BizQuest's Business for Sale Blog

When You Buy or Sell a Business An Effective Training Period Benefits Everyone

Having a reasonable and effective transition time when you buy a business can sometimes make the entire difference between whether or not the business remains successful after you take over.

Similarly, every seller should want the business to be turned over to a competent individual.

While there are no hard rules that dictate how long the former owner should stay, there are some guidelines.

The first thing a buyer must understand is that the seller cannot remain to perpetuity. If a buyer is too worried about taking over the company, and believes the seller must remain on board for an unusually long time, chances are the buyer is not suited to operate the company and may want to reconsider their decision altogether.

On the flip side, some of the training periods offered by sellers are completely ridiculous.

Unless you are acquiring a very basic business (i.e. a sandwich shop where the seller has very little impact day-to-day), a two week post closing training period is nonsense. I have always wondered why any seller or broker would remain inflexible on this point. If the seller truly wants to see the buyer succeed, if the business is what they have represented it to be, unless there is an extraordinary issue forcing them to be completely removed from the operation in short-order, and especially if there’s a seller note involved, then for goodness sake, offer an ample transitional period!

While two weeks may not be enough, it does not have to be for a year either; nor does the transitional period have to be free. But it does have to provide the buyer with adequate time and instruction to get settled in and avoid being overwhelmed.

In my experience, it typically takes a buyer about three months to really get a grasp on the operations of a reasonably straight-forward business. This does not mean that every seller has to remain on board for three-months, but they may need to be available, if necessary.

A buyer must negotiate a transition period that will allow them to at least have the seller accessible during ownership change. Keep in mind that employees, suppliers, customers, landlords and all other stakeholders in the deal will be apprehensive initially and it will take time for the buyer to alleviate any concerns they may have.

By the same token,, the buyer must understand that in some cases, having the old owner around can cause more harm than good. The buyer may not be perceived as the real boss while the old owner is still in the business.

Often times, it makes sense to have a short-term, full-time transition immediately after closing (i.e. one month), and then reduce the amount of time the seller is involved. Having the option of them being available either part-time, or with diminishing hours, or on an as-needed basis after the initial term, will likely provide you with some security and certainly make for a more effective changeover.

In some businesses where the seller is “the business”, or perceived as such, you may simply want to have them perform a diplomatic role long-term. In other words, they will be available for any key meetings, or to perform other tasks that will provide the impression that they are still involved.

In all of the businesses I have purchased, I had the seller tied to the business for anywhere from one month to two years. I must admit however, that they never made it the full term. I usually found that after a short period of time they were more of a hindrance than an asset. These were in companies where I took over the operations, and I certainly did not have the seller exit until I felt relatively comfortable assuming their role.

Equally important to the amount of time you negotiate for training, you must have a plan in place for what you need to cover and accomplish during the training period. As the buyer, it is incumbent upon you to map out a detailed training schedule. This should include of the questions you want them to answer during your training. Break it down to employees, customers, financials, sales, marketing, suppliers, competition, etc.

To make the point more candidly, your goal during the post-sale closing period is to conduct a form of training due diligence.

Having the option of a long transition is a good thing. But the quicker you get in, learn the company, establish mutual respect with all of the parties involved, and put your stamp on the company; the better off you will be down the road.

Whether Buying or Selling a Business You Can Learn Something From Warren Buffett

I want to talk about two issues both of which emanate from renowned investor Warren Buffett which are great lessons for both prospective business buyers and sellers.

Lesson For Sellers:

The annual Berkshire Hathaway meeting was held in Omaha, Nebraska last weekend. About 25,000 faithful showed up to spend time with Buffet and his business partner Charlie Munger in what has become a love-fest with the brilliant investors and somewhat of a pilgrimage for the shareholders.

The thing I find incredible is that Buffett and Munger spend most of the time answering questions from shareholders. These are not rehearsed questions or ones that have to pre-approved. They’re straight from the floor and I’m told Buffett doesn’t dodge any of them. It is just great to think that the world’s richest man is completely open with his shareholders and devotes the majority of the meeting to their questions.

(By the way, if you really want some great reading, get a copy of the Berkshire annual report to shareholders – it will be some of the best, down-to-earth company insight you will ever read. Here’s a list dating back to 1977 http://www.berkshirehathaway.com/letters/letters.html)

The Berkshire meetings have followed this question and answer format for years, regardless of the company’s performance. In Buffett’s eyes, the company belongs to the shareholders and more importantly, every question deserves a response – there are no secrets at Berkshire nor do they feel the onus is on the shareholder to dig through the minutia like some public companies do to uncover the really story.

On the other hand, The Office Depot annual meeting was held last week down the street from my office. That company is getting hammered on all fronts yet I was told that  their CEO would only take pre-submitted questions, with strict time constraints….something is definitely wrong with the process here don’t you think?

It reminded me of the countless interactions I’ve had and have been party to with buyer clients over the years with business sellers. I always laugh when sellers or their intermediaries are apprehensive about having meetings or disclosing pertinent data, even to qualified buyers until an offer is submitted. Or, when questions are deferred with the response: “you can look into that during due diligence”.

If anyone could substantiate not answering questions, it would be Warren Buffett yet he is always an open book (and quite engaging) with his shareholders. I figure that if he can spend two days answering shareholder questions, then no seller is immune from the same process.

Lesson For Buyers:

When asked about the recession he said: “I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too.”

Talk about removing the economic and political BS we constantly hear and putting it into plain English.

He was also very direct when stating that his company is NOT in the business of predicting the economy…if he was, he said he would invest in the S & P futures market and not businesses.

Buffett’s long-standing take on business success is VERY simple and so critical right now. If you’re running scared finding every possible reason not to buy a business because you’re worried about the economy (make sure you read my prior blog about the recession at: http://blog.bizquest.com/2007/12/recession-what.html) and be sure to follow Buffett’s decades old PROVEN formula to create enormous wealth:

Step 1: Turn off the stock market
Step 2: Don’t worry about the economy
Step 3: Buy a business not a stock
Step 4: Manage a portfolio of businesses

So there you have it - solid advice that has worked for Warren Buffett. If you want to buy a business, focus on the long-term, not the immediate newsworthy trends. If you’re selling, get everything on the table, warts and all,  and make the process transparent for everyone.

Why Would Anyone Sell a Good Business?

This question was posed to me recently by a radio show host. It was interesting because he couldn’t get his arms around the idea that anyone would ever sell a good business. It’s probably why he will never own one.

Kidding aside, it is a valid question. There are lots of reasons. Personally, I like the morbid ones: death, divorce, health issues, and not because I wish anyone harm. Rather, I think those are better motivators to get a deal done.

The one answer sellers give which many people have difficult with is “other business interests”. This reply naturally begs the same question that the radio show host asked me.
It is entirely possible, and common, that some people just get bored with their businesses.

Haven’t you ever been bored with your job? Perhaps a better question would be: “Have you ever had a job you loved?”

I have found that seller’s boredom is usually a result of them putting the business on cruise control for too long. They have lost their passion. They no longer look at their businesses and try to find ways to get bigger, better and faster everyday.

It is certainly a situation that a buyer can use to their advantage.

While you certainly want to dig in to the seller’s reasons for selling, don’t over-analyze the answer. It is far more important for you to focus upon whether or not there is a compelling reason for the sale that could impact the business after you buy it.

Specifically, are there any looming threats such as: pending legislation that could alter the business or, one large customer who will no longer be buying? Is a major competitor moving into the area, or local demographics that can alter the business significantly?

Of course there are many other possible scenarios which you need to investigate. Or, it may simply be the time has come to sell a business.

Skepticism, I believe, is one of the two most important characteristics that a good business buyer possesses. Use it effectively and not to paralyze you from buying a business, but rather to force you to conduct a flawless investigation and analysis.

The other characteristic is perseverance. Navigating your way through the business-buying process will have its ups and downs. It takes time and above all, it takes “know-how”. However, I can promise you that once you get to the finish line, and you own a good business that you can grow, all the nonsense you may have dealt with along the way will be a distant memory.

Creative Deal Structures When Buying a Business

A common and reasonable concern for any business buyer is to be certain that the business is sustainable after you take over the company.

Of course, it would be nice to buy a business and have the seller provide you with a bulletproof guarantee that you will be successful. Unfortunately, that is simply not reality and probably one of the big areas that separates entrepreneurs from ‘wannabe’ business owners.

In some cases, it does make sense (and is necessary) to institute a performance-based deal structures that will provide you with an added measure of comfort as well as having the seller at risk in the deal after the transaction closes.

Earnouts are a good mechanism to accomplish that (along with seller financing which is something I believe is a must for any deal) however, the nature of the business must justify an earnout. If not, it will be a tough sale to convince to current owner to structure the transaction based upon future performance when they are not even playing a role in the company.

Think about it – would you be willing to bet on someone you don’t know well to takeover your business and succeed?

Earnouts make the most sense when some the following conditions exist in a business:

• There is a high degree of customer concentration (a disproportionate amount of revenue/profit is generated by a very limited number of clients)
• The business has experience a few years of continued decline and you want to be certain the trend can be reversed.
• The most recent period has been exceptionally profitable and you need protection to know it is sustainable.
• The company has recently won a new contract or has implemented new initiatives that will only generate sales after you take over the company.
• There are key supplier contracts that may soon expire and the business needs these to renew in order to operate at prior levels.
• The seller is the business in the eyes of the clients/suppliers and has long-term personal relationships or specific skills/licenses that have been directly attributable to the success of the business. On this note, if you are really concerned that you will not be able to take over the seller’s role, then either hire someone who can, or perhaps you should not be acquiring that particular business.

From a buyer’s perspective, the timeline for measuring an earnout is a double-edged sword. You want it to be long enough to be accurately measured, while at the same time, it should not be so long that the seller will be the beneficiary of your hard work.

Conversely, a seller cannot be expected to be on the hook to perpetuity in the deal.

The key to an earnout is to:

• Specifically identify the item that needs to be measured
• Keep the formula simple

In my experience, earnouts in general can be hard to measure and so by tying them to revenue for example rather than gross margin percentages, can greatly simplify the determination.

Be sure you and the seller agree in writing on how the earnout will be calculated and arbitrated in the event there is a dispute. The last thing you want is to incur expensive legal or accounting fees. The suggestion is to identify in advance, a neutral-third party (ideally, an accountant or accounting firm) that will render the final judgment in the event you and the seller do not agree on the number.

Lastly, although earnouts can be a great way to structure a deal, they have their own challenges so make sure they are warranted and the measurement kept simple.

Some Business Buyers See Problems.....Some See Opportunities

I just returned from a weekend in Orlando, Florida with my wife and youngest of our four children, our six-year old son Jake. He is a Sponge Bob Square Pants fanatic and he wanted to stay at the new Nick Hotel - a Nickelodeon Studios themed property.

It is operated by Holiday Inn. It’s a tremendous facility – huge, with a ton of activities (that was a good thing because two days of torrential rains got us drenched at our short-lived excursions to Universal Studios theme park).

Imagine that you were a prospective buyer looking purchase this hotel and experienced the following (which we did):

The check-in was incredibly slow, throughout the hotel there were staff members not uniformly dressed, I came across at least five employees using their own cell phones while manning work stations, signage was poor for the various venues, the layout of the buildings was inconvenient, guest service stations had staff members who were poorly informed and couldn’t answer inquiries or provided conflicting information, at least a dozen games were broken in the arcade, the parking was unbearable, transportation to other venues was nowhere to be found, the restaurant lineups were completely disorganized, it took over an hour to pick up character photos (what we do for our kids) and the phone system was abysmal.

Room rate: $356.00 per night 

You could easily draw the opinion that the place is a disaster.

The facility is new, and Nickelodeon has been promoting it non-stop, which is clearly why the place was full. There’s no doubt that over time, vacancy will diminish given these problems.

On the flip side, the hotel was packed – no availability whatsoever. We had an absolute blast (my son went crazy) and there’s no doubt that so did all the other kids. Of course, that is all that matters, although I am certain plenty of parents were not very impressed.

Compare this to what you experience at a Disney property. They never miss a trick. Their parks are spotless, the staff superbly trained and almost brainwashed friendly, their systems, transportation, and guest flow at every venue is beyond reproach. Even the garbage cans are themed throughout their parks and hotels to match the characters (not to mention the toilet paper has Mickey’s famous ears printed on it).

So here’s the question: If you were a buyer looking to acquire The Nick Hotel, would you pursue the business given all of the issues identified?

Any buyer who looks to find only problems in a business would run from the deal.

However, the savvy business buyer would see this as a massive opportunity. While there are issues, they’re all correctable. Signage can be improved, staff members better trained, systems, policies and procedures can be easily implemented to remedy every item identified as problematic. 

The educated, well-informed, and committed business buyer determines that despite the issues, the place was full, and with some focus, this is a good business that could easily become great. All it needs is a good Disneyesque make-over. The foundation is there. It has a great brand. The location is solid.

This scenario happens every day. You are going to come across businesses that are less than perfect. Your entire success hinges upon your ability to recognize the one that you can build upon and improve. The goal behind buying an existing business is to have access to a platform that you can grow.

If you focus on all that is wrong, you can find fault with every business on the market and you can easily convince yourself to never buy any of them. Don’t take that approach.

There’s no such thing as a perfect business. If you only pay attention to the landmines, you will never find the goldmines.

Using - The B.O.S.S. Theory - to Quickly Evaluate a Business

It is often difficult in the early stages of reviewing a potential opportunity (especially for first-timer business buyers) to really determine if it is a good business. There may so much information to digest in some cases that it becomes overwhelming, while with other listings, the complete lack of any comprehensive detail makes the task almost impossible.

Having purchased ten businesses, I have developed a regimented set of guidelines ('The B.O.S.S. Theory') that I follow that allows me to quickly access any opportunity. While my rules may not be completely applicable to you, they will, nevertheless, provide you with an excellent idea of how to go about the review process.

Before going into the specifics, it is important that any buyer understands that you must divide your evaluation in two distinct compartments. The first is the undeniable data, or what I like to call the 'deal facts'. These are all of the parts that are black and white.

For example, the financials of a business fall into this category. Although there may be some discussion or debate regarding add-backs, numbers don’t lie. It is plain old mathematics. There’s no gray area, or shouldn’t be. Another example would be licensing: if the business requires a specific skill-related license that you must hold (i.e. engineering degree, general contractor license, etc.), or having a government license of sorts, then these are again black and white issues that are simple to evaluate.

The second compartment is actually the bigger issues that come into play in all of the gray areas where 'The B.O.S.S. Theory' can helpful. When I look for a business, here’s what I want in place amongst the less than obvious attributes:

Bland – Means it 'flies under the radar' and is less vulnerable to mass competition
Operationally Sound – Fundamentals in place (not a turnaround)
Sustainable – No looming threats that could impact the historical financials
Scalable – Identifiable growth opportunities.

Here are the more descriptive points of each:

Bland

I am not a fancy guy. I like plain vanilla businesses. The more bland, boring and un-sexy it is, the happier I am. These businesses generally attract less attention (competition and otherwise) and you can plod along with great results and effectively build them while nobody is looking. Further, they generally slip by the average business-buyer who tends to look for 'hot' industries or glamorous businesses. I have always subscribed to the notion that I don’t need the fame; I need the money.

Operationally Sound

One of the greatest aspects to buying a good existing business is that you will immediately benefit from having all of the necessary fundamentals in place. Ideally, you should get the keys on Monday and take a paycheck on Friday. With a good existing business, the infrastructure is in place. There are trained employees, functioning systems, reliable suppliers and a stable of customers. The phone will ring as soon you open the doors and the business is already humming. In other words, it is the complete opposite of a start-up and that is precisely what you want.

Sustainable

When you buy a good existing business, a great part of the allure is being able to count on the continuation of the past historical financial activity and profitability. That is exactly why the purchase price will be a multiple of that figure. You want to be certain that there are no known looming threats that can adversely impact the numbers. You want them to continue at least at the recent levels and definitely not decline.

Common examples that can influence the past financials can be customer concentration issues where a disproportionate amount of volume rests in the hands a few clients or a business that relies heavily on location to drive its revenues yet there is a short lease that cannot be extended.

In the former example, if one or two of the customers stop buying, the business can face a massive and potentially unrecoverable situation. Likewise with the premises, if you can’t continue to occupy a location long-term that drives customers through the door, you may be out of business very quickly after getting into it.

Scalable

While it is crucial to have a sustainable business model to build upon, you want to identify and exploit realistic growth opportunities. These are not the 'pie-in-the sky' ideas that many delusional business buyers imagine. You want to be satisfied that there are concrete initiatives you can take to grow. For example, opening up a second location, expanding the product line, or acquiring other complimentary businesses. These are real objectives.

Do not get lulled into believing all of the wonderful recommendations the seller presents that may make it seem easy to grow. They may suggest you hire more salespeople, attend trade shows, advertise more or other 'brilliant' ideas. While some may be good, the truth is they have likely attempted most of these things or if they are so easy why haven’t they done it? It may very well be that growing the business is not as simple as they may articulate.

On the other hand, if you subscribe to 'The BOSS Theory', then identifying and acquiring a good business that can become great with you as the owner, is a lot less difficult that you may imagine.

Separating Buyers from "Lookers"

Being based in Florida, I get way too many calls from prospective 'business buyers' who have sold their businesses up north, they may be retired, and now they’ve settled down here. After a few months of playing golf, and being driven crazy by their spouses, they decide they want to get back into business. They think they want to buy a business, but the truth is they do not really want all the dirt or hard work that comes with it. What they are truly looking for is a way to keep busy.

And so they spend their time looking at businesses. In fact, the process has actually become their new job. This way, when someone at their clubhouse asks them “what’s up”, they can say: “I’m looking to buy a business”. It is a feel good thing. They search listings, they do research, meet with sellers, compile valuations, hire accountants, engage brokers, get busy with negotiations and ultimately, they always find a compelling reason (at least in their minds), to not buy any business. They usually don't even make any formal offers.

So why am I telling you this? It’s simple: I don’t want you to become a 'Professional Business Analyst' which is what many people evolve into after too much time looking. That is not your goal here. The intention is for you to buy a good business, pay a fair price, and build it into something great.

In order to do so, there are a few things to keep in mind:

1. There is no such thing as the 'perfect' business. It does not exist. If that is what you are seeking, it will not appear so stop looking.
2. It is critically important for you to conduct a thorough search and do all of the necessary analysis and review. This is a major decision. However, the old adage of 'analysis to paralysis' can easily take hold. No, you should never be reckless, but all of your groundwork must be done with the goal of finding one to buy; not just to find a reason to not purchase every one.
3. You must make offers! It is the only mechanism available to elicit the seller’s perspective, to demonstrate you are serious, and to get the deal rolling. Regardless of the outcome, the offer is the ignition to a meaningful dialogue. Keep in mind that any offer is YOUR offer, and do not allow yourself to be bullied by anyone on the other side regarding price, terms, or conditions. Again, it is your offer so construct it as you see fit in order for you to execute the deal. Some will be rejected and others will be countered by the seller. Either way, get into the habit of getting the deal moving along and a bona fide offer is the best way to accomplish it.

Above all, adopt a buying strategy, not a looking one.  I am certain you have far more important things to do with your time than to waste it.

Letter of Intent or Full Purchase Agreement?

When the time comes to make an offer on a business, there are two choices for the type of  agreement you can present. You can either submit a Letter of Intent (LOI) or Offer to Purchase Agreement (PA).

There are substantial differences between the two and the situation will generally dictate what is best.

What’s the Difference?

An LOI is generally a “non-binding” agreement that simply lays out some initial conditions of the transaction such as price and terms and the timing for future steps of the transaction. It will also refer to subsequent documentation to be presented. Additionally, it can, and should, present a “no-shop” clause which prevents the seller from accepting other offers as long as all of the milestones are met along the way to closing.

LOIs are standard in larger transactions. In smaller deals, the seller and broker can perceive them as not being a serious agreement and may resist tying up the business for any unreasonable length of time. While there is some validity to this perception, it’s not always accurate.

A “full-blown” Offer to Purchase is far more detailed, and will include all of the material deal terms, conditions, representations, warranties. It will also cover non-compete conditions, inventory, financing, training, leases and contracts, etc.

Which One to Use?

Personally, I prefer and recommend that a detailed Offer to Purchase Agreement is used whenever possible. Doing so allows you to set forth all of the terms you are prepared to offer, and eliminates a lot of the ambiguity that can surface later on.

On the other hand, there are times when an LOI makes more sense. This can be when:

• You have not yet received adequate information to present an offer on all points.
• The business has attracted a lot of interest and you want to tie up the deal quickly
• There are certain conditions that still need to be negotiated
• The buyer does not believe the seller is serious and wants to get them to play their hand
• The buyer and seller are far apart on their individual valuations and you want to learn if there is any possibility of a deal before spending substantial legal fees

On the last point above, regardless if you use an LOI or PA, you must have it reviewed by an attorney.

Although an LOI is a non-binding document, a buyer should not look at it as anything less than a true commitment and the seller should address it as a serious initiative. Both parties should use it as a platform to demonstrate their mutual sincerity to getting a deal done together.

Buyers should familiarize themselves with the contents of both of these agreements so they are properly informed and can utilize the most effective document for the particular situation.

While both agreements have their place, if an LOI is used, it should simply be a short-term solution. In other words, once you have an LOI signed, everyone should move expeditiously to finalize all other deal points and memorialize the terms in a bona fide Offer to Purchase Agreement.

Buy a Business with the Attributes of the NY Giants

A good life-lesson was learned from Sunday’s Super Bowl. Leading up to the game, none of the talking heads (i.e. network analysts) would dare predict the NY Giants having much of a chance. The most risqué prediction was that the Giants would have to be flawless to even “make it a ballgame”. Most fans figured it would be a blowout.

The results are now in and while I thought it would be nice to witness a perfect season; my heart was in favor of the Giants because my brother has been such a devoted fan for 40 years and I always root for the underdog. Besides, with the Giants winning eleven straight road games and three in the playoffs (an unbelievable accomplishment), I just thought they were peaking at the right time.

So why am I using today’s column to discuss a football game? Actually, there are a lot of similarities between the game and the process you’ll encounter to buy a business.

Slow and Steady Wins the Race

Buying a business is not a sprint; it’s more of a marathon. There are specific stages you must navigate from searching business for sale listings, determining the right business, negotiating, conducting business valuations, doing research, compiling analysis, undertaking due diligence  through to closing the deal. There are going to ups and downs. There will be lost deals, misrepresented numbers, and numerous other issues that come up which will deter fainthearted buyers.

It would be easy to drop out of the process, but that’s pointless. Plus, it’s good practice to experience these gut-wrenching scenarios. Just as the Giants could have easily given up time and again, they didn’t. They remained focused. They had and air of quiet confidence while their opponents simply became more shaken with each setback.

You Need a Plan - He Who Prepares Usually Wins

All the experts agreed that the Giants would need everything to go right to even keep the game close. The Giants laid out a spectacular plan and they knew they needed to exploit the little vulnerability that the Patriots had. It worked brilliantly.

The same holds true when buying a business. You cannot simply go into this process thinking it’s easy or not anticipating what obstacles will be thrown your way. You need to be prepared and well-informed. And you need to stay focused.

When evaluating any business for sale, you need to dissect the issues and look for the volatile areas. If not, you will feel too uncertain and will not be able to get the deal to closing.

Despite all the hoopla surrounding Bill Belichick's coaching acumen, the NY Giants staff annihilated him and his assistants. The lesson here is to surround yourself with the best advisors you can assemble, put your plan into place and execute.

Good Defense Beats Good Offense

I can’t even tell you how many times buyers will point out issues about a business and will not have any foundation to back up their position. This is especially true when it comes to valuations. It is so common for a buyer to say: “the business is overpriced” and they may be right, but based upon what?

When challenging a seller’s valuation, you need to have specifics to validate your point. Your argument must be factual, not emotional. You need to draw upon rate of return examples, industry statistics, demographics, market conditions, flaws in the business itself, and any other ammunition that will build your case. Unless the seller has an accomplished advisor at their side, they may not have any basis to their valuation, but if you can’t debate it logically, you will not win the point or make any headway.

The Pursuit of the Perfect Season and the Hunt for the Perfect Business

The Miami Dolphins recorded a 17-0 record in 1972. Since then, well over 10,000 NFL games have been played, and their record still stands (much to my dismay as an ardent Buffalo Bills fan). In that period, there are been some incredible teams and thirty-five Super Bowl champions. To those teams, winning the big one was the goal, not perfection.

So too does it apply when looking for a business. The “perfect” one may exist, but the chances are highly improbable (personally, I’ve never seen it). Unfortunately, many buyers keep looking and looking for the one that’s blemish-free. They find fault with every opportunity. If your goal is to acquire a perfect company, let me save you some time – it won’t happen. What you want is a platform- and that’s defined as a solid business, with robust core fundamentals, which through an effective plan, can be built into a champion business.

The NY Giants aren’t fancy. They’re a team with low-key personnel. They’re not flashy. In reality, they are a basic, bland, boring, unsexy team (the same attributes I like in a business). Just as the NY Giants flew under the radar for the entire season - you don’t need a high profile business either. Just get your hands on a rock-solid business that provides you with immediate cash flow that you can grow.

At the end of the day, people may look back at The Patriots as still being one of the greatest teams ever, but the NY Giants are the champs. So while you may be leaning towards an industry that's hot, substance is more important than the flash.

Complete Your Financial Statement and Make it Available

Many prospective business buyers express concern when a seller or business broker asks them to provide their personal financials. Personally, I've never understood this apprehension. There are a number of issues buyers note specifically as being worrisome, but the truth is their reasoning is based more on opinion than fact.

In my experience, those buyers that are unwilling to provide their financials are generally the ones who are either not serious about buying a business, they are often completely misinformed about the business-buying process, or they are simply not in any position to acquire the size businesses they are investigating.

There are two main buyer misconceptions that you need to understand so that you can gain comfort with this matter.

Myth # 1 - Disclosing the Buyer's Financials Will Reduce Their Bargaining Power

I've heard buyers claim that once they divulge their financials they will be at a disadvantage in any negotiation. The fear often cited is that the broker/seller will now know exactly how much money they have, and will then push harder to get hold of all of their cash in a down payment or force them to secure a loan with all of their assets.

While I do understand this assumption, in fact, the opposite holds true. A financially strong buyer will actually improve their negotiating position.

• The other side will recognize their ability to get the deal done.
• The buyer will immediately establish credibility by having achieved a certain level of net worth.

On the other hand, if you do not have the financial strength to execute a certain deal size, it will force you to adjust your thinking and focus your time on businesses that make sense for you. Here again, you will be in a better position when you provide them to parties for the reasons noted above.

Myth # 2 - The Seller/Broker Has No Reason To See a Buyer's Financials

To me, it simply shows good faith and honestly to be willing to provide your financial statement. After all, if you want to see the seller's books and records, shouldn't they be entitled to see yours? This is especially true if you want to negotiate any seller financing.

Further, throughout the transaction, the seller will provide you with infinitely more confidential information than your personal financial statement will disclose.

Now, I know all the skeptics are saying: "I signed a confidentiality agreement but they didn't". Good point, However, the seller/broker has absolutely no interest or reason to disclose your financials to any other parties. Additionally, even in a worse case scenario, let's say they did tell someone, what possible negative impact could it have on you? If you want added assurance, have the seller/broker sign a non-disclosure attesting to the fact that they will hold the information in confidence (your attorney can draft a simple agreement).

The Biggest Reasons to Complete a Personal Financial Statement

It blows my mind every time I ask a buyer "How much are you willing to invest personally to buy a business" and they reply: "I haven't really thought of it." Well guess what, if you haven't thought of it, you should put a complete halt on any additional looking, at start to think of it now.

First, it is critically important that you get a handle on your personal financial situation. Yes, it is true that there are some wonderfully creative ways to finance a business purchase regardless of your financial position, however, in smaller deals these generally play less of a role.

Second, if there is someone else who shares your financial picture (i.e. a spouse or partner), you need to have them completely on board so that when the time comes for you to write a check together, there won't be any surprises.

Third, and most importantly, by completing this simple task, you will put yourself in a much better position against other interested buyers on those businesses that you can afford to acquire.