- Evaluate your goals
- Formulate acquisitions
- Locate candidates
- Evaluate candidates
- Neg. successful purchase
- Assist in financing
"What we can do for you..."
A big advantage in buying an ongoing business is that you, as the new owner, have an immediate cash flow and an established customer base. You do not have to build a business; you simply take over an existing, successful business with the present owner’s assistance.
We assist you in obtaining financing. Banks are reluctant to finance business purchases for several reasons. One, all small businesses attempt to minimize profits shown on financial statements to reduce tax liability. Also, a bank cannot come in to manage a business if foreclosure becomes necessary. Therefore, over ninety percent of business purchases are financed by the owner himself, which demonstrates his confidence in the business.
Unlike the sale of real estate or franchises, the sale of an ongoing business is very confidential for both the seller and the prospective buyer. All inquiries are held in strict confidence. Meetings are confidential, and we are available after hours and on weekends.
Things a buyer should know
We at Equity Financial Group, Inc. are advocates of finding a business that you like and feel comfortable managing. You, like every other prospective buyer, have a vision of being your own boss and calling your own shots. An old saying in the real estate industry is … “The three most important things a buyer should look for are location, location & location.” While location is important to a business buyer, be aware that track record and management round out the three components of a successful business. Let us assume that you find a business that you like and its location is fine, but because of poor management, the business may not show the greatest record of accomplishment. Purchased for the right price and terms, this business could become more successful with proper management making it a good way to achieve your vision of being in business for yourself. Finally, be aware that many businesses sell for much less than they are originally listed… sometimes-even 50% less. So, if it is a business that you like, do not be afraid to make what you consider to be a low offer.
The process of buying a business is as follows:
- Evaluate the basic information on alternative businesses that sound interesting to you.
- Visit the business (if possible) without announcing yourself as a buyer (incognito) to get a “feel” for the business.
- Meet with the Seller, asking from general to probing questions on anything and everything, except actual price negotiations.
- Do your preliminary evaluation, based on the information provided by the seller to Equity Financial Group, Inc. and you.
- Make an offer, assuming that all of the information you have been provided is correct, but include contingencies, which allow you to confirm such information. Equity Financial Group Inc. will show you how to write an offer to protect you as the buyer.
- Once a sales price is agreed upon, make a closer investigation of the business, confirming to your satisfaction the validity of your offer.
- Have documents prepared for the closing. You may agree with the seller to share the cost of a closing attorney. This lawyer will not argue the position for either party, but drafts all necessary legal documents to comply with the agreement a buyer and seller have reached.
- Close the purchase, and begin your first day as the owner of your own business. The seller will assist in an orderly transition because most of his money is coming from your success.
- You are part of the American Dream – You and your family own your own business!
Top 10 Tips for Buying the Right Business Right
- Buy a business you like. Although profitability is important, you will risk making a terrible mistake if you do not buy a business that you like. Often, people who buy hastily without considering personal satisfaction later sell their businesses at a loss. Will you be proud to own the business? If you are not sure, do not buy that type of business.
- Be flexible. Equity Financial Group Inc. advises its clients to be open to all sorts of businesses. Do not lock your self into a McDonald’s or a Mailboxes, etc. Who knows, you may surprise yourself by taking a liking t a Blimpie or Signs Now franchise. If you lock into only one type of business, it will take you much longer to find a business to buy. Examine the following categories: retail; service; manufacturing; distribution; restaurant; lounge; coin-operated business. First, decide if there are any categories that you do not want to be in, then focus on the remaining categories.
- Do not expect much financial information. Do not expect “traditional” financial information from the owner of a privately owned business. The only accounting required of a privately owned business is filing tax returns, which are prepared to report the lowest possible tax liability. There are other ways to verify cash flow later.
- Consider chemistry. This may seem like an unusual recommendation, but Equity Financial Group, Inc. tells its clients to forget about buying a business if they do not like the current owner. The buying process is a long and somewhat complicated one -- it is imperative that the buyer and seller work through it together.
- Go with owner financing. The owner of the business should finance the purchase. In most cases, this is the sole source of financing available to buyers of an existing business. With owner financing, you can feel secure in believing the owner’s representations as to income and expenses, and you have a remedy if there are any problems after closing. It also gives you a “silent partner” with a personal stake in you success.
- Do not pay cash. You may not want a loan over your head, but do not pay all cash for a business – even if you have it. You should keep a stash on hand for emergencies and business improvements. If you insist on paying all cash, at least place some of the purchase price in escrow for a period of time to protect yourself from any problems that may surface after the closing.
- Make an offer before you have seen all of the financial and other business records of the business. It is simply not possible to know everything about a business before you make the initial offer. The offer does not commit you to the business, but it does let the seller know you are serious.
- Stay calm. Buying a business can be like dating. You’ve got so many emotions going – do you like the business, does the owner like you, is this feasible, what does my family think, etc. – that you’re bound to get a little flustered. Keep your wits about you; you will need them. Remain calm, and negotiate your offer with quite reflection and reasoned discussions. As you go through negotiations, always use this simple formula: Cash Flow Available minus Annual Payments to Owner = $$$ for you and your family. If at any time during the negotiations this formula does not result in enough money for you and your family, stop.
- Investigate the business. Once the owner has accepted your offer, the realwork
begins. Verify cash flow and identify any hidden problems. If
you see red flags in either of these areas, change or terminate
your offer. There should be stipulations in your offer that allow
- Close quickly. Once the deal is made, try to close as quickly as possible. You do not want owner to have second thoughts or news of the sale to leak out to employees, suppliers and clients.
THE 90% RULE: FACTS ABOUT BUYERS
- 90% of all buyers are first-time buyers. In other words, they have never been in business before.
- 90% of all buyers will finance the purchase of their business.
- 90% of all buyers do not know what kind of business they want or best serves their needs.
- 90% of all buyers are terrified and/or uneducated in the business buying process.
- 90% of all sales will be financed by the seller.
- 90% (or more) will not buy the business that was advertised or the one that they called in on.
Advantages of Buying an Existing Business
- Actual results rather than pro-forma.
- Immediate cash flow.
- Trained employees in place.
- Established suppliers and credit.
- Established customers and referral business.
- Existing licenses and permits.
- Training by the seller.
- The availability of owner financing.
Advantages of Buying a Franchise
- Known name means instant recognition.
- Proven product or service.
- Ongoing support means you are in business for yourself but not by yourself.
- Better than 90% of new franchises are successful.
- Operating system in place all the mistakes have been made!
- Opportunity to add additional units within the franchise system.
- Training by the seller.
- The availability of owner financing.
||Remember ultimately the success or failure of the business is the owner’s responsibility, and there is no “Right” business, so buyers must be flexible.
© 2005 Christopher S. Whitener CPA. All rights reserved.
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