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    25 Replies Latest reply on Nov 13, 2008 3:07 PM by SBC Team

    Event: How to buy and sell your business

    SBC Team Guide
      Have you thought about buying an existing business? Do you feel that you've worked hard and now want to sell it? Mike Handelsman of BizBuySell.com will be joining the Community to answer questions like:

      • What is a fair asking price for the business I'm interested in buying or selling?
      • How do I assess the value of a business?
      • When and why should I consider buying a franchise?
      • Should I work with a broker?

      BizBuySell is the Internet's largest and most heavily trafficked business for sale marketplace. It has more business for sale listings, more unique users, and more search activity than any other service. BizBuySell currently has an inventory of over 50,000 businesses for sale, more than 800,000 monthly visits, one of the largest databases of sale comparables for recently sold businesses and one of the industry's leading franchise directories.

      http://www.bizbuysell.com

       

       

      Mike Handelsman is General Manager of BizBuySell's operations, including the business-for-sale marketplace, Franchise Directory, and other BizBuySell products. Mike brings over 15 years of strategy, marketing, operations and business management experience to BizBuySell, including 8 years with online technology and/or real estate companies. Prior to joining BizBuySell, Mike served as the head of Marketing and/or Product Management for HomeGain, AllPosters.com, and Pictopia.com, and was the Vice President of Business Development for BabyCenter.com. Prior to his online experience, Mike began his career in Brand Management with Procter & Gamble, and also worked as a Management Consultant with McKinsey & Company in Chicago and San Francisco.

       

       

      Post your question here and then check back on November 13th at 2:00PM EST for Mike's response. You can also pose a question to Mike anytime during the event.
        • Re: Event November 13: How to buy and sell a business
          Tori Adventurer
          Hi Mike,

          Thanks for taking the time to appear on the SBOC!

          Could you explain the advantages/disadvantages of buying a franchise, a home-based business and an established business?

          ~Tori
            • Re: Event November 13: How to buy and sell a business
              mhandelsman Newbie
              Thanks for your question Tori. This is a great way to start our conversation about buying a business. Those are
              really the three ways to think about buying a business.

              Starting with a franchise, a franchise can be a great way to get started as a first time business owner. You get the benefits of an established brand
              and marketing resources behind you, and you often get expertise into what areas and locations might be most beneficial for your business. Of course that support and brand come with a price, usually in terms of a franchise fee and ongoing royalties that come out of your revenue and decrease your profit.

              Another option with a franchise is to buy an existing franchise location, rather than starting a new franchise location. This allows you to evaluate a business that has had some level of success in terms of building a customer base, and having a track record of revenue and profit, and an existing relationship with the franchisor. You can often buy the existing franchise from a current franchisee, or through the franchisor, depending on the situation. I tend to like this option for new buyers because it has the benefits of the franchise brand with the additional benefits of a track record of success.

              In terms of buying an established (non-franchise) business, that can be a good option as well. You'll be working with an existing business owner looking to exit. You should understand why the owner is selling, and will conduct (as with any business purchase) due diligence on the business. You'll want to understand key issues like customer concentration, the businesses lease situation, and ability to retain employees.

              Finally, a home-based business is often a much simpler undertaking than a physical business location. You'll have control over your own time, can often integrate the business with your own personal life and needs, and avoid some of the issues that some businesspeople don't like such as managing employees. I would caution you if you're thinking of taking advantage of a home-based business program that you may see advertised. Many of these are scams, so make sure you do your due diligence.

              I hope that helps, thanks.
              1 of 1 people found this helpful
            • Re: Event November 13: How to buy and sell a business
              TaxGuy Newbie

              Hi Mike,

               


              I am considering investing in a turnkey tax and accounting practice. I would be interested in providing serivces in the following areas: payroll, corporate and individual income taxes, sales/use, unclaimed property, miscellaneous business filings and unaudited financial statements for businesses with gross revenues starting at $10 million. My investment would more than likely need to be leveraged. So depending on the the existing owner's draw (along with the additional interest rate on debt), I may not be able to take a salary for awhile. Which is okay because I have independent consulting fees coming in. So here are my questions.

              What is the best method for valuing a tax and accounitng practice?
              Should I ask to send out rceivable confirmations to verify their aged receivables?
              What is the normal rate of attrition from a new owner?
              Given the state of our credit markets, is this a bad time to seek business financing?

              E. Pete Lewis, MBA, CPA
              Lewis & Asociates
                • Re: Event November 13: How to buy and sell a business
                  mhandelsman Newbie
                  Hi TaxGuy - You are proposing a pretty specfic set of circumstances that I'd suggest might be better suited to an expert in accounting practices, but let me address some of your questions.

                  What is the best method for valuing a tax and accounitng practice? There are a few ways to do this. If you want a very simple tool, BizBuySell has a valuation report that can allow you to see comparables (or "Comps" as they are often referred) for a specific industry and a specific location. The purchase price depends on the number of comps, but is between $19.95 and $59.95. As you want a more detailed or professional opinion, an accountant or valuation professional can provide a more detailed and complete valuation. I'd suggest going to the IBA (Institute of Business Appraisers) to find someone who might help you with that.
                  • Re: Event November 13: How to buy and sell a business
                    mhandelsman Newbie
                    To continue - Your questions about how to confirm receivables and about an attrition rate for customers are ones that again might be better answered by a business brokers who has more experience with accounting practices. I'd suggest that maybe you do a business broker search on BizBuySell in your area, and then interview them to see what level of experience they have with accounting practices.

                    Finally, your question about seeking business financing is a very timely one. Unfortunately, I don't have any better news to report than what you're reading every day in the press. This is not a good time to seek financing for a new business purchase. The U.S. Government's SBA loan program has ground to a near standstill, and the chances of securing a new commercial loan for a new business purchase are very slim right now. Most small business transactions that are happening right now are due to a business seller taking a note for the business. If you can find a seller who is willing to do this (most will if they want to sell), then you can hopefully secure the business that you're looking for. Good Luck!
                  • Re: Event November 13: How to buy and sell a business
                    tamstre Newbie
                    My daughter, best friend and myself have the chance to purchase a successful Nutrition Consult company. The owner is a personal friend and mentor to all of us. We have all worked in the business with the current owner who is wanting to retire for 10 years. My best friend has been her accountant. I have helped design her menu systems and QA programs. I have done training for her and most of her marketing events. My daughter is just graduating with a BA in Business communciations and minor in Business Admin. She started in this business when she was 12 doing projects and marketing events. Our big question is how do we get started? What are our first steps? I know that there is several grants and loans from the federal and state government for small business's. How do we find out about those? I know we will need loans and seed money.
                      • Re: Event November 13: How to buy and sell a business
                        mhandelsman Newbie
                        Hi Tamstre - This sounds like a great opportunity. A business that you're intimately familiar with, where you have an existing relationship with the seller, and a team of buyers that have the right skills to manage the business. In terms of first steps, I think you need to do a few things. First, you need to understand how much the existing owner wants to sell for, and if the owner is willing to provide some form of financing (likely a loan to you in the form of a note on the business). Once the seller gives you a price, you'll want to conduct research on what the fair market value is for a business of this type, in your area. You can do this yourself with a valuation report like we have on BizBuySell.com, but I'd recommend that if you're going to buy the business that you pay a valuation expert (likely a few thousand $) to value the business. If the seller isn't willing to provide a note for the amount of the purchase price you can't pay beyond your own cash resources, then you should look to the U.S. Government's SBA loan program, which you can talk to a local bank about. That program is stalled right now, like most credit products in our economy, so you may want to seek other forms of financing. One thought, which I wouldn't consider lightly, are products which allow you to use your 401K or IRA funds to purchase a business, without paying a penalty. Obviously this is a very risky move, so before you consider that I'd seek all other possibilities. Good luck, this sounds like a good business situation with a few challenges on the valuation and financing side.
                      • Re: Event November 13: How to buy and sell a business
                        flex_00 Wayfarer
                        Hi Mike,

                        I would love to have my own fitness center. When evaluating and comparing franchises, what are some of the key criteria I should be looking at?

                        And if you have an extra second, have you seen a franchise within a franchise? Like if I were to have a smoothie bar franchise or a massage franchise under the same roof as the fitness center.

                        flex_00
                          • Re: Event November 13: How to buy and sell a business
                            mhandelsman Newbie
                            Hi Flex - In terms of comparing franchises, there are quite a few things to explore. First, I would get a broad overview of the market, possibly by creating a grid of all of the potential franchisors, what their up-front and royalty fees are, what support they provide in terms of brand value, marketing resources/advertising, location selection, and fit with your needs as a business-person. You can do a search on BizBuySell in our Franchise Directory, by state and franchise type. I just checked and we have 24 different fitness franchises on our site today.

                            Once you've narrowed your list to hopefully a few that meet your criteria and seem like the best fit for you, I would suggest speaking with other franchisees (both those recommended as references by the franchisor, and those that weren't recommended), to address your concerns, understand their level of satisfaction with the franchisor, etc.

                            The key criteria, aside from what I mentioned above, would be their turnover rate among franchisees, ability to re-sell and the rules/policies about that, and abililty to expand if you're successful (assuming that is of interest to you).

                            Regarding your question about "franchise within a franchise", I do know that it's possible, and have seen it before. Of course, you want to walk before you run, and you may want to lease out the smoothie bar or massage opportunity at first, to avoid taking on more than you can handle. Good luck with your journey, it sounds like a great path for you!
                            1 of 1 people found this helpful
                          • Re: Event November 13: How to buy and sell your business
                            SBC Team Guide
                            Hi Community,

                            Just a reminder to attend today's event @ 2PM EST. If you can't make it, ask your question now and check back any time after the event for Mike's response.

                            Thanks,

                            The SBOC Team
                            • Re: Event November 13: How to buy and sell your business
                              garymack Newbie

                              Thank you Mike for taking the time to assist all of us here. My business partner and I are ready to start our own business, and we're setting up a C-corp to utilize all of out 401k funds to fund a good portion of this business, any thoughts on a C-corp to start a business, and if so, how about utilizing 401k funds? We're both former corporate employees ready to venture out on our own. We understand the risks and potential pitfalls but we're looking for advise here. Also, in setting up a C-corp, do you arrange financing first or set up the corporation? Which comes first I guess? Now I'm seeing that businesses have credit scoring, how do we get started? It will cost almost $5,000 to incorporate but what if we set up the corp and then can't get financing? Also, banks aren't financing at all, B of A, Wachovia, etc. We are taking over a turnkey operation that's been in exsistence for over three years now. Should we pursue non-traditional financing? I just read in a local newspaper of eleven new businesses starting in my local town, are there grants and or loans through these cities? We have some start up capital but will rely mostly on the 401k funds but in addition, we'll need some financing and it seems as if all the doors are shutting. This is expected because of the economy so I'm not shocked but something has to give here. Are there still SBA loans to aquire? Anyone else? Thoughts?

                              Thanks,
                              Gary
                              +1 248-761-4279
                                • Re: Event November 13: How to buy and sell your business
                                  mhandelsman Newbie
                                  Hi GaryMack, you asked quite a few questions in your post, so I'll try to get to them all quickly. First, I'm always very concerned when a business buyer is using their retirement funds to purchase a business. I assume you understand the risk you're taking, in that only about 10% of new businesses succeed, and I'd hate to see you lose your retirement funds due to a business failure. If you are set on doing this, be sure you check out companies that can help you use your 401K without a penalty for early withdrawl. For example, Guidant Financial is one of the larger and more reputable players in this space.

                                  In terms of your question about a C-corp, I'll have to ask you to seek the advice of an accounting professional on the best corporate structure for you. There are some resources like The Company Corporation that can help you research the issues and incorporate at a lower fee, but you'll have to have the confidence in doing it yourself.

                                  You are correct that SBA loans are very tough to secure these days. One alternative is to check out some new "peer-to-peer" lending sources, like Virgin Money or Prosper.com, where you can borrow from others through their website. It's a relatively new form of financing that's growing quickly. Good luck starting your new business during these tough times!
                                • Re: Event November 13: How to buy and sell your business
                                  garymack Newbie
                                  I'm actually really interested and hope the four initial questions posted get answered:

                                  • What is a fair asking price for the business I'm interested in buying or selling?
                                  • How do I assess the value of a business?
                                  • When and why should I consider buying a franchise?
                                  • Should I work with a broker?

                                  Best Regards,
                                  Gary
                                    • Re: Event November 13: How to buy and sell your business
                                      mhandelsman Newbie
                                      Hi again Garymack - In terms of a fair price for a business you're thinking of buying or selling, I'd suggest starting with a BizBuySell valuation report. Ours is the only one of its kind, in that it gives consumers direct access to valuation data and comps for recently sold businesses. It is inexpensive ($19.95 - $59.95, depending on the number of comps), but it's fairly rudimentary, and no substitute for a professional business valuation. Once you've found a specific business you want to buy, I'd suggest either using a business broker, or an accountant and lawyer to help you with the transaction. It's a complicated process, and one that I wouldn't enter into without professional help.

                                      Regarding your question about buying a franchise, I'd suggest you look at my earlier post above to Tori, which I quickly reveiw the pros and cons of an existing business vs. a franchise vs. an at-home business.

                                      Finally, regarding your question about working with a broker... I would recommend it. Most businesses that are listed for sale on our marketplace, bizbuysell.com, are represented by brokers. In most cases, brokers act as an intermediary in the transaction, helping the buyer and seller reach resolution on the deal. If you find a seller that isn't using a broker, you can choose to pay a broker to represent you in the purchase, or you could use an accountant and/or lawyer to assist you. Unless you have experience with business transactions, I'd suggest you use a broker or other professional. Thanks, and good luck!
                                      1 of 1 people found this helpful
                                    • Re: Event November 13: How to buy and sell your business
                                      SBC Team Guide
                                      Hi Community,

                                      Welcome to our live event with Mike Handelsman of BizBuySell.com. Mike will be posting as mhandelsman.

                                      Mike, you ready? Take it away!

                                      The SBOC Team
                                      • Re: Event November 13: How to buy and sell your business
                                        caffeinated Scout
                                        Hi Mike,

                                        Is there a point of no return where I should consider to flat out dissolve my company? Or should I always be thinking sell sell sell?

                                        caffeinated
                                          • Re: Event November 13: How to buy and sell your business
                                            mhandelsman Newbie
                                            Hi Caffeinated - I'm sorry to hear that you're struggling with your business. The fundamental question about your business is if it is sellable. What usually determines if it is sellable is if there is a cash flow from the business that will allow someone to make a living from it (or if it has the potential to have that cash flow). I'm guessing from your question that it might not have that cash flow. In that case, your choices are to continue to run the business to the point that it is successful enough to sell, or to dissolve the company and sell whatever assets you might have (inventory, fixtures, etc.).

                                            If your business is sellable, and you've decided it's time to get out, then by all means prepare for the sale. This would involve pulling together your historical financial documents (2-4 years of tax returns and books), preparing the business physically for sale (painting a worn building, cleaning up a dirty warehouse, etc.), and making sure that your lease and employee situations are right for a sale (secure long-term lease, employees who will stay upon transfer of ownership).

                                            I hope that helps!
                                          • Re: Event November 13: How to buy and sell your business
                                            simon07 Wayfarer

                                            I heard that the business that I am working at may soon change hands. The owners are looking to retire. If I'm looking to purchase the company I currently work at, how do you suggest I approach management? Having intimate knowledge of the company, is there anything I can leverage to my advantage?
                                              • Re: Event November 13: How to buy and sell your business
                                                mhandelsman Newbie
                                                Hi Simon07 - This sounds like a good opportunity for you. Whenever you have an owner who wants to sell, and you have involvement and good knowledge of the business, that sounds like a rare opportunity. You are uniquely positioned, given your knowledge of the business, to make the most of buying this business.

                                                I would suggest first getting your ducks in a row in terms of what purchasing the business might entail, in other words, see if you can understand what the business might sell for, and how much cash flow it generates. If you know this information, you might then determine if you have the resources to purchase the business, or might need another form of financing (more likely). Once you have some information on potential sources of funds, then you might approach the owner with your interest in buying the business. Hopefully your understanding of the potential price and access to funds will convince the owner to consider you a serious buyer.

                                                Good luck!
                                              • Re: Event November 13: How to buy and sell your business
                                                ferriss Newbie

                                                If I narrowed down my choices to two competing franchises, what advice can you give me in my decision making process? What type of criteria should I be using?
                                                  • Re: Event November 13: How to buy and sell your business
                                                    mhandelsman Newbie
                                                    Hi Ferriss - I'm always glad to see an entrepreneur pursuing their dream, so congrats on starting your new business. It sounds like you've done a good job on the first step of deciding which franchise might be right for you by evaluating competing franchises on their start-up cost, royalty structure/fee, brand support, and other marketing and service support. Now that you're down to your final two, I would suggest that you dig as deeply as possible to understand which one will give you the best chance to succeed. You should certainly interview a minimum of 2-3 existing franchisees from each company (the one's that you contact on your own are probably better resources than ones the company might put you in touch with), and ask them a detailed set of questions about franchise support, help with opening, ongoing operational support, any fees that you might now know about, etc.

                                                    Then I would evaluate the franchises in terms of how they fit with your skills and experience. For example, if you have strong operating and management experience, but little marketing experience, maybe one franchise provides more marketing support which better enhance your ability to succeed. Good luck with your decision!
                                                  • Re: Event November 13: How to buy and sell your business
                                                    SBC Team Guide
                                                    Mike,

                                                    Its looks like we're approaching the end of our hour together. Are there any words of wisdom you'd like to leave for the Community? Any advice for aspiring entrepreneurs?

                                                    Thanks for your time!

                                                    The SBOC Team