There are some very good opportunities for business buyers if they have the vision and energy to buy a business that is only at break even. Obviously, the business needs to be in a catagory that has upside potential or fills a niche market. Many businesses on the market were started from scratch a few years ago and as the economy slowed, owners worked hard to build it to a break even status. Now, the owner is wanting to sell, but the business is not profitable.
The economy of the past few years has drained some new startups of their financial resources. Owners have built up a customer base and have really done all of the hard work of getting the business to break even.Unfortunately, they can’t hold on long enough to reap the reward. Many of these businesses can be bought for a very attractive price.
This is where a new buying opportunity is attractive and new ownership can take a business to the next level. We all know that it takes working capital to start a business. Why not take advantage of the effort and resources someone else has invested and take advantage of a business opportunity that is on the edge of being profitable.
Earlier this week, I received a call from a business owner who wanted to sell her small business. She had gotten my name from her accountant. After a brief tour of her store, we sat down in the office to get better aquainted. It was then that I found out how candid and direct the conversation was going to be. This owner had tried to sell another business about five years ago and had a bad experience with her business broker. Her opinion of business brokers was that they “over promised” and “under delivered”.
I knew I had my work cut out for me. I explained that unlike many of our competitors, The Crown Business Group LLC did not charge any upfront lising fees and I was not going to get paid until her business sold. Crown was going to find a qualified buyer while at the same time, keeping the sale of her business confidental in the community.
One thing that I know is that our reputation is ‘the most important thing” we have. Word can get around too fast on the internet and in the community if we don’t service our clients well.
As a member of the International Business Brokers Association, I know that many of our competitors also do a good job. The Crown Business Group wants the sellers who engage our services to have a positive experience when it comes time for them to exit their business.
Last week I received a call from a prospective buyer asking for more information on a business we are marketing. I asked him if he was going to work in the business, or use a manager to run it for him. He said he was going to use a manager and that his goal was to buy several businesses. He wants to learn each business but act as a general manager.
I asked him how he intended on financing these acquisitions. He stated he was going to use his personal savings that was earmarked for retirement. His retirement account had lost value and his strategy was to buy several profitable businesses that would yield a greater return than the investment market he was using.
I told the prospect that he was not the only person I had talked with that wanted to use this strategy. It makes sense to me that a business that yields even a 5% return is more than I am currently enjoying while invested in the market. And, these businesses have good potential for growth. Then, when retirement time comes, the owner can sell his businesses and enjoy the additional cash from the sale.
We at The Crown Business Group LLC are endeavoring to find buyers from other countries that want to buy existing businesses here in the U.S. All of the businesses we have for sale are listed on a website in China. To help us with the language barrier, we have partnered with Ms. D.D. Lee, who speaks Mandarin, to help communicate with these prospects.
We are also in the process of launching an new effort to reach buyer prospects in other parts of the world who want to immigrate to the U.S. These buyers are qualified and have cash for the purchase. As you know from watching the news, many countries are not business friendly. Individuals who have been successful overseas face the risk of losing their wealth due to corruption and government intervention. These entrepreneurs want to come to the U.S. but need to be a business owner to do so.
If you are in the position that you would like to sell your business and pursue something different, we may be able to help. Call us for a free consultation. We can give you an idea of what you can expect when selling, regardless of where the buyers originates.
It is hard to believe that we have more buyer prospects than we do seller’s. When you talk with commercial or residential real estate agents, it’s just the opposite. They are looking for qualified buyers for their inventory.
Not so in the area of business brokerage. We are contacted weekly by private equity groups looking for businesses that have gross sales of over $5 million. We also have foreign buyer prospects looking to invest in a U.S. business with sales as small as $500,000. Many of these foreign investors want to immigrate to the U.S. and one of the prerequisites is that they buy or start a business. It’s a great opportunity for an owner considering selling.
If you would like to talk with us and get more information on how best to market your business, give me a call at 770-894-4180, or 888-770-3369.
The question I left you with last week was, “Why are so many people attracted to start a new business from zero”? It looks challenging and exciting, and many times, depending on the nature of the business, it is. But, consider all of your options. Look also at buying an existing business.
At my Rotary Club lunch yesterday, one of our members was making a presentation on some of the common mistakes business owners make. One of his points was “not enough working capital”.
When you start a business, whether it is a franchise or not, it takes a lot of cash to stay afloat until the business grows to where it can support itself. Last week I mentioned some of the expenses you incur before you have your first customer. Some are labor cost, buildout, equipment purchases, rent, advertising, etc. If these cost go on too long to the point you are strapped for cash, it can lead to an eventual business failure and the loss of your cash investment. I have met a fair number of business owners that are in this situation.
If you are thinking about going into business for yourself, get some good advice from your accountant or someone who has been through what you are planning to do. Consider the cash you are going to need before the business has a positive cash flow. If it looks risky, then you can change your plans from a new startup and start looking for an existing business to purchase.
If you are ever talking with someone who is debating over whether they should start a new business or buy an existing business, tell them to call us before making that decision. We can help you think it through.
Starting a business from scratch is not easy. It requires a lot of cash to be able to survive. Your start-up expenses are high before you ever make the first sale. There is rent to pay, build-out of the interior, signage, equipment to buy, employees to hire and train, and advertising before you have the first customer.
When you purchase an existing business, customers are already patronizing you. They know where your location is, there is name recognition, and you have cash being generated to pay the bills.
Most start-up businesses fail, not because of a lack of effort or enthusiasm, or because they don’t have a good product, or a good idea. It’s because they run out of cash. Cash to pay expenses…….cash to pay for inventory, supplies, rent, salaries and wages, advertising, and everything else to pay for when you are in a start-up.
So, why are so many people attracted to start from zero? We’ll discuss that next week.
Here is some great advice I heard from a friend:
“Sometimes we fail to realize it takes valleys to make mountains,” he said. “It takes rain to make rainbows. It takes losing to truly appreciate winning. It takes being sick to truly appreciate good health.
“But through it all, our climb back to the top of the mountain after being knocked down is what makes us strong”
Posted by Don Holt, Crown Business Group LLC
May 12th,2010
Uncategorized | tags:
Business Taxes; Do Not Compete |
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Structuring your business is often the key to maximizing after-tax cash flow. Business owners should think both current and future cash flow when setting up a business structure. Always consider the “Exit Strategy”. What does a buyer want to buy? Typically, buyers look to purchase assets because of beneficial tax benefits of depreciation and amortization of assets. Sellers typically look to sell stock because of the capital gains rates applicable to stock sales and a single level of taxation. Typically pass-through entities such as “S” corporations, partnerships or LLCs have met the needs of both buyers and sellers. With tax rates projected to go up due to federal deficit spending, a pass-through entity could actually decrease current cash flow to business owners for future years. Are we headed for a paradigm shift? Too early to tell really. However, 2010 may be the best year ever to sell your business if tax rates rise! Let us help you with a complimentary consultation. Contact one of our professionals today!
By W.A. Robinson III – CPA
Business Intermediary
The Crown Business Group LLC
