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BUYING AN EXISTING BUSINESS

EVERY DAY IN THE LIFE OF A SELLINGRESTAURANTS BROKER

BUYING A BUSINESS THE SMART WAY

Buying a business is a process can be a long and challenging ordeal with many highs and low.  But those who educate themselves and endure the trials and tribulations of buying a business will usually be rewarded. 

The first step is to qualify yourself to buy a business.  Many people think they will simply got the a bank to get an SBA loan or that they get pre-qualifed to buy a business similar to what ones does in purchasing a house.  It doesn't work that way. 

The profile of a good buyer will have three factors: (1) experience in the business they are considering buying, (2) good credit and, (3) plenty of cash. If you are weak on any of these three items, your chances of being able to buy a business is significantly hindered, not impossible though. 

There are several hurdles one must go through to qualify.  First there is the business owner.  The business owner usually has a vested interest in making sure you can run the business and make the monthly lease payment because most leases hold the seller liabilie for rent payments in the event the buyer defaults. Second, the landlord will want a good strong tenant to replace the seller so he/she will want a solid personal financial statement with experience and good credit.

Next, you must determine what you're good at doing and what you like. These may not be the same thing.  Furthermore, you must be able to make a living from what you like to do.   I've seen some retail concepts where I must ask myself "okay, what are they thinking!"  Recently I saw a store front that only sells popcorn and related items. In my opinion that qualifies as "WHAT ARE YOU DOING!"  I hope I'm wrong.  I've also seen people who thought they were great cooks want to buy a restaurant.  What they often fail to understand the great complexities of such as business with hundreds of moving parts and any one of those parts could bankrupt a restaurant owner in no time. 

So once you've determined what you want, then you need to start the search.  I would suggest contacting a couple brokers such as Keller Williams to help you on your search.  Find one that knows the business you want to get into.  You don't want a guy that sells lube shops finding you a restaurant or a guy that sells restaurants finding you a doctors practice.  But there are those who may not want to use a broker.  Fine, then go on a google search for websites that adverise businesses for sale.  Such sites are of course www.KWBusinessesForSale.com or www.bizbuysell.com. 

Unfortunately, you will quickly learn how unresponsive the brokers are in this business.  You'll find 10 interesting businesses and send the broker an e-mail. You'll get 2 or 3 to respond.  That's how bad this business can be. But at Keller Williams our agents are trained to respond to you quickly. 

So you find a business that sounds interesting. The broker will send you a confidential agreement and you'll have to sign it and fax it to him/her.  At Keller Williams, our confidential agreement are digital on-line agreement requiring only a digital signature. You should then ask the broker for financials and tax returns to verify the information.  If the broker resists, then move on, they don't have them. If you're buying a business advertised to make money, then you must insist on financial statement tax returns and nothing else. There are a lot of brokers who advertise profit, but often is is some Excel file the seller made-up.  

But if you're buying merely the assets of a failing business, then obviously the only need for financials is to determine what to expect in costs such as utilitiies, rents, maintenance, etc. 

Once you've received the financials, take a good look at them and if you're not qualified to review them, then get a good CPA to help you. The point of this exercises is understand the owner's cash flow. Often if the broker is doing his/her job, they would prepare a casf flow analysis for you, leaving you with simply cross checking the add-backs and making sure they make sense. 

Get a copy of the lease.  Review it closely making sure you understand your obligations under it.  Get an attorney to help you if you're not familiar with leases. 

Then go to the business after you've reviewed the financials and lease by contacting the agent and making an appointment. Talk to the owner and be prepared with a set of clear questions. 

If you like what you've seen, then make a contingent purchase offer.  The purchase is contingent upon a number of factors such as getting the lease transferred, inspecting the business assets, getting latest financials and checking the premises.  An escrow should be opened.

THINGS THAT WILL BITE YOU, STING YOU AND POKE YOU

a business deal is full of things that will bite you, sting you and poke you and buying a business is no exception to this rule. Know the laws in your state.  Go to an attorney of escrow company, they can help you.  But in Arizona, for example, it has some great business friendly regulations and one of them is that a deal can be close quickly.  But that brings some issues with brokers who cut-corners with an eye on their commission. In Arizona a buyer assume the seller's tax liabilities unless the seller presents the buyer with a certificate from the state revenue department showing the seller is in good standing. In California, the escrow company clear this liability for you.  Make sure all vendors have been paid as to not distrupt business. And make sure the landlord has issued an assignment and given consent. to the transfer. Some brokers will not do this nor tell you it need to be done. So be careful because if a buyer moves into a space without landlord approval, the landlord can and will terminate the lease.

Of course, give us a call and we'll gladly guide you through the process.