Read the following and become a better business buyer!
Ed says to all buyers, “When in doubt, make the offer! All those great deals you hear about started with the buyer making an offer on the business being considered!”
There is a never-ending flow of people who would love to own their own business, large or small. Business purchases, sales, and business brokerage is not a familiar subject to the general public as compared to home buying and other common real estate transactions. Most buyers and sellers know very little about business brokerage, business sales and what is normally or commonly involved. The following, in a direct fashion, says it as it is without all the fluff. Ed Smith, “Nevada’s Top Awarded Business Broker!”
This is NOT Amazon Prime! Please be advised that important required processing of buyers with listings after NDA’s are signed and woven into a busy daily appointment schedule does not always allow us to respond immediately, please allow approximately 24 hours to receive the requested information.
Buyers are required to accurately fill out and sign an “NDA,” short for Non-Disclosure Confidentiality Agreement. Generally, the NDA makes NO financial requirement for upfront payment of fees etc. The seller doesn’t want his or her personal information shared with competitors and suppliers and employees. You will be asked not to consult with any of the above. All dialogue is with the broker and often with the seller. If there is a partner or relative involved, they will have to sign the NDA as well. No business information will be shared with you without the signed NDA. DO NOT VIOLATE THIS AGREEMENT! DO NOT WALK INTO A BUSINESS AND ASK TO SPEAK TO THE OWNER OR CHAT WITH THE EMPLOYEES!!
Generally, there is little identification information in any internet advertising. That’s because you need the required NDA as in page #1. So please don’t call the broker and ask, “Oh, just tell me where it is so I can drive past it,” or “What’s the name of the company, I just want to know which one it is.” Follow the broker’s procedures and NDA requirements! No Exceptions!
Do not call a business broker for your friend, relative or partner. The actual buyer must call so we may obtain information to help qualify him or her. Other than the most basic information, in order to receive details about the business, you friend, relative or partner will be required to sign an NDA. If the inquiry about the business is for you, please don’t have your spouse or your significant other or a friend call for information. You must make the call.
Please DO NOT talk with any of employees, suppliers, vendors and competitor and other people involved with the day-to-day aspects of the business. There is a very high probability that they don’t know the business is for sale and you speaking with them can cause serious harm or damage to the business. This is a requirement in the NDA.
Often business buyers think they can use the same real estate or commercial broker with whom they bought or sold their home or from whom they leased some commercial space, to help buy or sell a business for them. Business negotiations and sales, by Nevada law, must be conducted by a person with a real estate license and the required business broker permit. There are only a very small number of licensed business brokers in the Nevada compared to over 25,000 real estate licensees!
When you contact us about our listing ads, be sure to follow up with any particular ad interest as soon as possible. Please include the link for the listing to send us and this will provide faster service. The fastest service is by emailing your requests to edsmith@fcbb.com. Also, you can go directly to https://businessforsaleinlasvegas.com/businesses-for-sale. Good businesses attract a lot of callers and the early bird catches the worm! The best deals are obtained by making an offer and negotiating. Very few business listings sell for their listed price. Don’t be afraid to share your price thinking and feedback with Ed Smith, your business broker!
Businesses sold for under $60,000 often don’t even come with a P&L Statement. These businesses are typically known as working asset sales. Wherein the income, if any, is not an issue. Higher priced businesses generally do come with prepared financial documents (not audited). On these smaller sales, you are simply buying a location with historical and enterprise value. Typically the cost to purchase or replace the existing asset values for equipment in place can run 2-4 times higher than the asking price of the business for these lower priced listings. This is the obvious value! Trying to save even more money by negotiation a lower price can be risky as many a buyer has lost out to another buyer who saw the value of the business at the low listing price and bought it!
The price range for these is usually $300,000+. Some Buyers think they can spend $60,000 to get a business that they don’t have to work in and that it makes $100,000 per year in net income. Don’t kid yourself! Most small businesses require active hands-on operators to thrive and the low price range businesses don’t earn that kind of income! If you buy a lower priced business and expect to run it long distance, or only be there once or twice per week, then prepare yourself to have your employees steal you blind and ultimately you could lose the business!
Please don’t call the broker until you have read the complete information package. These executive summary type reports or most other information packages about the business generally have P&L Statements, Federal Tax Returns, and Equipment List, Lease information and a lot of other valuable information. PLEASE take the time to review all pages. Very often is the case that the P&L’s are done by the seller. Some businesses don’t even have an accounting program and are completed on an estimated expense form sheet during the listing interview process by the broker. These estimates are usually relatively accurate and can be used for due diligence verifications. Surprisingly, most businesses do not have up to date financial paperwork and we are always attempting to update our files. After a long day of running the business, most sellers don’t go home and update QuickBooks!
Some people ask for “audited financials” on the business. Ha-Ha! This will never happen with small businesses. That procedure is commonly used for publicly traded companies, banks, national franchise corporations, etc. Never the local pizzeria! Please don’t ask!
Most businesses sell for certain net income multiples (varies) plus replacement value of tangible equipment, location, franchised or not, and a host of other factors. There are generally NO EXACT comparable sales (comps) used in valuation like those used in residential real estate. Although there are nationwide databases now available, they are not local the vast majority of times and the regional adjustment and the other adjustment entries are the complete opinion of the practitioner! The SBA relies primarily on cash flow, tangible values and a few other considerations. The buyers who get the best deals in business buying are the buyers who step up and make an offer. When a $150,000 business with that much value in equipment and fixtures alone is reduced to $69,000, buy it!! Too many buyers try to negotiate another $10,000 or $20,000 off the $69,000 just because they feel they shouldn’t pay full price when it is really half price! Meanwhile other more field savvy buyers spot the deal and gobble it up while you are trying to cut the price again. If you like the business buy it!!
For most small businesses you can forget about it! Banks, per se, don’t finance business sales like a home mortgage. The only general exception is the Small Business Administration (SBA) which is handled through a SBA approved bank or lender. There are a few business banks that will consider an “in house” business loan and you will have to use them for your business accounts. Most sales with financing are when the seller carries a promissory note for the buyer and the buyer will need to guarantee the note personally. Most seller financing is for a very small percentage of the sales price. Most SBA lenders are not approving restaurants and almost any business with very poor financial paperwork, a business that shows a very small profit with most of the business benefits being run as “add backs” which benefits the business owner but disappoints the SBA lenders. Probably about 90% of all businesses in America will not qualify for SBA financing. In addition, the banks and SBA lenders require the applicant to have prior experience in that specific type of business.
These financial institutions require that the buyer have the necessary perquisite experience in the business being purchased. In addition, if there are specific business licenses required such as a type of contractor’s license for ex