Buyers give their TIPS on buying a business

Have you bought a business? The following people have. While interviewing them for Sunbelt’s monthly newsletter, we asked them to share what they have learned about buying a business. These are some of their tips.

Financing

Like Brian Muldoon, Silver Cross, most individuals who purchase a business are first-time buyers. Brian cautions prospective buyers to look at different options for financing and keep them open. As he found out, banks are not receptive to financing small business acquisitions, no matter how profitable the business or the strength of your own personal accounts.

Reg Ainbinder, Carefree Property Maintenance, has found it helps to connect with a good commercial banker and keep the lines of communication open.

“Let them know what’s going on,” says Reg. “When the time comes that you need them, they’ll be more receptive as they know your business.”

Mike Petryschuk, Rogers Material Handling, contributes,  “If you can stay away from banks and loans and avoid incurring debt, do so; the debt will always have to be taken care of first.”

Canada’s small businesses are worthy of respect AND funding

Which way to funding?

Canada’s small business owners take the risks and provide the imagination, the capital, and the energy that drives the economy, jobs and wealth in Canada. But they don’t get the respect they deserve, especially when it comes to funding for acquisition and growth.

It is a common misconception that banks provide loans for small business acquisitions. They do not. Business Development Canada (BDC) financing does not address the needs. Neither does the Canada Small Business Financing Program (CSBFP).

A Canada Small Business Loan (CSBL), which is limited to 75% to 90% of the certified value of Furniture Fixtures and Equipment (FFE) with an upper limit of $350,000, is only for the purchase of assets.

Over the many years I’ve been in business I’ve done my share of lobbying for new funding models. The Federal government listens politely to the proposals and does nothing. They prefer to continue supporting CSBFP- and BDC-financing, for which the vast majority of small businesses do not qualify.

The situation is quite different in the United States, where the Small Business Administration (SBA) will lend small businesses up to 70% of the purchase price providing the business has sufficient cash flow AND the government guarantees the loans.

More recently in the U.S., crowdfunding is being talked about as an alternative financing vehicle.

Is growth necessary for every business?

Some keep their business small by choice

A new article in The Globe and Mail Small Business section poses an interesting question: Is growth necessary or necessarily a positive thing for every business?

As the article, There’s nothing wrong with staying small, points out:

“Keeping the company small is a choice for some. And it doesn’t mean these people aren’t ambitious or passionate about what they do; it has more to do with the fact that they have more than enough business to make a living, without the additional responsibilities.”

Exactly.

Some keep their business small by choice, finding it more personally rewarding than running a bigger company with more employees.

Top 10 tips for buying the right business for the right price and terms

These buyers found their right business

Statistics show that owning your own business is the fastest way to financial independence, while also creating the lifestyle and liberty that goes with successful business ownership.

And if you buy an existing successful business, there is a 90 to 95 per cent chance that the business will still be in business after five years (provided, of course, that you buy it right).

To mark our 50th post and to help you “buy it right”,  we’ve pulled together a top 10 list  of tips.

Top 10 tips for buying the right business for the right price and terms

1. Purchase a business that you will enjoy. To make that decision you need to realistically assess what you do enjoy, your personal goals for the coming years, your personal strengths and your weaknesses. Make sure that the day-to-day effort in your business will be fun for you.  Getting up every morning and being excited about the coming day makes the work load seem light.
2. Never confuse a business that doesn’t show a profit for tax purposes with a business that isn’t profitable.  Private businesses prepare tax returns to minimize taxable income.  Minimizing taxable income is part of the normal activities of private businesses.  Small businesses don’t have (or want) the level of detailed record keeping usually seen in larger companies.  The taxable income reported on a small business tax return is rarely an indicator of the true earnings realized by the business owner.

Can this business be saved: buying a business in distress

Would you buy a struggling business? Should you?

Turn on your television any day of any week and you are bound to find at least one “rescue” show where an expert whips a struggling individual, a family or small business into physical, emotional or financial shape.  Oh, and let’s not forget the tough talk for owners of out-of-control pets!

In Kitchen Nightmares, for instance, Chef Gordon Ramsay visits troubled restaurants, offering their owners his expert advice to turn their business around. They are given one week to do so.

The transformations are dramatic. But they only happen when the individuals are willing to turn their business or life over to the experts and follow the blueprint they are given for success.

The “winners” are those that are willing to put in the effort required to keep their dreams alive.

But most small businesses don’t have such access to professionals. And some struggling owners give up and put their business on the market.

Would you buy a struggling business? Should you?

A recent state-of-the-industry survey found that four out of ten buyers would purchase a struggling business if it was realistically priced.

Buy an existing business and advance to GO

If you’re anywhere near my age, odds are you’ve played many rounds of Monopoly with your kids or grandkids. Or maybe you grew up with the game.

Everyone loved drawing the card that let you “Advance to GO”, where you would collect $200.

Who doesn’t want the fast track to success!

There are “Advance to GO” cards in the real world. For someone wanting to go into business, buying an existing profitable business is its equivalent. Compared to starting a business, such a purchase provides less risk and more potential for success.

As with a start-up, the purchase of an existing business may require significant effort and long hours over the first few years of ownership, however you do have a head start and very low risk. On the other hand, some 65% of start-ups fail.

The Sunbelt Texas office recently published a very good article about “what you buy when you buy an existing business”, where they showed the difference between buying a business and buying assets, using an actual business sale as an example.

Seasonal businesses: your pace or mine

What about owning a small business that only operates at certain times of the year—say a tour boat line in Canada?

I saw an article recently about owning a seasonal franchise and it prompted me to put together my own list of pros and cons to owning a seasonal business that buyers should be aware of.

Being the former owner of a tour boat line in Canada I have lived through them.

Owning a seasonal business: the pros

1. During the off season the owner can work on business planning, marketing programs, operating systems and procedures, documentation, research and so on without the pressure of managing the day-to-day operations.
2. The off season provides time for rest, contemplation, leisure travel and activities, and to get re-acquainted with family and friends.
3. The off season provides time for meeting with industry peers, trade associations, suppliers, strategic partners, and for traveling to research potential business improvements.
4. The off season may allow the owner to escape unpleasant weather conditions.
5. Recruiting and training can be done in advance of the busy season when there is time to do it well.
6. Servicing and upgrades to systems and equipment can be done during the off season without time pressure.
7. Some people thrive on being the hare rather than the tortoise.

Expect an exciting year for small business ownership in Canada

Exciting ride ahead

This is the first Friday of 2012 and as I work through my e-mails, I’m weighing this brand new year and what it will bring. I expect it to be much better for most business owners than 2011.

The American economy is showing signs of improvement, there is increasing demand for Canadian oil and gas, the potash industry in Saskatchewan is doing well and it would appear that the U.S. housing market has finally bottomed out.

Canadian banks have become more aggressive in the provision of Canada Small Business Loans, employment here is forecast to improve and small business owners are anticipating a better year in Canada.

At the same time, the economy in Europe is shaky and is probably in for a very tumultuous year.

Our current government in Canada has not provided any indication of support or programs that would have a positive effect on small business, but they have maintained low interest rates and a sound banking system. At the same time, we have many business owners past 65 and looking to retire, with many leading edge baby boomers in the same frame of mind.

Why is this business for sale?

Burnout is the top reason people sell their business

Potential buyers of a business want to know upfront why it’s for sale. They’re naturally suspicious–if this is such a good business, then why is the owner selling?  What is wrong?

In all likelihood, the business is continuing to provide a good living for the owners just as it always has; what’s changed is the owner, not the business. If that’s not the case, we’ll know it and so will you. Full disclosure is essential if we’re going to undertake the sale.

Just as we as homeowners sometimes move from one perfectly good house to another, there is nothing at all wrong with the first house; we just decide to move to another one. Sometimes we change jobs, change locations, change wives, change husbands, things just change as we go through life. Sometimes the change results in a need to sell a perfectly functioning business that has been providing for the owners, just as it is supposed to, but the owner wants or needs to sell the business.

Let’s take a closer look at these owner wants or needs.

Re-inventing yourself as a small business owner: tips for baby boom buyers

Many first-time business buyers are baby boomers

No matter how successful you’ve been in your previous work life, becoming a first-time small business owner can be tough.

As perhaps half of business buyers in Canada were born in the baby boomer era, it’s worth taking a closer look at the typical challenges from their perspective.

But first, some background.  Earlier this year, BusinessesForSale.com ran a survey of thousands of business buyers, sellers and agents across Canada, the U.S., U.K., Australia and South Africa.  They found that almost most 30% of buyers in Canada were in the 44-55 age group and another 20% were over 55. BusinessesForSale.com attributes this age distribution as partly a reflection of Canadian demographics.  And, in case you’re wondering, some 78% of buyers were male.

The survey points to many prospective business buyers wanting to capitalize on low interest rates and a perceived buyers’ market for business opportunities. Canadians seem slightly more positive cautious about the economy, with more declaring it a good time to buy than the worldwide average, particularly regarding the current window of opportunity to buy a business at a low price.

By far the most common reason given by the 82% who believe it’s the right time to buy a business is that continuing economic uncertainty promises low prices, with about half (49%) citing this reason.

Male or female, in Canada or globally, their top reason for buying was the independence of owning their own business.  That was followed by those looking to expand or move into a new area of business and people with a dream of escaping the rat race.

Now let’s go back to our tips for baby boomers buying a business as their second career.