BUYING

FOR BUSINESS BUYERS

Buying a business can be full of apprehension and even fear for some. If this is your first business acquisition on the Gulf Coast, the process might begin to feel confusing and even make some buyers stop the process prematurely. Most buyers often end up buying a business different than what they originally started looking for. These buyers explore the marketplace, become open to new ideas, and subsequently find a business more to their liking.

Owning your own business is more than owning a job, or it should be. In most cases, it can and should be a very big lifestyle change. Depending on your background and skills you will either begin to work in the business or work on the business. We tend to hope that you will find your way and work on the business and hire wisely to help you grow your business.

FREQUENTLY ASKED QUESTIONS BUYERS HAVE FOR SELLERS

1. How long the business has been in business.
Often a business with a long track record means there is a large enough demand for their product or service that it can produce enough revenue to continue to operate profitably. The business will also have an established reputation in the area. We often find that a business that has been established for 5 years or more can be a more valuable asset if managed properly.

2. How long the present owner has owned the business.
The longer the present owner has been in business, the more likely he or she has been successful. People don’t stay in business if they are not making money. If the business has had multiple owners there sometimes can be a void in a strong positive culture.

3. Why the present owner is selling.
It is not uncommon for the founder to get burnt out after making it through the years of developing a larger profitable business. Often the founder may have a 10 - 20 year plan of growing the business with the intent of selling and using the funds for retirement. There are other times when a business might outgrow its current owner and the demands and knowledge needed are higher than what the current owner is able to contribute. It is always good to gain an understanding of why the business owner may want to sell. You can sometimes identify if you would have the same voids in operating the business.

4. Why books and records are important.
Business financial records are truly the only indication of how healthy the business has been over the years. Tax records may not always show the business in the best light; no one likes to pay more taxes than they have to, and business owners are no different. Generally, tax returns may have deductible items rolled in that are different than new ownership may desire. You need to be able to look at the expenses and discover which ones are non-cash items, such as depreciation and business use of homes and vehicles. Gulf Coast Business Broker is capable of helping you review financials and prepare you to ask the right questions along the way.
Businesses Buyers should use the Seller's financial records as a look back in history. This does not mean that the same results can always be duplicated or repeated. All of your profits are future. Business financials can help you see what the likelihood of future results may be. It is equally as important to verify that the Seller has accurate bookkeeping. Unfourtanlaty, not all business owners understand the importance of great record-keeping and clean clear financial records when they are selling a company here along the Gulf Coast. May started their coastal business with great intentions of a lifestyle, but without discipline and good bookkeeping habits, it can become difficult to show the value of your business.

5. Are the seller's financials accurate?
It is illegal for a business owner to file inaccurate tax returns. When evaluating a business for sale you should only consider the income and expenses that have been reported on the seller's tax returns. We recognize that in a business that takes in a lot of cash there is a possibility that the seller is not reporting all of the income “for tax purposes”. It can be very difficult to prove the amount of unreported cash a business produces. When buying a business you are paying for the likelihood that past profits can be duplicated or increased in the future. If you are unable to see proof of all past profits the business has generated then the value would be considered lower.

THE BOTTOM LINE

Buying a business here along the Gulf Coast can be an exciting yet risky process. There are no guarantees. At some point, after all of your investigation is completed, you will still have to make that “leap of faith” that is necessary to proceed with the purchase of the business. You will 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), and just being on your own are important – then owning a business is for you. After taking this leap of faith, almost all business owners will tell you that they would never go back to being an employee.

FOR BUSINESS BUYERS

The first step to buying your own business is to make sure it is the right move for you and your family. Owning your own business is still very much “the great American dream,” but it’s not for everybody. Here are some questions that you should ask yourself before taking the next step.

Are you just looking or are you serious about buying a business?

Many people are interested in buying their own business but are not willing to make the commitment necessary to move forward. The process of buying a business takes action. It requires you to be able to keep moving forward in a process and even sometimes feel slightly uncomfortable. Many continue to look just like those who continue to look at new and expensive automobiles, but will never spend the time and money necessary to buy. There are times when you find that the longer you look, the less likely you are to buy.

What is your time frame to find a business and what to do now?

If you’re thinking of buying a business in two years, it’s good to start your education. BizBuySell and Vision Fox Business Advisors are a good place to start. Keep in mind that it really doesn’t make sense to look at business now if you are two years out from buying, the businesses you find now will have been sold by the time you are ready to buy. It’s important, however, to arm yourself with all of the information and education available before you begin the search. We suggest spending those hours on educating yourself vs simply looking at a Gulf Coast business online that may be sold when you are prepared.

What is your primary motivation for buying a business?

If you are not motivated to buy a business, you won’t. It’s simply too much risk and comes with too much responsibility for an unmotivated person. You must go into business for yourself for the right reasons. If you’re tired of the corporate world, just have a “job-job,” or perhaps even a dead-end job, then business ownership may be right for you. Certainly, if you’re unemployed or being transferred to a place where you don’t want to go – buying your own business can be a viable solution. I find for most business buyers it’s about controlling their future and creating wealth.

Are you willing to invest a large amount of your liquid assets into a business?

Buying your own business often requires a serious financial investment. When you buy a business you are often writing three checks. One for the acquisition cost, a second for inventory, and a third for the upcoming payroll and other operating expenses. If you’re the type who does not want risk, you might want to rethink owning your own business. It is not for the faint-hearted.

Are you confident enough to make your own decisions and be in control?

Operating a small business requires continual decision-making. You’re the boss, and you are in control. All of the decisions are yours – right or wrong. And, many will make a lot of wrong ones. The question is, can you recover and keep going forward?

If you move slowly due to concerns of making poor decisions or they keep you awake at night, owning your own business may not be for you.

Is your family supportive of you becoming a Gulf Coast business owner?

If your family, especially a spouse, is not behind you 100 percent, then you should think twice about business ownership. Better yet you should help him or she become 100 percent supportive. It’s very important that you have the support of your spouse. He or she has to understand that running a business can be time-consuming. On the plus side, however, business owners often have more flexibility so you can attend the afternoon little league game or other activities that may have been difficult in the past..

Are you allowing yourself to look at different opportunities, or are you looking for a specific type of business?

It’s best if you are open-minded, especially if you are a first-time buyer. Limiting your choices may keep you from ever becoming a business owner. You should be looking for a business that will provide the income you need (or ability to do so), that you can afford, that has numbers that work, and, most importantly, that you can see yourself being the CEO of..

Are your expectations reasonable?

Do you think that you can buy a business with great cash flow for $1,000? It’s important that you have realistic expectations about what your money will buy. Many sellers are willing to assist in financing the sale of their business, but remember, they’re typically not going to give it away. Keep in mind that many business owners have spent years building their business, and this may be the biggest financial asset they have. They’re going to have a reasonable expectation of the value they have created and expect when they sell their business.

Can you make the “leap of faith” necessary to buy a business?

It’s not uncommon for prospective business owners to do their research, do everything necessary to begin the purchase process, and then back out of the transaction right before it’s time to make an offer. They just don’t have the courage to go forward. There is nothing wrong with that; not everyone should buy and own their own business. However, if you don’t think you can part with your money and take over operating the business on your own, you may want to take a second look at business ownership. We have had this conversation with many first-time business owners. We encourage you to speak with us before you just stop the process. Buying a business can be mentally challenging if you do not get in the right headspace. So many miss out on making their dreams come true though because they don’t have the right person to help them, Mike Steward and our team at Gulf Coast Business Broker are here to help you move forward - at the pace that’s right for you.

Do you need a guarantee?

If you are looking for a guarantee then business ownership is not for you. You can and should look at all of the financials, tax returns, and all of the books and records. Remember, however, that they all represent the history of the business. A new owner makes changes, no matter how small. Their management style is different, and times change. You have to look at the business with the attitude of how you can improve things. The financial history of the business is certainly important, but it does not guarantee the future of the business – you and your efforts do.

WHAT SHOULD YOU LOOK FOR WHEN CONSIDERING A BUSINESS TO PURCHASE?

Unfortunately, we see a lot of prospective buyers who stay focused on the asking price and how much money they can make. You need to know how much cash the seller requires as a down payment. No matter how good the numbers are, there is no point in looking at a business if the seller wants three times as much cash as you are willing to invest. Remember, the actual amount of money a business earns is usually much more than just the bottom line. A smart approach is to get more information on the business, and even make a visit, before ruling it out or getting too involved in the numbers. It’s all part of the learning process.

One of the most common questions asked by those who have never purchased a business (which is about 90 percent of those looking to buy a business) is how do you actually purchase a business. There is no right or wrong way to buy a business.

However, it is important that you get answers to all of your questions and that you have all the information necessary to make an informed decision. Here are the common steps to buying a business:

Get the Preliminary Facts

Get preliminary information on price, terms, income, cash flow, and general location. There is no point in continuing the buying process if the amount of cash necessary to buy the business is more than you are willing to invest. At this point, don’t worry about the full price. It’s important, but the key factor is the amount of cash that is necessary to buy the business. Often some of the business purchase price is financed by the seller. This is why the amount you are willing to invest is a key issue.

Also, the business has to be able to meet your basic financial needs. You always expect a business to improve under your ownership, but you have to be able to meet your living expenses as well as meet the debt service of the business. It is also important to remember that almost all purchase prices and down payments are negotiable. In fact, businesses generally sell for about 15 percent to 25 percent less than the original asking price.

Visit the Business Virtually or in Person

Begin to look at the business online and on Google Earth. Once our Broker has approves a visit it is time to visit the business and see if you like the location and the looks of the business itself – both inside and outside. This is a visual inspection.

Pretend you are a customer. This IS NOT a time to talk to the owner or the employees about the specifics of the business. Remember you have signed a confidentiality agreement and the seller doe not want his team or other customers to know the business is for sale. If the business is the type that does not lend itself to a visit, make an appointment with your Business Broker to inspect the business. There is no point in going any further if you don’t like the physical location of the business or the appearance of it.

Get Questions Answered

If you like the business so far, it’s time to get your questions answered. For example: What is the rent? How long is the lease? What have been the sales for the past few years? Can the seller support the figures you have been told? Now is not the time to have the seller’s books and records completely checked. There will be plenty of time to do that and review other important issues during the due diligence phase. This is the time to get those questions answered that have a bearing on whether you may want to own and operate this particular business. It is also the time to visit with the seller to get your questions answered about the business itself. At Gulf Coast Business Broker and Vision Fox Business Advisors, we typically offer a group conference call or video call where we can meet with all parties involved and talk openly and comfortably.

Make an Offer

If you now have your basic questions answered and you want to proceed with purchasing this business, it is time to make an offer, subject, of course, to verification of all the information you have received. The main purpose of making an offer is to see if the seller will accept your terms, price, and structure of the sale itself. Remember, you will have the offer subject to your verification of the important information. It doesn’t make sense to employ outside advisors and go through the time and expense of due diligence unless you can come to financial terms with the seller. We generally call this a Lett of Intent. We aid the buyer in writing up what their intent is as regards to purchase price and other terms. Once both parties have signed off acceptance we would then move into the due diligence stage.

Due Diligence

At this point, you have arrived at a meeting of minds with the seller, and you are ready to begin removing the contingencies, performing what is commonly called due diligence.

*Insider Tip

Unless you are completely familiar with the type of business purchased, it is beneficial to include as part of the agreement that the seller will stay with you (30 days is fair, with perhaps another 30 to 60 days of telephone consultation) a sufficient length of time to teach you the business – at no charge. If you want the seller to stay longer, it may be best to offer to pay him or her a consulting fee of some type.

Do you have addiatioanl questions?

Be sure to visit Buyer FAQ for answers to the following questions:

• Why should I buy a business in the Gulf Coast rather than start one?
• What is the real reason people go into business for themselves?
• How are businesses priced in Gulf Coast areas?
• What should I look for when buying a Gulf Coast Business?
• What does it take to be successful in coastal communitites?
• What happens when I find a business I want to buy?
• Why should I go to a Gulf Coast business broker?
• Do I need an attorney located in the Gulf Coast?