| Shirley: How will I know its right for me?
|
| |
| Being in business for yourself can be a scary thing. Like life, it come with no guarantees. At some point, after all of your investigation is completed, you will still have to make that "leap of faith" to proceed with the purchase of the business. You are going to have to work hard, perhaps even "tighten your belt" a little and perform many different jobs to be successful in your own business. But, if running your own show, making your own decisions, not having to worry about job security (remember, no one can fire you from your own business sweetie), and just being on your own are important, then owning a business is right for you. After making this leap of faith, almost all business owners will tell you that they would never go back to being an employee.
|
|
| Hey Shirley: Am I just not asking the right questions when I contact a Broker?
|
| |
| That depends, what questions are you asking? When you first contact a Business Broker, you have to understand they can’t just tell you everything right off the bat! It’s a thing called “confidentiality”. A word you’re going to need to learn to buy a business. A broker will need to know that you are serious about the business you contacted them on. If you contact the same broker asking about a $60,000/ pizza place and two days later contact them about a $600,000 manufacturing plant. Come on, what are you thinking? Anyone would think you weren’t serious! What you need to do is track your business inquires. You can do that on the Buyers Research Page. I highly recommend you do this.
|
|
| Dear Shirley: I got back this profile that says a lot, but tells me nothing!
|
| |
| Sweet pea, that’s called a “blind business profile”, It’s not supposed to tell you everything! It all comes back to that special little word “confidentiality”. If the broker has done his job well, that little profile should have told you just enough to get you all interested in seeing more. Think of it kind of like a preview for an R rated movie at a PG-13 one. This is for anyone to see, so they just give you highlights for general public viewing. If you want to see it all, you need to buy a ticket! Think of signing an NDA/CA as buying yourself a ticket to see all the good stuff!
|
|
| Dear Shirley: Isn’t Goodwill a charitable organization?
|
| |
| Why yes, yes it is. It is also what I’m not feeling towards you at this moment. Did you take a short bus to school sweetie? Goodwill is what business people call their reputation and recognition in the community. It is their market penetration and customer base as well. Summed up, it is how well they have established them selves and their services in their market area. Charity has nothing to do with it.
|
|
| So Shirley: I ask a simple question and I get back this NDA/CA thing, what’s with that? |
| |
| THAT is your ticket to getting more information, sweetie. An NDA/CA is a short term for a non-disclosure or confidentiality agreement. See, there’s that word again; “confidentiality”. It is simply an agreement between you and the broker that states you are aware that the information they give you, on a business, is for you! That you are not going to go around and tell everybody and their mother that you know it is for sale! Of course you can discuss it with your legal or professional advisors, but NOT your sisters’ best friend. Speaking of your sister, think of it as the key to her diary. You know she’d kill you if you blabbed anything you read in there and it would really hurt her if any of it became public knowledge. An NDA/CA is the same thing and it’s a safeguard for the business owner whose “diary” you are about to read.
|
|
| Hello Shirley: What is with all this legalese?
|
| |
| Honey, you are looking to buy a business. You are not going to try on shoes! There is a certain language that is common in our courts and legal system. Business documents are going to contain this type of language. I hope your professional advisors will understand them and you should too. Perhaps you should check out the Buyer Research page and familiarize yourself with contracts and such. If you don’t understand them, then you shouldn’t be signing them!
|
|
| Dear Shirley:If they really want to sell, why would they care who knows?
|
| |
| Well, think about what you just asked. Then just ask yourself, who is all out there? If this business was the source of your income and you were looking to retire, would you want your competition to know you were looking to sell? Or your employees or customers? What about your supplier who has always let you purchase on credit? You still need the income while you are being marketed. What would happen to your business if everyone knew? Think baby, think!
|
|
| Shirley: Why should I sign anything before I even know if I’m interested?
|
| |
| Why should I give you any advice if your not really interested? It’s the same thing sweet pea. Would you want me to tell anyone who asked every detail about your life ? Even about your bed-wetting problem at age 7? Especially if they won’t agree not to tell anyone?
|
|
|
Dear Shirley: Why would anyone sell a profitable business?
|
| |
| Well, let’s just think about that. You opened a fish market back in 1962. You had your kids working with you, but they grew up and moved on. Rotten little bastards they are. You and the misses want to retire to Florida and try to get the fish smell off your hands. What are you going to do? Close down or sell? Are you getting this sweetie?
|
|
| Dear Shirley: Why won’t they just give me the address of the business?
|
| |
| Why won’t you just give me $50.00? It all goes back to confidentiality sweetie. They don’t know who you are or what you are going to do with the information. Why don’t you give me the keys to your house and the code to your alarm? While you’re at it, I’d like your bank and credit card account numbers as well!
|
|
| Hey Shirley: I read a business for sale profile online and I think I know what business it is; can’t I just call the owner?
|
| |
| How do think that’s going to go sweetie? Just what would you say? “Hello, business owner, I think your business is for sale. How much money do you make.” That should go over like a lead balloon and you would come out looking just so darn smart. He’d be a fool not to tell you everything and consider you a serious buyer. And my feet don’t hurt either.
|
|
|
So, I signed the NDA/CA, now what?
|
| |
| Now you review your prepared list of questions. Sweetie, I hope you’re not going to go into this blind. You are about to get a barrage of information that you are expected to weed through and understand. Know what you are looking for and be prepared to look past the obvious. Once you know and are happy with the name and location of the business,you have to ask yourself a lot of questions and be prepared to answer them! This is all your responsibility and no one else can tell you if it’s the right business for you or not. Spend some time taking a good hard look at yourself and your finances. You are going to need to make a living at this, are you comfortable with their financial recast? Do you understand the difference between cash flow and gross profits? Do you like their key employees? What can you do to improve the business? If you didn’t change a thing but ownership, could you make your debt service payments and still make a living? I think it may be time for you to get some additional knowledge and review the information in the Buyers Research section.
|
|
|
Dear Shirley:I signed the NDA/CA and I know the location, can’t I just visit the owner?
|
| |
| Honey, I love your enthusiasm, but you need to slow your roll! I think you need to remember our favorite word “confidentiality”. You are not free to walk in and say “Hello, I’m interested in seeing your sales reports.” Signing an NDA/CA does not give you carte blanche to that business. Site visits and meetings with the owner must still be arranged through the Business Broker. However, I highly recommend that you make a visit and “secret shop” the business to see if you like the location and “feel” of it, but remember “confidentiality”. No one there can or should be able to tell that you are aware they are for sale. You should just act like another customer. You can learn a lot more by “secret shopping” a business than you ever could if they are expecting you. How do they treat you just thinking you are another customer? You get to see the employees in action and see how the business is ran on a regular basis. This is probably the most important action you can take in the entire decision making process. Don’t mess it up! After you “secret shop” and if you are pleased with how that went, you can arrange a site visit with the owner and the Business Broker. This way you will also have questions based on your actual experience with this business.
|
|
| Shirley: Why can’t I just stop by the business?
|
| |
| You don’t read much do you pumpkin? Look at the answer above, you can stop by the business to “secret shop” it. Once you have had a site visit and met with the owner, it is not a good idea to just “pop –in” on them. They hired a Business Broker for a reason and you need to respect them and their time. Many business owners have their days planned and their duties set, they don’t have the time or interest in dropping everything to deal with your whim visit. You need to remember our word “confidentiality”, if you become a pain to them, it will only hurt you in the long run. Site Visits MUST go through the Business Broker as should the release of information. Leave the business owner alone and ask that question that is just killing you to the Broker, it is their job to get you an answer.
|
|
| Dear Shirley: I had my site visit and my list of questions, but they wouldn't answer one that I feel is very important. Why won’t they tell me the names of their suppliers?
|
| |
| Why won’t Aunt Nellie give me the recipe for her green pea surprise? It’s the same thing sweetie. If they told you how they did what they did and just where to get the stuff to do it, then you’d be able to go out and do the same thing. Then you’d become their competition and it could hurt them. It’s called a trade secret. The information will come in time. After an accepted offer and during your training period. It’s like Christmas honey. It comes, you just have to wait for it.
|
|
| Shirley: What key things should I look for in a business?
|
| |
| First I’d ask myself, does it interest me? Can I see myself doing this daily? Can I improve the business? Then I would look at how long the business has been in operation. A business that’s been around awhile means there are good reasons for that business to be operating. It will be well known in the area, and people will be used to visiting the business or using its services. The longer it has been a business usually means, the better the business. Does that make sense to you? Then I’d look to see how long the current owner has owned the business. The longer they have been in business, the more likely they have been successful. People don't stay in business if they are not making money sweetie. I’d ask them why are they selling. If the owner of a business has only been in business for six months, is 37 years old and wants to retire, you should be cautious. The better their reason for selling, the better your chance the seller will consider your offer. But, keep in mind sweetie, people do get restless, after five or six years or more "burn-out" may have set in, or people look for new challenges. Why the seller is selling is an important question-get the answer. Then you should look over their financial records. The financial records of the business are a good indication of how well the business has been doing over the years. Keep in mind that tax records are not done to show the business in the best light: no one likes to pay more taxes than they have to, and businesses owners are no different. Usually, tax returns are a worst case scenario. You need to be able to look at the expenses and understand which ones are non-cash items, such as depreciation, and business use of home and vehicles. How important was their business trip to Las Vegas? A business broker can point these items out to you. When in doubt, Honey, seek outside assistance. Remember, financial records are only a history. There are no guarantees that you will or can duplicate or repeat them. My final word, the financial records of the business are only an indicator of what the business has done; what you do with its future is entirely up to you sweet pea.
|
|
|
Dear Shirley: How can I determine if the seller is reporting all their income.
|
| |
| Oh Honey, that is a good question! The honest answer is that you can't! Not reporting income is against the law and most sellers do not hide money but, you should consider only the income that the seller can show and prove to you. We all know, of course, especially in cash type businesses, there is the possibility that the seller is not reporting all of his or her income for tax reasons. Many sellers will tell you about how much money they are "pocketing," but you should ignore their statements, because they have no way of proving these amounts. When they tell you this just look at them like they are telling you about their last U.F.O. abduction, It’s a good story, but they just can’t prove it. You need to base your decision to buy a business on the figures that can actually be supplied to you by the seller. There is a way you can check it out Honey, the Research Center has a form you can submit to the IRS and they will point you in the right direction.
|
|
| Dear Shirley: Can you explain Due Diligence?
|
| |
| I will do my very best sweet pea. First, I’d like to tell you that Due Diligence is entirely your responsibility. It is a period of time (usually 2 weeks) that you have to fully research a business. It usually starts right after you have presented an offer to the business owner and they have accepted it. The time frame should be clearly spelled out in the offer to purchase so you both know when it will start and end. It happens BEFORE closing and you should not confuse it with training sweetie. Training starts AFTER you close on the sale. This is when you make certain that what you have been shown about the business is real. You should prepare a list of questions and get all your concerns out there. This is when you can ask to see the daily sales reports and have it backed up by their sales receipts. You can ask to see things like utility bills and supplier invoices. You can check the inventory and review employee records. You can checkout the equipment and make certain it is all functional. This is your time to make 100% certain that it is all you think it is. So you need to be prepared and know what to be looking for. The Research Center has a list of common questions and areas to review. I recommend you check that out. Remember Sweet Pea, if you find a problem with anything, you can withdraw your offer based on an unacceptable Due Diligence. This needs to be done in writing and you should offer the owner a chance to make things right, but you do have to submit your answer within the time frame you requested in your purchase offer.
|
|
| So Shirley: What I hear is, after my offer is accepted, if I hate it I can get out?
|
| |
| Well sweetie, you do have that option, but it’s not meant to be a crutch for your emotional handicap! You do have the Due Diligence period that you request in your purchase offer. It is there for you to back out of the deal if you find it is not what you thought it was. Don’t go using this as an escape clause so you can “try on” businesses to see what you like. If you are that unsure of yourself, then you really shouldn’t be looking to buy a business. You obviously don’t have the qualities to make it successful and you are only going to create problems for yourself in the long run. Due Diligence is there so you can throughly investigate a business and you shouldn’t be making offers if you aren’t certain you are interested in buying the business!
|
|
|
Shirley: Can you tell me how to write an Offer to Purchase?
|
| |
| No Honey, I can’t. How you right your offer really is going to depend on the business and your finances. I recommend you check out the Research Center. They have forms and samples you can review and look over. Some you can actually use as a template. If you need outside assistance, you can find that help as well. Check things out before you make that move and best of luck to you Sweet Pea!
|
|
| Dear Shirley: What is a letter of intent?
|
| |
| Oh, you are a smart one aren’t you sweetie? A Letter of Intent is a tool that you can use to see if you and a seller are on the same page prior to making an offer. It is non-binding and should outline a time frame as to when you plan on submitting a formal purchase offer and what you plan on including in it. It should outline everything from your financing of the purchase price to all your contingencies and what you would be looking for in your Due Diligence process. The seller can always answer your L.O.I. with their changes and let you know what they would expect and accept. Think of it as a “promise ring” with the actual Purchase Offer as the “engagement ring”. It is a tool and should be looked at as a tool. Most business sales do not really require one, but it is a good way to add clarity to a complicated offer. The Research Center has samples that you can review or use as templates. |
|
| Shirley: I heard that most sellers will finance your business purchase. How can I know if the seller will finance?
|
| |
| That is a question that most business buyers ask at one time or another. The only way to answer that is: you need to ask THEM. Don’t sell yourself short Sweetie and miss your chance by not making an offer and asking the seller for financing. There are so many ways a business can be bought and you will never know what the Seller may accept if you don’t ask. Their Broker can’t even truly tell you that either. How many times in your life have you known a person to tell you that they’d never do something and then a short time later, there they are doing it? Sellers are just people Honey, they can always change their mind. You really need to take that step, write up that offer and see what they will accept. Remember, you need to put it in writing. When something is in writing and people can read and re-read it, it has more strength and meaning. It seems to make it serious. Don’t miss the boat and not try, there is never any harm in asking!
|
|
| Dear Shirley: I think I want to buy a business, but now when I ask the Broker for information, they won’t contact me. Why?
|
| |
| Well, think about that for a minute. How many businesses have you asked that Broker about? Are they all in the sale price range or close to the same type of business? Did you ask about everything from a shoe-shine booth to a fish hatchery? Have you done any follow through with research? Ask yourself these questions: Do I look like a serious buyer to this Broker or am I all over the board with my inquires? Am I asking about businesses that are worlds apart in both services and sale price? If you have answered yes to these questions, then you need to get control of yourself and your inquiries. You really need to keep track of the businesses you have asked about and the Brokers you have contacted. The Research Center has the means to help you do this. You should check it out and work with it so you stop looking like an ADHD child and start acting like a serious business buyer!
|
|
| Dear Shirley: There’s this great restaurant for sale, but I don’t have any restaurant experience. What should I do? |
| |
| I think you already know the answer to that question. You need to look at the business and do some serious research. Could you run the business? Well, yes, if you have a good manager and keep “key” experienced employees that can help you along the way. Does the restaurant already have these key people in place? Will the cooks and wait staff stay? If you need to hire an experienced manager, does the business currently make enough money to afford you this additional salary? Remember, you can ask the owner for a training period to start after closing and any business can be owned an run by an “absentee” owner if you choose to do that. The decision is yours sweetie!
|
|
| Shirley: I signed the darn NDA/CA and now they sent me this lengthy financial / personal history statement that asks everything including my middle school and ages of my dependents! I STILL haven’t received any information on the business, but I think this is all crap! Should I just bite the bullet and fill it out? Is this common?
|
| |
| Baby, you are right, it is crap! There is no reason that you should be asked to fill out anything but an NDA/CA and, possibly, a simple financial statement or preference form. If you are asked to fill out anything you are uncomfortable with and that they can not explain a solid reason for, then you need to walk away and tell them why! A business broker does not need all that information and it could come back to harm you in a negotiation! Actually, you should run away Sweetie and not just walk!
Run Sweetie, Run!!!
|
|
Free Information Center 
