Monnot

How To Choose A Business You’ll Love

Published May 15, 2023

One of the keys to happiness is having the ability to get up every morning and go to a job that you love. If you are looking to become a business owner, then you can’t overlook this pivotal aspect – you need to buy a business you won’t hate.

How do you ensure the business you buy is one you’ll actually love? Spend the time before you actually start searching for a business doing some serious personal reflection.

Things to think about:

Where do you want to be in 5 years, 10 years?
What do you really love to do? What in your employment history has brought you enjoyment? What do friends and family see you doing as your “dream job”?
Are there things about your dream business that you would dislike doing? Is this something that you would have to do yourself? Could you bring in a partner or hire someone to do those tasks, enabling you to focus on the parts of the business that are your passion?

Once you’ve considered these thoughts, have a conversation with an experienced and qualified business broker about your goals for business ownership. Are you looking for a passion project? Do you want more flexibility in your schedule? Are you looking for a business with a lot of room for growth?

When you have solidified your goals you and your business broker will work together to find businesses that fit you and the amount of capital you have available.

A caveat here; don’t assume that loving your business means that running it will be easy. Everyone who owns a business works really hard, it’s all about enjoying what you do. This is why determining your goals is such a critical step.

If you haven’t taken the time to consider your goals and the things about business ownership that will mean real happiness, you run the risk of being lured into a great deal on a business that might not be right for you in the end.

Are you thinking about buying a business and have questions about what industries would match with your goals? Do you want to know what businesses are currently available that would work for you? Ask us! Feel free to leave any questions or comments and we would be happy to help.

Michael Monnot

Are There Skeletons? Absolutely, Yes – Dealing With Issues Found During Due Diligence

Posted in Buyers Articles

Published May 8, 2023

If you are looking at buying a business, then the due diligence step will be in your future. This part of the business transaction process occurs when the seller accepts your initial purchase offer. Due diligence is important because it gives you a chance to peek behind the scenes, scour the books and dig up any skeletons lurking in your future business before you sign on the dotted line.

Wait, skeletons? What should I do if I find potential problems during due diligence?

First of all realize that it isn’t “if” you are going to find skeletons, it’s “when”. Small businesses are complicated, complicated things – and most have some kind of issue that you as a buyer will find less than ideal. Perhaps the largest customer contract is expiring shortly after you take over as owner. Perhaps the business has unpaid taxes. Perhaps the numbers initially provided by the seller don’t really add up. It really could be anything.

Once you come to grips with the fact that you are likely to uncover something potentially ugly – don’t freak out when it happens.

Think of it this way – if essentially all small businesses have issues, and these businesses with issues are still running and are appealing enough for you to have made an offer – then perhaps the issue that you’ve found can be dealt with without completely killing the deal.

Issues that can affect your bottom line as the new owner can mean a renegotiation of price and a price reduction to accommodate what you’ve found. Issues with things like unpaid taxes can mean adding provisions to the purchase contract. The point is not everything you find should send you screaming into the night. Concessions and negotiation may be able to solve the issues you find.

What if what I find is really, really bad?

Unfortunately, some skeletons are definite deal killers. You don’t want to take over a sinking ship, so if what you find is irreparable – you should absolutely walk away. The message here is just don’t jump the gun.

If you find something that makes you uncomfortable, ask your broker how bad it really is. A good broker has seen it all and will be able to tell you if a potential issue is negotiable or a deal killer. If it’s negotiable, take a deep breath and head back to the table with the seller to see what you can work out.

Do you have more questions about what can be done when skeletons come to light during due diligence? Would you like to know how to decide if an issue is a deal killer? Ask us! Leave any questions or comments and we would be happy to help.

Michael Monnot

Buying Businesses: Why You Shouldn’t Sign A Million NDAs

Posted in Business Broker Why & How, Buyers Articles

Published April 24, 2023

A million NDAs? Yes, that’s a profound exaggeration. It would be nearly impossible and ridiculous to sign a million of anything. The point we’re trying to make is your approach to buying a business will greatly impact your ability to get to a closing table.

How?

The NDA (non-disclosure agreement) is a document you sign before the name, location and any sensitive information about a business for sale can be revealed to you. It is a critical step in the business buying process, so if you’re in the market to buy a business – you’ll be signing NDAs.

What you shouldn’t do is sign a ton of them. Why? It’s an enormous waste of you time and energy.

The NDA should only be signed after you have completed a few other steps. First and foremost you need to figure out your goals for business ownership (a more flexible schedule or greater income potential, for example) and then decide how much money you have to invest in your new venture. The second step would be to have a conversation with an experienced and qualified business broker about your goals, the industries where you have interest/practical experience and your available capital. Your broker should then find you some cursory listings to review. If any of those listings look promising, then and only then would you sign the NDA for that particular listing.

If a business broker is doing their job the only people who are allowed to sign the NDA are people who would not only be a successful buyer of the business (they have enough capital) but also a successful owner of the business (they have the practical experience and passion to keep the business in the red). It serves absolutely no one to randomly send NDAs to people who can’t successfully buy and run that business. All it does is put the business at risk for disclosure of the for-sale status to the wrong person (read why that is bad here).

There are brokers out there who will automatically send NDAs to anyone who shoots them an email, no questions asked – so as a buyer it’s possible to ask for, receive and sign a ton of NDAs. The issue is those NDAs are likely for businesses that you either would be unable to buy or wouldn’t suit the life you’d like to have – so why waste your time?

Talk to the right broker – someone who asks you questions and helps you narrow down business listings. Then sign.

Are you interested in buying a business and have questions about the NDA? Have you signed a ton of NDAs without much success and are looking to try a different approach? Talk to us! Feel free to leave any comments or questions and we would be happy to help.

Michael Monnot

Red Tape For Business Buyers: A Guide

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

Published April 17, 2023

You know how everyone always jokes about what a nightmare bureaucracy can be? If you are buying a business, prepare yourself – you are going to have your fair share of red tape. All of it will need to be completed in the correct order and to the correct level of repetition before you can operate your business.

It can be frustrating and might (at times) feel impossible, but every operating business has made it to the end of this process. Consider it an annoying right of passage.

This is a part of the business transaction process where your business broker can be worth their weight in gold. A good broker will have someone who can help you with any and all red tape, or they will be able to help you themselves. Some business buyers choose to have their broker (or a specialized contractor) do all of the licensing, others are able to get it completed with just a few suggestions. How you handle this part of buying your business is up to you.

Want some pointers? Here’s a sample of our best advice, derived from many trips down bureaucracy lane:

DO NOT PROCRASTINATE!!!

Many red tape items are contingent on one agency completing or signing off before another can even begin, so start early and stay on top of it. You can’t get all of your licensing and permitting done the day of (or even the day before) closing.

Gather All Of The Documents Before You Start:

First you will want to try to get together the list of everything your broker and the seller think you will need. Ask the seller for copies of the licenses and permits they hold, as you will need their license and permit numbers to fill out your own.

Go online and print out every application you think you might need, even if you are going to be submitting them online. A printed version will allow you to collect all of the needed numbers/addresses/names/titles/etc. so you don’t end up timed out of the online application process (they pretty much all have a time limit and then they force you to start over).

Once you have assembled your pile of seller information and printed applications keep all of it together and take it everywhere you go. Many applications require signatures from multiple government agencies or departments.

Naming And The IRS:

The very first step is the naming process, even if you are buying an existing business and keeping the business name the same. Why? Your business will technically have two names, the DBA or “Doing Business As” (also called the Fictitious Name) and the legal name which can literally be “Anything You Want, LLC”. You will need to file your DBA with the Division of Corporations in your state, and the legal name will need to be filed through your attorney or an online legal service like LegalZoom. You will also need to get a Federal Employer Identification Number (also called a FEIN or an EIN) from the IRS.

Operational Licenses:

If the seller currently holds a license needed for the operation of the business, like a liquor license, then instead of starting from scratch you will be using applications for transferring that license. A word to the wise here – don’t rely solely on the information you find online about what is required to get the licenses issued or transferred. Get someone – a real, live person on the phone. Better yet, find the local office (instead of the statewide call center), and get a local agent on the phone. The local agents are the ones who will be processing and issuing your license, so they are the ones you need to keep happy. Another caveat? Be really patient with this part of the process. You can call the same call center three different times and get three completely different answers to a single question.

Local Licenses:

You will also need to get yourself a Certificate of Use and your local Business Tax Receipt or BTR (also called the Occupational License). The Certificate of Use gets issued after your building and fire inspections, your BTR after your Certificate of Use goes through. If you are buying an existing business, you may not need an inspection if the business has had one recently, but you will need to call and check. Again, get a living person on the phone to discuss the requirements and process and you will be far better off than trying to divine what you need from a cryptic government website.

Costs:

Did we forget to mention that pretty much all licensing and permitting applications come with a fee? Yes, they all do. While rarely astronomical in price, the costs will be completely dependent on what applications you are filling out, what inspections you need, etc. Be ready with your credit card or checkbook when you start the process.

It Can Be Done, Really.

This is one of the parts of being your own boss that is not very fun, but with a good dose of patience and a bit of organization it will all fall into place. Most of the real, live people you will get on the phone are very helpful, and remember that your broker is always there as well.

Are you thinking about buying a business, or do you already have a business in mind and are wondering about what kinds of licenses or permits you will need? Are you having trouble finding the agencies you need to get your applications going? Ask us! Please feel free to leave us a comment or question here, and we will be happy to help you with navigating the red tape.

Michael Monnot

Stepping Into Big Shoes: How To Take Over A Beloved Owner’s Business

Published April 10, 2023

Buying a business comes with a unique set of challenges. You have to learn operating procedures, you have to become acquainted with clients and vendors, you have to navigate the licensing and permitting process, you have to develop relationships with your new employees – the list is long.

Sometimes the previous owner was burned out and unpleasant, and as such the employees and clients might be happy to see them go in favor of a fresh face and attitude.

What if the opposite is true? What if you are replacing a highly respected and beloved owner? How do you successfully fill those seemingly enormous shoes?

First, don’t try to emulate the previous owner. Attempting to change who you are will always come across as inauthentic. The best thing you can do is be yourself, even if you are a vastly different person than the seller. Sure, some of the seller’s success came from their personality and the way they interacted with everyone related to the business – but that doesn’t mean that you can’t also be successful. Be authentically yourself, upfront and honest with with those around you and you will show the staff and clientele that you are someone who can be trusted.

Second, hit the ground running. Use the training period with the old owner to learn absolutely everything you can about both how the business runs and why that methodology is successful. Look for ways to grow the business from day one, but implement new growth strategies and marketing ideas while maintaining the operating procedures that have served the business well so far. If you come in motivated and willing to listen and learn (instead of rushing changes and forcing new policies right out of the gate) your staff will feel like their contributions to the business are respected and you can earn their respect in return.

Third, be nice. A truly beloved and respected boss is never an angry jerk, so although you might be very different from the previous owner – as long as you are kind to your new staff that thread of the positive owner relationship will continue.

While it might initially seem intimidating to take over from an owner that everyone is really going to miss – if you can be yourself, be willing to learn and be nice your new business and those in it can learn to embrace you too.

Are you considering a business with a well respected owner and have questions about what the training period will be like? Would you like to know more about how you can successfully navigate the transition to new owner? Ask us! Please feel free to leave any questions or comments and we would be happy to help.

Michael Monnot

Business Sellers – Is Your Broker Protecting Your Business? They Should

Posted in Business Broker Why & How, Sellers Articles

Published April 6, 2023

If you are considering selling your business you don’t just need help, you need the right help.

You risk way more than you should by sticking a for-sale sign in the window. The powerful misconception that any business for sale is a business on the brink of failure can mean devastating consequences if your for-sale status is revealed. You entire staff can panic and quit. Clients can cancel contracts. Your competition can see a potential sale as a weakness to be exploited. It’s all bad.

How do you get the word out about selling your business without exposing yourself to the downfalls of everyone knowing it’s for sale? An experienced and qualified business broker.

A good broker acts as a shield and a buffer. They keep the for-sale status of your business a closely guarded secret while also marketing your business to potential buyers. They verify every person is who they say they are before they are allowed any access.

How? They actually talk to every potential buyer.

They get real legal names and true physical addresses – then they look people up. They ensure the proper nondisclosure agreements (NDAs) are signed and that everyone understand the rules. They make sure the people who are looking at your business can actually afford it so no one’s time is wasted. They act as a communication buffer between you and a buyer so the deal can stay on track.

It should go without saying that keeping potentially damaging information out of the wrong hands is extremely important.

Guess what? Not all business brokers do the job the way they should.

There are brokers who essentially robo-send NDAs to anyone who shoots them an email, no questions asked. They never actually speak with buyers, never verify identities or ask about available funds to by a business. These brokers don’t care about your business. They are just using your business to generate calls and emails from any and all buyers – without caring if those buyers are someone who should know about your for-sale status or listing details.

Avoid these brokers by asking questions – lots of questions – before you list your business. How will this broker ensure confidentiality? Do they require buyers to identify who they are before information is disclosed? Do they actually talk to every buyer before sending them the details of your business? They should.

Are you considering selling your business and want to know what measures we use to protect the confidentiality of your business and transaction? Would you like to know more about the questions we ask potential buyers? Ask us! Please leave any questions or comments and we would be happy to help.

Michael Monnot