Questions & Answers-Buyers
Of course, not all of your questions can be answered here but these are common ones aimed at first-time or less experienced buyers, except for the first question. I encourage you to call or write for more detailed answers or to ask other questions.
A. I agree, it is very difficult today to find a good business on the market. My best advice is, if you as an experienced buyer have honed your acquisition criteria very specifically, then I can research the market and find those target businesses that meet or come very close to your criteria. Once I have done that, I begin contacting those companies on your behalf. They will mainly be businesses not currently for sale, so there are normally no other buyers competing with you. And, this type situation is sometimes very appealing to business owners who do not have to publicly advertise their business for sale. If this suggestion is appealing to you, let's talk more about it.In this case I would be acting as your personal broker and representative.
A. There are different and personal reasons for buying a business. The very first thing to do is discuss your own particular personal goals, wants and needs with me. We can do this by phone, and in one discussion I can clarify many things regarding a purchase for you. After that first discussion you will have a much better direction of what to do next. There is no cost or obligation for this discussion.
A. This is a very common question for a first-time buyer. To help you clarify your direction, we need to discuss things like, your education, your background, your work experience, your hobbies, your talents as well as what you feel are weak spots, your lifestyle, your financial needs, your life goals and your financial situation. Finding and buying a business is similar to getting married in the sense that it is critical you match well with the business you purchase, and that you are dedicated, devoted and committed to the task of operating the business in whatever way it requires. Anything less than this may result in a lower performance and profit level than you might expect, want or need. So, let's talk about it, and I'll help you understand how different types of businesses may affect your personal goals, wants and needs.
A. There are various ways to purchase a business depending on the amount, whether the seller will finance the sale or if you will have to use bank or private (family) financing, and how much money of your own you have in liquid form to safely use. For smaller businesses that are under $50,000 in price, it may be difficult or impossible to obtain a bank loan, and in this case an all-cash purchase may be necessary if the seller is not willing to finance the sale for you. For businesses ranging from $100,000 to $3 Million, an SBA(Small Business Administration) loan may be available if both you and the business qualify according to SBA requirements. It is more difficult to obtain an SBA loan today than previously since bank requirements have become much more stringent....but it is certainlynot impossible, only challenging. And, it helps greatly to go to the best source for a loan, something I can certainly guide you in as one of my standard "no fee" services. Many banks used to make commercial loans for business purchases, however since SBA loans are guaranteed by the Federal Government, and are much less risk to banks, it is extremely difficult if not impossible to get a “non-SBA” loan today from a bank. And, an SBA lender wants to be certain of a few very critical things: 1) That you are experienced operating or at least familiar with the type of business you want to purchase; 2) That the business is operating profitably enough to support you and pay debt service on the loan; and 3) That you have enough cash down payment, cash reserves and working capital to operate in a "safe" zone financially. For purchases over $2-3 million, there are various funds, private money and larger investment firms that are available to experienced buyer/operators.
A. From my perspective, a "good" business is 1) one that is established for a number of years. The longer it has been in business, the better. 2) The revenue and profit is either stable or growing. There can be many reasons for declining revenue and profit so each situation has to be looked at to determine the cause. Sometimes it is something that can be easily remedied by a new owner, and sometimes it indicates a failing business or industry. 3) The business is being sold for a "legitimate" reason. These reasons include retirement, serious or terminal illness, divorce, partnership split and an owner relocating. Selling a business because an owner is tired of it or wants something else after a short period of time is usually a red flag. 4) There is no impending obsolescence in a business's products or services. In technical businesses, especially, one must be diligent to be certain that new technology is not around the corner. 5) Having good books and records that clearly show a business's financial performance is critical for a few reasons. It makes it easier for you or your accountant to confirm revenue and profit representations. And, if an SBA or other loan is needed for purchase, the lender will want to see financial statements and tax returns, at least, to determine that the business qualifies for a loan. When I put a business on the market, I normally create an elaborate Confidential Company Information book that provides you with much information, and will answer most of your questions about the business. All information I receive comes from the business owner/seller, and my job is to organize and compile it in a methodical way for your review. The process of buying a business has some built in protections for you as a buyer regarding sellers representations. First, when you meet and talk with your seller, you will form your own instinctive opinions about the person whose business you may purchase. Second, any knowledge of the business I have gained, I will inform you of. It is my duty and obligation to you. Third, the purchase process has a "due diligence" period for you where you, or you and your accountant can have open access to any business records you want to see, to confirm the seller's representations. This is done after you have reviewed the Information book, after you have met with the seller and toured the business, after you have asked any additional questions and received answers, and after you have made an offer and it is accepted by the seller. At this point, many brokers open an escrow with your deposit on the business. However, I prefer to not incur any other costs for you until you have completed your due diligence, and authorize me to open escrow with your deposit check. You are not expected at any step of your due diligence to simply believe and accept all representations, and this is the point of due diligence---for you and your advisors to gain your own sense of confidence that the representations are accurate and true from your examination of any business records. If you find that any representations are not accurate or true, then you have no obligation to proceed with the purchase, and you are not liable financially or legally. You do not lose any deposit money. I will explain this further to you when the time comes. In my many years of selling businesses, I have found that if representations are not accurate, it is often because of a mistake or misunderstanding, and not intentional. However, there can be instances where there is intent to deceive a buyer that is very difficult to discern. This is why there is a due diligence period for you. Regardless of anything, you are buying a business based on your own investigation of it, and not on any opinions from any other parties. If you are satisfied with your findings, we can proceed. And remember that if all information proves out perfectly, the future business performance is not guaranteed. That is also up to you, to be able to operate the business in a successful manner, and this depends on your own skills, abilities and background along with the training and transition period you receive from the seller as part of the purchase.
A. Besides the purchase price, or in the case of financing, the down payment you will need--- there are several other costs. 1) Working capital is the amount of money you will need to operate the business. This includes money for the cash register and an amount for your initial supplies and inventory, or to pay employees. In the event the business has money owed to it in "accounts receivable" from customers, it is common to have to wait 30, 60 or 90 days for that money to come in, so you need to have enough "working capital" to pay employees, vendors and your rent for that period. You may also need extra money to pay for advertising to begin immediately. 2) Rent deposits are normal, and have to be paid through escrow or to your landlord prior to closing. Your deposit is held as security against damage or owing rent for a defaulted payment or after moving out. It is often equal to one month's rent. 3) Escrow and/or attorney fees are normal costs, depending on the State you are in and whether an escrow or attorney processes your transaction. I can advise you of escrow fees, and your attorney can advise you of attorney processing fees. 4) Various licenses, permits and certificates are needed depending onthe type of business and its location. For example, you may need a business license, health permit or environmental permit. This is another area I can guide you through. 5) Utility and telephone installations, or transfers may be necessary. This could also include internet service or setting up a computer server or network, and computer services in general. Costs vary. 6) If obtaining a bank loan, you are likely to have an application fee, possibly an appraisal fee, and "points" to pay on your loan amount. These also vary depending on loan amounts. 7) If you are retaining the seller on a consulting basis past an initial training period(which is normally included in the purchase), you may have a consulting fee to include in your expenses. Sellers normally pay a broker's fee even though brokers have a fiduciary responsibility to both seller and buyer. In some cases, and by prior agreement , if you have "hired" a broker to find a business and orchestrate the transaction for you, you would pay the broker's fee. 8) If you are buying a business that has its own vehicles, they will need to be transferred into your name, and you will have to register them at the State Department of Motor Vehicles, and pay necessary feesand taxes. In general, there are more expenses involved in buying a business than you may initially perceive. Call me and we can detail your specific expenses.
A. It is primarily up to you as a buyer, how important buying a business is to your life and goals, how hard you are willing to work, and how much personal time and energy you are willing to devote and commit to, to not only purchase a business but to operate it as successfully as possible. And, as a buyer, you have much competition with other buyers, many of which are looking for or at the same type and size business. I can answer many questions, guide and advise you, strive to obtain the best possible deal for you, give you emotional support and help you through the rough spots. But you are the key person in the equation, and regardless of the advice, answers, guidance and support, it is still primarily on your shoulders, and your responsibility to do what is necessary to make it happen. And, that is the same attitude you will need to be successful in your new business. It can be a great experience!