Archive for category: What Buyers Need to Know

Buyers have different reasons for buying businesses and even more varied ways they wish to operate them once they take over.

In this article, we won’t be discussing those businesses that will be near 100% absentee or will require a complete tear-down and reboot. 

Instead, we’ll be talking about the sort of business that we see very often. One that is running fairly well and can benefit from new ideas, energy and direction from a buyer humble enough to engage with the process.

1. Knowledge

No matter how well a buyer knows the industry, he/she will not usually know your business inside and out.

In those early days, and even towards the end of due diligence when it looks like any obstacles towards a successful closing have been dealt with, it’s important to learn everything you can about a business.  

This doesn’t just include information from the seller, but whatever you can read or discover: books, articles online, blogs, videos on YouTube, quiet conversations with people in the industry who you’ve networked with, etc.

Don’t be that unfortunate buyer who thinks he’s got nothing to learn and will be doing all the teaching. We can’t think of any circumstances where that worked out well in the end.

2. Employees

Confidentiality, as we consistently point out here, is key, and so a buyer will in all likelihood not have had the chance to get to know them or hear their future plans before the transaction closes.  

Therefore, after the sale is officially completed, the new owner should take every opportunity to get to know the employees, especially the key personnel, as well as possible.  

During this phase there should be a lot of listening and a lot of asking for feedback. “What is one thing you would change if you could?” or “What’s a way we could save money/earn more money?”

There’s literally been a regime change so there’s no better time to get a frank and honest opinion, and that can only be done if you come to them with a spirit of trust and openness.

3. Now, Plan

Once a new owner has had the chance to know intimately the business and the people who help run it on a daily basis, he/she can start to put together a plan that goes deeper than “cutting costs” and “new marketing.”  

Every business, no matter how old and established, always has opportunities to grow and make even more income. But those opportunities always become clearer with knowledge and time.

In a certain sense, the financial investment in the purchase of the business is the least expensive and least important part of the process. It only cost you the money and it’s only the beginning.

Now comes the part where you will be asked for your time, which, unlike money, you can never make more of. And now the journey begins where it’s not enough to simply stay in place but to grow, and that comes with risk.

But it’s that risk and that investment in time that makes the journey so rewarding. It’s also why the seller of these businesses is much less likely to go off and swim, Scrooge McDuck-style, through his/her gains. And it’s why he/she is probably going to go through this same process all over again before too long.

Have you been thinking about starting a business journey of your own?  Give us a call. We’d love to share our centuries (literally) of experience with you.

There is an inordinate level of romance associated with building a business from scratch.  Shows like Shark Tank and The Profit only exacerbate the issue.  

Though such shows do show the struggles that these business owners face, the very appearance on television creates aspiration:

“I want to do that too.”  

First-time entrepreneurs looking to get into business see building from scratch as a great option. Seasoned entrepreneurs know better. They know it’s always easier (and often better) to buy than to build.

Why make it hard?

When you start from scratch, you have to build a customer base, market a new business (with a brand and logo you’ll need to come up with), hire employees, and oh yes, generate cash flow during the runway (the financial amount you can survive on during startup) you have to build the company.  Not so with an established business.

They have customers, they have employees, they have procedures, marketing and a brand in place. And yes, there’s cash flow from Day One. It’s even easier to secure financing from a bank, which views an established business as a much safer bet than an untried startup – even more so if the owner has never run a business before.

Lots of choices

You think you know what kind of business you’re interested in, but the truth is, you’ve often not even scratched the surface beyond some daydreaming.  Not only are there businesses out there you’ve never even considered existed, but they’re often for sale – and sometimes, in your price range.

If there’s a type of business that you have your heart set on and it’s not listed, we as brokers can go in as a trusted intermediary to see if maybe there’s an openness to selling.  

Rather than confine yourself to one specific idea that has to work, you can examine dozens of possibilities and see what really ticks the boxes for you.

Take your time

Buying a business isn’t something that most people do overnight.  It’s a process that begins with financial qualification – putting together your assets and seeing what you can afford.

It then continues on with meetings with businesses and owners who truly interest you. And it culminates in an exciting ending: you getting the keys to a business that already works!  

Your concern isn’t keeping the lights on, but deciding what to do next.  

Will you keep it as is?

Convert it to a lifestyle business?

Scale it to the moon?  

A bought business gives you that luxury. A business started from scratch never does.  The failure rate among started-from-scratch businesses compared to bought businesses isn’t an apples-to-apples comparison. Heck, it’s not even a galaxy-to-galaxy comparison.

Are you thinking about becoming a business owner?  Let us help you as we have helped so many before you.  Give us a call today!

We often hear from people who are interested in finding a business that won’t take much of their time – one that’s cheap to buy and provides a good return.

Something they can run as a sideline to their full-time job. The car wash is a common conception of the absentee-owner business.

It looks like a business you can set and forget. Just let it run and collect the money.

Well, finding that kind of business is about as likely as finding a unicorn walking down the street.

If we knew of one, we’d have already bought it ourselves, and we’d be the ones galloping off toward that imaginary rainbow!

If you do find a business that doesn’t require the owner’s constant attention – and we do sell those – it’s likely to be a longstanding business, which the owner has built over time.

He has managers and employees he knows and trusts, and he can look at the financial statements and easily identify and address trends before they become problems.

As a new owner, you wouldn’t automatically inherit the ease he enjoys.

To improve the odds of success, new owners should plan to spend a good portion of every week in the business. You need to learn your industry, your store or operation, your employees and your financials. You will want to build relationships with your customers.

How will you know if your car wash machinery is working right, your property is being maintained and your manager is depositing all the day’s quarters each night? It takes some footwork and close attention to look after all the details of the business.

We had a client who bought a few coin-operated car washes several years ago while holding down a full-time job. It wasn’t long before he learned his managers were stealing from him and failing to maintain the equipment. He quit his job to rescue the businesses but ended up selling the car washes eventually.

Don’t get us wrong; car washes can be great businesses. We have another client who is doing very well with car washes. He has taken some time to build them up and put strong managers in place. If they’re located in high-traffic areas, maintained properly and managed with integrity, car washes can return a solid return year after year.

So is the dream of an absentee-owner business possible? With several years’ investment, you may be able to achieve it. Otherwise, you’re better off leaving the unicorn on the storybook page.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Post by Paul Temme, Certified M&A Professional (CM&AP), Apex Senior Advisor

If you’ve found an attractive business to buy….CONGRATULATIONS!

Knowing the kind of business that interests you and matches your strengths is one of the hardest and most important first steps. Once you’ve expressed an interest and begun the conversation, it’s time to put your plans in place for digging into the business and making sure you know what you’re getting. That’s called due diligence. And it’s wise to prepare for it in advance.

Understand Your Business Advisor’s Role
As business advisors, we typically represent the seller. While we want to see both parties benefit from a fair deal, our role is primarily to convey information between both parties. Early in the discussion process, we will share the seller’s profit and loss statement and balance sheet. And we will confirm with you that they jive with the seller’s tax return.

Basically, if the seller says he has $1 million in revenue and $250,000 in profit, it should show on the IRS filings. But it’s important to note that we don’t audit the seller’s financial statements or confirm their validity. That’s up to you.

Consider Hiring an Accountant
Once you have a settled offer on the table, it’s your responsibility to execute whatever due diligence you think is needed. Typically, that means confirming the accuracy of the financial statements. The seller is required to open the books, including checking account statements, credit card statements, benefits information, insurance bills and more.

Unless you have a strong background in accounting, you should probably engage an accountant to review the seller’s disclosure statement and books and compare them with the IRS filings. At the least, you should have a professional direct you in your review.

We once had a $4 million deal that was in jeopardy because the buyer – an experienced sales person – was having trouble understanding the seller’s financials and the large tax implications for the seller of the business.

He ended up hiring an accountant who worked with the seller’s tax attorney to structure a deal to benefit both sides. Five years later, he’s still going strong.

There’s a Buyer for Every Good Business
It’s important to know whether your business advisor is representing the seller or the buyer. Regardless of whom we represent, it’s important to us at Apex that buyers understand we are here to help them by conveying information – including helping them find the other advisors (accountants, attorneys, etc.) they need.

We want happy buyers and sellers who come back to us when it’s time to buy or sell in the future. And if the deal doesn’t work out for you, that’s OK. If one business doesn’t work out, another good match will come forward.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

We work with a lot of buyers who are fresh off a few decades on the corporate merry-go-round. Some are weary of working for “the man” and want a taste of running their own show. Others have been right-sized and are looking to apply what they’ve learned to a new business. No matter the motivation, some former corporate executives are well suited to make the transition. (And others definitely are not!)

Ask Yourself These Questions

• How much personal risk can you handle? Are you willing to place a significant portion of your savings on the line? Most buyers need to put down at least 20% to 25% of the purchase price.
• How hard do you want to work? Every business is different, but it’s not unusual for new owners to put in 70- to 80-hour weeks. And you’ll probably have to do a lot of the hands-on work yourself. Even with a strong staff, you’ll need to pitch in wherever the business needs you.
• How decisive are you? Can you trust your gut to make fast decisions based on little information? You may not have the time for the kind of research and consensus building you had in the corporate world.
• What kind of supervisor are you? Again, you’re on your own here. You may not have an HR staffer or fellow manager to help you out. It takes a great people manager to hire and keep strong players on the team.
• Do you have a diverse background? Business owners often have to handle all the basic functions, from finance to HR and marketing, so it helps to have exposure to the fundamentals.
• Are you self-motivated? It all starts at the top. Your vision, direction and optimism will drive others.

Prepare Yourself for the Process

• Get your finances in order. Clean up your budget. Know your credit status. Take a look at your assets and understand how much you need to retire.
• Who’s in your circle? Most successful small business owners build a network of peers to help them with input and advice when they encounter something new or difficult. You’ll also need a team of business advisors, including legal, finance, sales and marketing.
• Talk with your family about these issues, too. How comfortable is your spouse with the investment needed to make this work and the potential change to your work/life balance?
• Don’t let your nerves kill the deal. You should be a little nervous about closing a transaction that will change your life. But if you let your anxiety take over now, you’ll have a hard time running your new business, too.

Consider These Steps

• Think about what kinds of businesses appeal to you and what you want to avoid. You might start with businesses in your current area of expertise. Or perhaps you want to make a radical change. Are you open to buying a franchise? Is retail on or off the table?
• Bring your spouse along to look at business opportunities and understand the financial aspects of the deal. We’ve seen many a divorce threat at the time of closing because the spouse didn’t understand what the family was getting into until it was time to sign the papers or transfer the cash.
• Learn about how to access your 401(k), IRA or other tax-advantaged funds to purchase a business. You can do it, but you’ll need professional help.
• No matter what your financial situation, get a business coach as soon as possible. Even the strongest leaders need a qualified, trusted professional to bounce ideas around with.

Finally, if you think you’re up to it, get ready for a ride. Owning your own business can be both agonizing and thrilling. You may well find that it’s a satisfying alternative to the corporate life.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!