Start with Why: What Business Buyers Should Ponder

/0 Comments/in /by

What Business Buyers Should PonderIn the hundreds of articles we’ve written over the years, we are consistently asking questions.  We’ve posed questions that buyers should consider when they already have a business in mind.  We’ve also asked questions about business ownership in general, including the concepts of buying a business vs. buying a job and buying vs. building a business.  If you’ve watched various events unfold in the last two years and want to take more control of your destiny, business ownership is certainly one way to do that.  Here are four questions to ponder if you’re considering that first step towards entrepreneurship.

What Skills Do I Bring to the Table?

If you’ve owned a business in the past, you may remember what you did well.  But it’s also important to note what you struggled with.  How will you deal with that this time around?  Have you improved since then?  Will you hire someone to fill that gap?

If you’ve never owned a business, don’t get trapped by your job descriptions and what you currently do for work.  Take a look at your work history and see where you’ve excelled.  Ask colleagues who know you best to tell you the areas in which they consider you to be among the best they know.

What Support Do I Have?

Business ownership can be lonely and there will be nights you may be grinding through problems.  Who could you call to help you?  

What about your family?  Are they supportive of the possibility of business ownership?

What financial resources can I tap should the business get in trouble?

What Research Have I Done?

If you’re looking at a business in a field in which you have a lot of experience, what additional research have you done?  It’s important not to rely on what you already know, as you will have blind spots.

If you don’t have a particular field that you’re interested in, have you examined general business trends and opportunities to see what appeals to/resonates with you?

What Do I Want?

So many decisions have been taken off the table for so many people in the last two years as many have had to take a reactive approach to life decisions.

Business ownership is par excellence and a proactive life decision.  What is it that you truly want, not just in business ownership but in life?  How will running a business help you achieve that?  What kind of timeline do you want that to occur in?

Running a business can be hectic, and sometimes you’ll need to make decisions quickly.  That’s why you should relish the opportunity to ponder important questions without any pressure.

If you take the time to answer these questions in an in-depth manner, your first conversation with one of our team will be really productive!  Once you’ve got the answers to these jotted down, feel free to give us a call.

Buying “Essential” Businesses in 2021

/in /by

Essential BusinessesWe continue to encourage our clients to look uncertainty in the face and move forward with plans to buy and sell a business in 2021.  But one of the new categories of business that people are asking us about are “essential” businesses, who did not have a “bad” year in 2020, but quite possibly their best ever.  In this article we’ll talk about a few of those business types.

2021 Essential Businesses to Buy and Sell

These businesses are in demand and as such may fetch a premium in the marketplace, but don’t discount the fact that there are always owners who are ready to get out, even after having a record-breaking year.  They are just looking for the right buyers.

Healthcare

This is the most obvious “pandemic proof” business.  In fact, it’s not just pandemic proof, it fits Nicholas Nassim Taleb’s classic definition of “antifragile” – something that improves when faced with a challenge.  Both clinical and non-clinical businesses in this field are doing well and even with the end of the pandemic in sight, there will still be plenty of opportunity in this sector even when the masks come off.

Tech

Not all tech businesses have been as fortunate as Zoom.  For perspective, this time last year Zoom was averaging around 10 million daily participants.  Today that’s around 350 million.  Its company revenue is four times what it was in 2019.  But if you’re in a tech business that is supporting remote work and learning, as Zoom does, it’s a very good time for you.  

This is because habits have been so quickly and dramatically altered that new models and ways of interacting have been created that these tech businesses will need to support long after a pandemic is over.

Real Estate

As workers were told they were allowed to work remotely for a short time, then indefinitely, we’ve been witness to a “great migration” that hasn’t been seen in America in generations.  Obviously realtors are enjoying this, but any business that supports a movement of people and their goods, like home contractors, HVAC, electrical, or moving companies, are also riding this wave.

Recurring Revenue

As people started trimming expenses to adapt to changing conditions, many businesses adapted their pricing to match.  Instead of requiring a large annual payment for a subscription or fee, companies started offering a monthly subscription where they previously had not.  Others chose to create new subscription models for their businesses as John Warrilow champions in The Automatic Customer.  In “normal” times buyers love to see consistent recurring revenue.  That revenue looks even sweeter in “bad” times.

We are working with buyers and sellers in every single one of these categories.  If you’re serious about moving forward with your life in 2021, give us a call!

Cash Versus Accrual Accounting: Which to Use?

/in , /by

Cash Vs Accrual Accounting: Which to Use?Unless you actually run an accountancy or bookkeeping business, accounting isn’t usually at the top of a business owner’s mind. But if you don’t understand your books, you don’t understand your business, and the choice between cash and accrual accounting is a choice about how you choose to view your business, so it’s an important difference to know about (and make an informed decision on).

Cash Accounting

This is the type of accounting that is used by many small businesses and for personal finance. It is called “cash” but obviously deals with whatever forms of payment you take.  You enter revenues when you receive revenues and you enter expenses when you pay expenses.  

Pros

  • The process is simpler and easier, both for you and for your accountant
  • You get an excellent short-term, day-to-day glance at your business
  • Your bank balance bears resemblance to your bookkeeping

Cons

  • You cannot make long-term decisions based on this type of accounting
  • These books can sometimes provide an inaccurate picture of the company
    • E.g. you could have a very large amount of cash on hand but have payables that exceed all of that amount and then some

Accrual Accounting

This is the opposite of cash accounting. You book revenues when you have an agreement in place (even if you have not been paid) and you book expenses when they are incurred (not when you have paid them). 

Examples:

  1. A client signs up for one of your products and services in March, but they will take delivery in April, hence they may not pay you until then or later. But in accrual accounting you book that revenue in March, not April.
  2. A vendor sends you an invoice in June. It is due in July. In accrual accounting you book the expense in June.

Pros

  • This is the type of accounting that investors want to see because it gives a better sense of the long-term performance of the company
  • It’s more accurate (and GAAP recommended), because you have a better view of the profitability of the company over an entire year

Cons

  • Because you have to record revenue before actually receiving it, cash flow is tracked separately
  • This type of accounting is significantly more expensive in time and money
  • You don’t have a short-term picture of your business

The Choice

Many businesses can choose which type of accounting to use, but some can’t.  

  1. If you stock items to sell to the public and do more than $1M/year in revenue, you have to use accrual accounting
  2. If you do more than $25M/year in revenue, the IRS requires you to use accrual accounting 

If you do want to switch over from cash to accrual you can’t just decide to do it, you have to ask permission of the IRS via Form 3115, and if they approve you, you have to stick to that choice for the whole year. No changing mid-stream.

Small businesses without a lot of cash on hand and are primarily B2C will often choose cash accounting, simply for the ease of it. Businesses that keep a large inventory or don’t get paid quickly will often choose accrual accounting, simply because it makes more sense.

This is ultimately a decision you should make with the advice (and consent?) of your accountant. He/she knows your business, knows its cash flows, but most importantly, knows you, how you deal with different financial statements, and what your long term goals with the business are. Armed with that information, it’s easy to figure out whether your business should be using cash or accrual accounting.

If you want us to take a look at your books to see whether you’re in a good position to sell, we’re always happy to not just look, but offer suggestions on what you can improve and clean up to get ready for a future sale. Give us a call today.

Buying Distressed Businesses During the Covid Crisis

/in /by

Buying Distressed Businesses During the Covid CrisisWe’ve seen a lot this year. We’ve seen businesses thrive and have some of their best years ever. We’ve also seen businesses go under and deals fall apart. But, we’ve also had deals move on just as usual, albeit a bit more slowly due to extra diligence from the banks. But as the year comes to a close there might be some owners who are feeling particular pressure to sell now and some buyers in the market looking for a particularly good opportunity. In this article we’ll discuss a few things for buyers to keep in mind.

What’s the Distress?

All businesses faced a new landscape in March 2020, even if they were a company that could continue doing business. Their vendors and customers may not have been in the same position. Some businesses may have already been in some distress prior to the lockdowns, and the changed landscape simply made things worse. So, a drop in sales is not the only thing you want to examine as you’re exploring a purchase of a distressed business. 

You’ll also want to see if there are:

  • Any ongoing debt issues. Does the company need cycles of financing that has put it into a poor financial position pre-Covid?
  • Any legal issues. Does the company have any liens or cases pending?
  • Payroll problems. Did the company receive an EIDL or PPP loan? Will it be forgiven? Are there payroll issues that PPP did not solve or were systemic prior to March 2020?
  • Any staff issues. Some key management and personnel may have had to leave in the last eight months. Are the right people in place to keep the business functional?

What Can You Do?

You need to have a strategy in place. It’s not enough to simply covet “a good deal” on a business during this time period. You need to think about what you bring to the situation.

Examples include:

  • Can you do better than the current ownership?  
  • Do you want to strip it down to essentials and possibly run that form of the business? 
  • Do you want to simply buy the assets and add them to your current business?  

You should think about a distressed business the same way you might when buying anything that you weren’t particularly in the market for, say a piece of clothing that’s on sale:

  • It’s not the color or fabric you want (this isn’t necessarily the business or industry you were considering). But, it has a brand and employees.
  • It has a nick or two (things aren’t exactly as you would like them to be). But, the business has customers and some cash flow.
  • It’s not the time of year for this item (you were maybe thinking of buying later next year). But, there’s an opportunity right now.  

Bring in your accountant and other members of your inner circle to look at the books and the opportunity to make sure you stay level headed and take on something that really makes sense, not just something financially attractive. The more coherent a plan you have that clearly states what you are going to do with the business, the better chances you have that such a plan would actually work.   

Financing

Unfortunately this is not going to be something you can get SBA funding for.

You’ve got three options if you don’t have the cash on hand to make the purchase outright:

  1. Talk to the seller’s lender (if they have one). Find out if they are willing to work with you. You’re going to need to tell them what your strategy is.
  2. Talk to your lender. Explain the situation and see if they are willing to give you a loan; they may be willing to put a lien on hard assets as collateral. This is yet another situation in which a quality banking relationship can come in handy.
  3. Explore asset-based lending. This is the most expensive type of financing you’ll find, similar to some of the fintech solutions we’ve discussed in the past, but these types of lenders do deals all the time and might offer you something that works into your plan.

We’ve got all sorts of businesses available at the moment.  Whatever you are looking for, give us a call and let us help you find it.

Questions for Buyers to Ask, Part 3

/in /by

Apex Business Advisors: Questions for Buyers to AskThere’s almost an infinite number of questions you can ask sellers about the business you are considering buying from them. The response to previous articles we’ve done on these questions has been enough for us to add Part Three. While these are questions for buyers to ask sellers, they’re also good questions for future sellers to ask themselves so they can improve their businesses now.

If I had to start all over again, what 1-3 things would I do differently?

Most business owners don’t necessarily take the time to write down their mistakes or share them with the public. But in a certain sense, they have a lot to gain from telling you. Those mistakes are resolved and in the past. They can be a way to talk about opportunities that can re-emerge with a new owner. Perhaps there was an employee or a vendor that had a personal disagreement with the current owner, but would be open to working with a new owner. This particular question, if asked in a friendly and non-confrontational way, has a chance to build a lot of personal rapport. The seller has to be a bit vulnerable and admit where he/she could have done better. As a buyer, you’re also able to brainstorm with them as to possible solutions.

What do your customers say you do best? Why do they choose you instead of the competition?

Here it’s important to have customer data. Yes, the business owner knows this information, but we want that cross-correlated with what the customers have to say. Many times a business owner who feels he/she knows the answer by instinct has been surprised by the results of a customer survey. The competitive spirit in any business owner can make it hard to admit things that a rival does better. If the business owner doesn’t really have a good answer, find a discreet way to find out for yourself (which can include calling the competitor). 

What percentage of business comes from referrals and/or repeat clients?

We know that referral business is the best business. When referrals happen, you don’t have to spend advertising and marketing dollars. But most businesses are not 100% referral based. Find out what percentage is referral based and why it’s at that level and not higher. Is the business set up for repeat business? Are there extensions or products and services that could turn a one-off client into a repeat client?

What are the licenses and permits you need to operate, and what are the technical qualifications that the staff need?

Whether we like it or not, there’s a fair amount of regulation in certain industries. You need to make sure all of that is documented and, as part of diligence, that you can obtain the licenses and permits yourself in the transition. Does the industry require any type of certification for your staff? How long does it take to acquire and how much does it cost?

What’s the status of your website and back office technology?

This is an important question, and one that business owners forget about because it’s not in their faces every day. Is the website equipped to deal with current web trends and basic SEO demands? Are the back end systems that connect to the website backed up to the cloud? If not, why not? Do the employees understand how to use this technology to the fullest extent? Are there software upgrades or purchases that the current owner has been considering? What are they and how can they help?

You can find Part One of this series here, and Part Two here. If you have some to add to this series, give us a call and let us know!

More Key Questions for Buyers to Ask

/in /by

More Key Questions for Buyers to AskSome time back, we took a high level view of the types of questions that buyers in a transaction should consider asking sellers. We looked at questions like “why are you selling?” to “what will you (the seller) do next?” To complement those more cerebral questions, we’re adding a list of more specific questions that get right into the heart of operating any given business.

Describe an ideal buyer of this business.

Don’t think of this like an anxious single person would when asking “what’s your type” of their date. You don’t need to tick every single box in the answer to this question, but you probably do need to tick many of them. Also, don’t let fear swallow important follow-ups. If the seller says that this is ideal for someone who wants to grow a large business, and you were thinking about more about buying a lifestyle business, ask them, “Do you think this is a good lifestyle business?”  

Discuss the strengths and weaknesses of the local competition.

All good entrepreneurs know who their competition is. This is a chance for honest disclosure, not chest-beating. It’s also important to find out if the seller has any relationships with any of the competitors. The saying “keep your friends close but your enemies closer” has some resonance in business. Your competitors are monitoring the same things that you are, and information sharing that doesn’t include important business secrets, is a healthy part of directing and managing any business.

Can you tell me the demographics of the core customer?

Savvy business-owners can recite this without reference to additional materials. What’s important is to follow-up with the limits. If the core demo is 25-45, ask about why not under 25 and why not over 45, and/or if there are other products and services that appeal to those groups. This will show the buyer you’re thinking from a bigger perspective and also give you some important insights into the business.

Who is the most important employee and why?

As we discussed in a previous article, it’s important to have a collaborative attitude with employees. Often a key employee isn’t just extremely valuable to the owner and the business, he/she can be the glue that holds other employees in orbit as well. Lose that person, and you may lose others as collateral damage. Find out why this person is special and seek to preserve that relationship.

What was the one thing you never did that you think I should do?

Business owners have so much going on when they start their businesses that there are often projects and ideas they were never able to execute. So much is invested in hiring good people, putting together systems, and getting customers, that sometimes the stuff “I’ll get to one day” never gets gotten to. Why not ask? They might give you the starting point of the next great chapter of their company, the first with you in charge.

Who are the best and worst vendors?

Vendor relationships are key, and while you may have your own people you will want to use when you take over, it’s important to understand the history of who the company has dealt with in the past and why those relationships have been successful (or unsuccessful). As with all these other questions, ask them in a positive and open way, seeking clarity and information. Take note of any reservations or poor reactions, but even then, try to gently follow-up. What you want is information, not accusation.

Want more questions? We’ve got boatloads of them to assist you in your transaction. Give us a call to find out more today.

Key Parties in a Transaction

/in , /by

Key Parties in a TransactionAll transactions end with a buyer and seller signing on the dotted line and checks and wire transfers making their way to their final destinations. But there are many key parties that help get a transaction to that finish line. In this article, we’ll identify those key players and how to make them a winning part of your transaction.

Accountants

Perhaps one of the most important parties in a transaction for both buyers and sellers is the accountant. For a seller, accountants provide accurate financial information, assist with due diligence, and assist with negotiating tax allocation. For buyers, accountants also help with the tax allocation negotiations. They also need to verify the financial information provided in due diligence as well as verify the assertions of the original valuation.

Attorneys

Transactions are legal transactions and hence need the legal paperwork that helps tie a civilized society together. That said, it’s important to find an attorney who is not a deal-killer, and unfortunately we’ve seen more than a few of those in our time.

How to spot a deal-killer? This is someone who lives and breathes fear. Rather than a positive and collaborative mentality that focus on how to move the deal constructively towards a finish line, a deal-killer imagines dragons around every bend in the road, and sows that fear into a client. Unfortunately, sometimes those seeds grow into deal-breaking obstacles. Remember that you are not the first, nor will you be the last, to enter into a transaction. There are always solutions to be found in legal wording to satisfy everyone. Again, what matters is mentality: collaboration or antagonism. Never pick the latter.

Bankers

No money, no deal. It goes without saying that if you’re not privately financing the deal, that you need to be in communication with your banker. They have a lot of regulations they have to deal with so if they ask for some information or paperwork, remind yourself it’s not because they are thrilled to dig into every part of your financial life, but because it’s often just a check box on a sheet that they are following.

Landlords/Franchisors

These can both be unexpected deal-killers and it’s important to deal with these parties transparently and openly from the beginning. As we have alluded to above, convince them that you are not an antagonistic counter-party, but someone who wants a win-win for everyone. Landlords often want to make sure that they have continuity and a clear vision of the future, whereas franchisors want to make sure that you fit their requirements and understand their systems.

Brokers

We would never claim that brokers are the most important parties in a transaction. The buyers and sellers are. But right after them are the brokers, both on the buying and selling side. Very often we are coaches and cheerleaders and researchers. We are the sherpas of a transaction. We are trying to get all parties to the finish line in a cordial and collaborative way. We are the voice of reason when someone starts to let emotions get the better of them. We are the voice of experience when someone asks about the next step in the process. We’re the voice of encouragement when someone feels overwhelmed by the due diligence process.  

All these parties are important in a business transaction, but we hope we’ve communicated that the most important thing you can bring to any transaction is a spirit of positive collaboration.  The deal started with positive hope for both parties, and there’s no reason it can’t end on that note. The right mentality is key, and that’s an integral part of all our transactions here at Apex. 

Cautionary Tale #5: “I’m an Owner – You’re an Operator”

/in , , , /by

One of the key pieces of advice we give to all our new owners is: “Don’t change too much too quickly.” In fact, you should guard against any kind of changes in those early days. You should be soaking up everything you can about the business, learning why it’s gotten so successful such that a person like you has come along to buy it in the first place. But as you might guess, not everyone takes our advice.

A recent cautionary tale came in the form of a business that was open for sixty years. It only took eighteen months for the new owners to put it out of business.

Attitude

CautionAs brokers, we can dispense business advice but often we have to give life advice as well. We could see that the two incoming owners had a “know-it-all attitude”. You can gently try to offer some correctives, but at the end of the day, it’s their life and their business to do with as they wish. But from the get-go, the outgoing owners and the entire company saw that attitude on display.

It started in the morning. The owners would be in at around 7:30 each morning, usually slightly before any other staff arrived. This allowed them some quiet time to do work before the office got busy, but it also allowed them to demonstrate to their team that they took this at least as seriously as everyone else did.

Not so with the new owners. They made sure to get to the gym — not an early morning session — but one that allowed them to roll into the office around 10 or 11. When they did arrive, they didn’t ask for training or orientation, they were just happy to assume the title of management without earning the mantle of leadership.

A perfect example happened when the new owner called out to a staff member to come into their office. When the employee came in, he was handed a sheet of paper: “Please fax this to so-and-so.” After the employee left, the old owner leaned over and said, “We usually do those sorts of things, no need to bother the staff.” Without skipping a beat, the new (and soon to be former) owner replied, “That’s the difference between you and me.  I’m an owner – you’re an operator.”

Departures and Decline

As I’m sure you can guess, that sort of attitude wasn’t confined to private remarks in an office, but leaked out to how the staff was treated, and before long, people started leaving. The front line staff were the first to go, almost all of them left within 90 days. Some months after that, the management team followed suit. As the cash flow dried up, the new owners couldn’t take a salary and worse, had to take high interest loans (without their bank’s knowledge or permission) to stay afloat. From that point forward the death spiral accelerated and before long they had crashed, largely because of their own hubris.

Perhaps being an operator so that you could learn how to be an owner of that business might have been in order?

Whether you consider yourself an owner or an operator, you’d be wise to pay attention in those early days at the helm of a new business. Continue to write down and note exciting ideas you may have for change and growth, but wait until you have a real sense of the business, instead of relying on perhaps your (too healthy) sense of self, before making any changes at all.

You bought the business for a reason. Give yourself time to understand the business completely.

An Exit Interview for Sellers

/in , /by

Exit Interview for the SellerIn the due diligence process, a lot of documents and statements have to be delivered. What are sometimes forgotten are those crucial discussions about the heart and soul of a business. The information that is difficult to put into even the best owner’s manuals of the most systematized businesses. It’s also true that not all buyers and sellers develop the kind of rapport where an easy discussion about challenges and mistakes can organically happen.

In this article, we’ll offer four possible questions you could ask in a hypothetical exit interview for an outgoing seller as you undertake to replace him or her. The hope is that you can learn key lessons that will help you take the business you are buying to the next level.

What would you have done differently?

Very rarely will this question result in a quick, “Nothing.”  There are people who are either extremely intentional with what they did and proceeded along that line or those who are totally blind to self reflection. Most sellers will take a deep breath, exhale, and pause to think or just as quickly say, “Lots of things.”

The goal of this is not necessarily to capture every single thing that the seller could have done differently. Hopefully you will see a pattern that can help you avoid those potholes or make improvements that the seller couldn’t have. These discussions can also lead to broader philosophical conversations about the business. It’s an opportunity to introduce key questions for the buyer to fire his/her imagination and problem solving skills.

One of our sellers told the incoming buyer that he’d had personality and management style differences with one of the staff. This caused her to resign. But that the seller found her to be remarkably professional and dedicated to clients. He thought she would probably come back to the firm knowing there had been a change of ownership. He happened to be right and the employee returned to the benefit of the buyer, herself, and their clients.

What skill(s) do you wish you had that would have made a difference?

Some skills people are born with. But many can be acquired with diligence and patience.

If a seller confesses a weakness in a skill set that you also share, that doesn’t mean you’re doomed. Obviously, he/she didn’t possess that skill but still managed to build a sell-able business. But it does offer you additional insights and guidance from someone who has been in the position you are aspiring to. It gives you a head start so that rather than realize, “I need to be able to work better in the early evening, when a number of clients check in with us” a few months into the sale, you are told ahead of time by someone who has been doing it for years.

Sometimes, owners were too blind to hire their weaknesses, convinced of the “up by your bootstraps, do it yourself” attitude that parades as humility but is actually (and ironically) a very subtle form of pride. If an owner identifies a skill he/she wishes that you had, that’s a great sign. If something is missing, however, you can begin to brainstorm how to deal with it, including perhaps delegation to an existing employee or a new hire.

Can you share some war stories of experiences with clients or employees?  How you handled it well and/or how it might have been handled differently?

This is perhaps the most controversial question you might ask and one that is taboo in our “we are all scared of lawsuits” society. And the seller is always free to refuse to answer. But this again is part of the honest, goodwill effort for a smart transaction to occur and for a business to continue to grow, and indeed, thrive.

The new owner should be warned about a problematic client or an employee who created a bad atmosphere at the office. Likewise, the owner should be proud to share some times when a big risk was taken in client or employee relations and it ended up very positively for all involved.

We know of a client who had made personal deliveries to their clients on Mother’s Day. Some of those mothers were key factors in his company’s success. While it had been noted in the operating manual as a key part of marketing operations, it was important to share the reactions from those grateful clients. Many had probably never received Mother’s Day flowers from any business they had ever worked with (much less, the seller was told, even their own children!) This personal context is valuable and should be saved and shared.

Who is the most important staff member in the company at the moment? Why?

All sellers dread the loss of staff during a transition period. Sometimes the staff leave for no reason directly related to the incoming owner. A sale just signals a “change” in life and that can trigger a number of things related to their own career trajectory and plans, leading them to believe that perhaps it’s time for a change for them too. Where you have to hope to make the opposite case is with the most important member of the team.

Find out from the owner who this person is, what makes him/her tick, and what’s his/her “why” in relation to the company. After the acquisition, have a heart-to-heart conversation with this person as soon as possible and find out what his/her vision for the future of the company is, and if there are any ways you can incorporate that vision into yours. If so, you’ve just guaranteed a major factor of success for yourself in any business endeavor: retention of key staff.

We have other exit interview questions we’ve developed over the years to help you successfully acquire a new business. Ask us about them today.

Four Things to Keep in Mind When Buying a Food Service Business

/in /by

Food Service BusinessFood businesses have never been more popular. At a basic level, food, as something we consume every day, is always on our minds. But the celebritization of the industry via competitions, the Food Network, and wildly successful concepts has brought a new level of interest to this marketplace. Food service businesses have some particular things you need to keep in mind when doing your due diligence.

Lease

Every lease is different and every landlord is different too. A restaurant’s location is intimately tied to its value so if you can’t retain the location, there’s no guarantee that the business will survive. You need to make sure that the lease can transfer to you, and sometimes there is a long vetting and qualification process before such a transfer can be affected, so don’t delay the application process. If given the proper attention, this is rarely a problem, but we can give you plenty of stories of deals that got held up or actually torpedoed because of problems with the lease.

Equipment

If the equipment is leased there will often be maintenance records that go along with them, but if the equipment is owned, find out what the maintenance record is.  Find out what condition the equipment is in. Look under the hood. Kick the tires, gently.

Liabilities & Licenses

There are certain charges that follow the business, not the owner. This can include unpaid sales taxes and health code violations. Have your attorney check with the relevant agencies. It’s not about not trusting the seller. It’s about trust, but verify.

Non-compete

If it’s a chef-owner, this should be a given. These people have often (rightfully) earned a following and if they don’t sign a non-compete, they can decide (not even spitefully, but just because they want to) to open up a restaurant (similar or otherwise) near you, which could seriously hurt your business. A non-compete shouldn’t be a deal breaker, and it’s not meant to bury the seller, but rather to protect the buyer. The seller should want the buyer to succeed, so this makes sense all the way around.

Food service business can be tough, but rewarding in their own ways.  If you are serious about buying into one, or selling one you’ve cultivated, give us a call.  We’ve got the experience to help you.