Small business ownership is, in my opinion, the very foundation of the American experience. Liberty and freedom are both the results and causes of capitalism. Without them both working congruently, it would be impossible for our nation and her citizens to survive through the choppy waters of ever-changing economic times. I hope this book will help you on your path towards small business owership and life choices.
SO YOU WANT TO BUY a small business?
By JOE VAGNONEAuthorHouse
Copyright © 2011 Joe Vagnone
All right reserved.ISBN: 978-1-4567-1958-6 Contents
INTRODUCTION IT STARTS WITHIN YOU, YOUR LIFE IS ABOUT TO CHANGE........................PAGE 13CHAPTER ONE JOE'S TOP REASONS TO BUY A BUSINESS........................................PAGE 17CHAPTER TWO OWN YOUR NEXT JOB..........................................................PAGE 21CHAPTER THREE WHAT BUSINESS IS RIGHT FOR YOU?..........................................PAGE 23CHAPTER FOUR SELLER FINANCING?.........................................................PAGE 27CHAPTER FIVE DO I HAVE ENOUGH MONEY TO BUY A BUSINESS?.................................PAGE 31CHAPTER SIX THE PERFECT DEAL...........................................................PAGE 35CHAPTER SEVEN TEN MISTAKES TO AVOID....................................................PAGE 41CHAPTER EIGHT BUYING A BUSINESS: TOO RISKY OR A SOUND INVEST MENT?.....................PAGE 45CHAPTER NINE HIRING PROFESSIONALS......................................................PAGE 49CHAPTER TEN DO I NEED A BROKER?........................................................PAGE 51CHAPTER ELEVEN VALUING A SMALL BUSINESS................................................PAGE 57CHAPTER TWELVE NEGOTIATING.............................................................PAGE 63CHAPTER THIRTEEN REMEMBER WHO GAVE YOU YOUR FIRST BREAK?...............................PAGE 71CHAPTER FOURTEEN MARKET BEFORE YOU MARCH...............................................PAGE 73CHAPTER FIFTEEN SURVEYS................................................................PAGE 75CHAPTER SIXTEEN LANDLORDS AND PROPERTY OWNERS..........................................PAGE 77CHAPTER SEVENTEEN ADVISORY BOARD.......................................................PAGE 81CHAPTER EIGHTEEN SCARED, NERVOUS, UNCOMFORTABLE?.......................................PAGE 85CHAPTER NINETEEN ARE YOU KIDDING? MORE DEBT?...........................................PAGE 87CHAPTER TWENTY FRANCHISE OP PORTUNITIES PAGE...........................................91CHAPTER TWENTY-ONE FRANCHISE RESALES...................................................PAGE 97CHAPTER TWENTY-TWO SERIOUS BUSINESS!...................................................PAGE 101CHAPTER TWENTY-THREE BUSINESS PROFILE..................................................PAGE 108CHAPTER TWENTY-FOUR PLANNING ON CLOSINGPAGE............................................117CHAPTER TWENTY-FIVE MANAGE YOUR TIME...................................................PAGE 123CHAPTER TWENTY-SIX KNOWING WHEN TO SELL................................................PAGE 127
Chapter One
joe's T O P reasons TO BUY A BUSINESS
There is a plethora of reasons for buying a business, but I think a concise list would include:
QUALITY OF LIFESTYLE: While being a small business owner does not mean that every day will be spent playing golf or fishing, it does mean that you could spend your days doing the things you enjoy. Think about it; if you are doing the things you have a passion for, won't your life be more fulfilling? And a fulfilled life is a better life!
HUGE TAX BENEFITS: Now I'm not an accountant so I will not attempt to give financial advice here, but there are many legal avenues afforded to the small business which will help defer and reduce your tax liabilities. This benefit works well in coordination with your current job if your small business is a secondary source of income. We'll talk more about this later in the book.
A PEACE OF MIND: Although none of us are in control of our lives (God is ultimately in control), the small business model gives you far more control than simply working for someone else. Small business ownership, when coupled with your spouse's income or a "company job," grants you much additional security and flexibility. Essentially you will not be putting all your eggs in one basket.
YOU GET TO GIVE BACK: You contribute to your town, city and the world in ways that make a real difference in the lives of people you may never know otherwise. I like to think of it in a very simple way. Giving enables you to fill the world with possibilities and pleasures where you think it's needed. In many cases, it is not just through money. Rather it's through action and living your life in transparency so others see God in your daily life.
Now I know what you are thinking, "WOW! Making money is not one of the top reasons for owning a small business?" That's right. Most small business operations within the first three years do not make the owner enough money to satisfy their expectations.
Now is a great time to ask yourself:
• Why do you want to be in business for yourself?
• What is your expectation for personal income?
If you cannot answer these two questions with honesty and clarity do not read any further. If you cannot position your life according to the answers you give to the questions above, then go out today and get a job working for someone else.
You must have the frame of mind that says, "I will do whatever it takes to make this new business work!" If you do not go into the venture with this attitude, you're not ready to be self-employed. And you would serve yourself and your family well to go get a JOB!
Remember, being self-employed is a life full of unknowns. If you do not have a measure of self-confidence and determination, there is no way you can teach and inspire others to come work alongside you. But if you have this self confidence, read on because I can help you get what you want. I will not have all the answers, but I will have ideas, plans, and visions which will allow you to fill in the blanks with your hard work, skills, and dreams.
Chapter Two
OWN Your next job
The question is what do you do if you find yourself without a job or if your current position is in jeopardy? The idea of just simply finding another job may not be that easy anymore. The reality of making 25 to 35 percent less in salary, and having a schedule that is not flexible or family-friendly, is a real possibility.
There are many small businesses for sale and opportunities for good profit margins. Most of these businesses need an owner with certain skill sets. In some cases, the present owners cannot make it through tough financial times because they may lack the business knowledge or skill set necessary to maintain the business in a challenging market. In other cases, the present owners are ready to retire, and the "financial" timing is right. Whatever the reason, there are many opportunities that can put you back in the workforce—working for yourself!
For most people, it boils down to the question of money. The truth is that there are many businesses for sale where the owner will finance. When working through the financing of a small business, there are numerous options, many of which would not require a bank. If you want to own your own business, rest assured that there are many ways to make it happen.
Most people are unaware that a 401-k account can be used to start a new business without any penalty or tax. In a climate of uncertainty, people should not hesitate to trust their money to work for them. One example is using the business cash flow to help with the down payment; the terms and deals are endless. You will find it amazing how easy it can be to be in business for yourself.
In fact, the time invested to find and buy a business of your own could be much shorter than finding a new job. Another thing to consider is a business that is operating well on its own. Just giving the business a few hours a day or week could help make up the difference in a salary loss. There are many franchises and independent businesses that can provide a great secondary income.
You may wonder why you would want to invest your money in a business when so many small businesses are in trouble. The secret to buying a small business is to buy right. The economy will have trends but, if you buy right, downward trends will not devastate your business.
Perhaps you have been advised not to "buy" yourself a job, but I truly believe it just might be the answer for many people—with little risk compared to the riskiness of the stock market these past years. It is time you trust in yourself and your skills and take the helm by owning your job, instead of letting someone else control your destiny!
Chapter Three
What business is RIGHT FOR YOU?
What gets you excited when you wake up in the morning? What is it that you look forward to on a professional level? For me, I really enjoy the prospect of helping people find the right business and putting the deal together.
I'm not saying that simply because you love cake, you should look to buy a bakery, nor am I saying that because you like to look through car magazines, you should buy a car lot. What I am saying is this: The skill sets you already possess (and the life and professional experiences you have) will likely translate very well into other industries that utilize the same skills.
"An excellent way to find the right opportunity is to look at enough businesses until you find a place where your skill sets and interests intersect.
Before I go any further, it is imperative that you understand my definitions of "entrepreneur" and "small business owner." The entrepreneur is first and foremost a self-confident, risk-taking, visionary who translates the vision into action. The small business owner is the person who enjoys the day-to-day details of the enterprise and is often an excellent manager. To better illustrate this point, I would say that an entrepreneur looks for a reason to buy while a small business owner looks for reasons not to buy, even though both might eventually reach the same conclusion.
It has been my experience that the entrepreneur has more than one business ... not because he needs to but rather it's because he gets bored and needs another challenge. At the same time, a small business person sees no value or rationale in multiple operations or businesses until the business fully demands and requires the action.
In my case, I had many restaurants inside office buildings and manufacturing plants. I found myself spending much more time working on the next location than on the business of operating a restaurant company. I found myself looking forward to the negotiations of a new lease much more than the process of implementing new menu ideas or hiring employees. You guessed it! I'm an entrepreneur.
I would compare an entrepreneur and a small business owner to a pastor and an evangelist. The pastor needs and uses the various ministries of a local church to share Christ with people while the evangelist shares the Gospel with anyone who will listen. The pastor enjoys the managerial duties of the entire church, while the evangelist is more singularly focused on his broad vision of reaching the world for Christ. In this comparison, I would paint the pastor as a small business owner and the evangelist as the entrepreneur.
I'm not suggesting one is better than the other. Entrepreneurs often have a more difficult time making money than the small business person does. Remember, entrepreneurs are visionaries – calculated risk-takers driven by an idea. Small business owners often are rewarded as a successful manager and operator in a specific business that meets all their expectations.
The question is, "Which one are you?" The answer will help you know which business to buy.
Chapter Four
seller FINANCING?
I have seller-financed nearly every business I have ever bought or sold. To date, I have been involved in more than 75 of these business ventures. I must admit that I love seller financing.
Perhaps you are asking, "What is seller financing?"
As part of the negotiations, the potential buyer will ask for or the seller will offer financing. This makes the conventional process of going to a commercial lender unnecessary since the seller will be the lender, requiring a non-refundable deposit and creating a payment plan for the balance due on the business. There will likely be no additional collateral required of the buyer since the actual business will be the security for the financing.
HERE IS A LIST OF SOME OF THE REASONS I FAVOR USING THIS METHOD OF FINANCING:
• The seller can ask for a higher price (in some cases as much as 25% higher) since he/she is assuming some risk but is confident in the buyer's ability to operate the business successfully. This should also increase the comfort level for the buyer.
• The seller will continue to profit from interest on the financed portion of the loan, which provides more income than that of a straight cash sale.
• The length of time to close an owner-financed business agreement will be substantially less than that of a conventional, commercial lender, which is often laborious, painful, and impersonal.
• The buyer can be confident the seller feels good about the future of the business because he/she continues to have a vested interest in the success of both the business and the buyer.
• The seller will be more likely to advise and answer the buyer's questions (at least through the financing period) to ensure the success of the business and its operation.
• The deal gets done much easier because both parties can be very creative with the terms, payments, pay-off dates, etc.
• This type of financing goes a long way in building a long-term relationship between the buyer and the seller which will be based on honesty, integrity, and common interests.
It is important to remember that while there are a few limited risks involved in the seller-financing model, these are substantially outweighed by the positives listed here. Furthermore, the creative seller-financing model makes it much easier to sell your business. Remember, nearly 90% of all small business sales utilize this method.
Chapter Five
DO I HAVE ENOUGH MONEY
to buy a business?
Someone once asked John D. Rockefeller, the industrial tycoon, "How much money is enough?" He simply responded, "Just a little bit more." That is a good way to think about starting comfortably in a business. If you do not have Rockefeller cash, there are some things you can look at to determine if your resources will be enough.
• First you need to create a cash flow projection that includes new expenses for the business based on your future plans. It is very important that you use all the line item expenses in the seller's chart of accounts in your projections. This conservative approach will serve you well as you are leaving nothing out that may surprise you later. There was a reason the seller had that line item, so it is best to include the expense even if it is a small amount. Also, do not forget your estimated payment for the purchase of the business.
This exercise will give you a starting point for how much cash you will need when thinking about your improvements and changes as well as your marketing and promotional vision for the company. If this cash flow calculation produces a negative number, it is best to multiply that by six months at least. Again, taking a conservative approach allows you the time to turn your business into a profitable venture while limiting what otherwise would be the unexpected expenses. The cash requirement must also include the initial down payment; therefore serious inquiry needs to be made concerning this figure.
• Next you will need to price out in great detail all the changes you would like to make in the business. The goal of all of these changes should be geared directly to create profit as soon as possible. Make sure you start this process before you buy or even finalize an offer to buy. You need to know how much your vision of the future will cost. You cannot guess these figures and costs effectively. You have to know these costs concretely. After you buy the business, it is simply too late to find out that your new plans, as grand and spectacular as they are, will not be cost effective.
• The other aspect to consider is your level of willingness to sacrifice for the health and survival of the business. Determine how long you are willing to put any profit back into the company to help with the start-up costs. Determine where your cash is coming from and make sure you account for the cost of that money. Living expenses and the cost of taking money out of savings are examples that should be included in your cash requirement projections as well.
Furthermore, you must account for professional fees from an attorney and CPA as well as fees associated with paperwork at the closing. Available working capital should be from five to ten percent of the total cash requirement figure that is produced at the end of this planning exercise.
Do not let all of these costs scare you! Keep your eye on relishing the opportunity to become a business owner. The bottom line to this approach is that you cannot overstate costs and expenses as part of your due diligence when considering the purchase of a business. In reality, these numbers will be much smaller, or nonexistent, as your firm footing in the operation takes over. The alternative to this approach can be rife with unwelcome surprises or even regrets.
With a note of encouragement, I can tell you with confidence and experience that opportunities do exist, and some are right under your nose. Be acutely aware of your surroundings and be on the lookout for business deals that get you excited!
Chapter Six
The perfect DEAL
The process of buying my first new car took five months to complete. First came the hours spent driving up and down car lots just looking at the stickers on the windows. Then I started to walk into the dealership showrooms and offices but would not talk to any of the salesmen, pushy as they all were. By the second month of these preliminary exercises, the realization that I would have to talk to them in order to buy a new car became painfully apparent.
The car that I wanted was a Ford Escort, and I had extensive notes on that model of car, the dealerships offering that car, as well as consumer reports reviewing it. I was fully loaded with information. However, what I lacked was the ability to make a decision about spending my money, fearing I would pay too much. I was stymied! But I pressed on.
(Continues...)
Excerpted from SO YOU WANT TO BUY a small business?by JOE VAGNONE Copyright © 2011 by Joe Vagnone. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
