Four Things to Keep in Mind When Buying a Food Service Business

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Food Service BusinessFood businesses have never been more popular. At a basic level, food, as something we consume every day, is always on our minds. But the celebritization of the industry via competitions, the Food Network, and wildly successful concepts has brought a new level of interest to this marketplace. Food service businesses have some particular things you need to keep in mind when doing your due diligence.

Lease

Every lease is different and every landlord is different too. A restaurant’s location is intimately tied to its value so if you can’t retain the location, there’s no guarantee that the business will survive. You need to make sure that the lease can transfer to you, and sometimes there is a long vetting and qualification process before such a transfer can be affected, so don’t delay the application process. If given the proper attention, this is rarely a problem, but we can give you plenty of stories of deals that got held up or actually torpedoed because of problems with the lease.

Equipment

If the equipment is leased there will often be maintenance records that go along with them, but if the equipment is owned, find out what the maintenance record is.  Find out what condition the equipment is in. Look under the hood. Kick the tires, gently.

Liabilities & Licenses

There are certain charges that follow the business, not the owner. This can include unpaid sales taxes and health code violations. Have your attorney check with the relevant agencies. It’s not about not trusting the seller. It’s about trust, but verify.

Non-compete

If it’s a chef-owner, this should be a given. These people have often (rightfully) earned a following and if they don’t sign a non-compete, they can decide (not even spitefully, but just because they want to) to open up a restaurant (similar or otherwise) near you, which could seriously hurt your business. A non-compete shouldn’t be a deal breaker, and it’s not meant to bury the seller, but rather to protect the buyer. The seller should want the buyer to succeed, so this makes sense all the way around.

Food service business can be tough, but rewarding in their own ways.  If you are serious about buying into one, or selling one you’ve cultivated, give us a call.  We’ve got the experience to help you.

Buy a Business or Buy a Job?

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Buy a BusinessNot everyone has the same goals when buying a business. In fact, many are quite happy to buy themselves a job. If we see total owner benefit (owner’s salary + discretionary earnings) of $75-100k and a workload of 40-60 hours per week, you will indeed be your own boss, but you’re the boss of your job, not of your business.

But that’s not a bad thing!

There’s nothing wrong with buying a job. There are various reasons why people might choose to do so.

  • Passion: they are crazy about manufacturing, or cookies, or manufacturing cookies, just to give some examples. They love the idea of working in something they care about. Many people have spent decades of their lives in the workforce not doing anything even close to this.  Don’t underestimate this as a motivation.
  • Want autonomy: After years of being a version of Milton on Office Space, they are tired of being told that it would be great if they could um, yeah, come in on Saturday. The allure of being your own boss often outshines all the caution in the world about, “You’ll have to stay up late,” or “Guess who doesn’t get paid if payroll is short?”
  • Dislike their current gig/industry: this can often be a complement to the passion for something else.  Often “anything but this” is not only perfectly valid, but a great way to transition into something new.

Buying a job can pay the bills and even pay down the bank loan if you needed one in order to buy the business. For those with minimal savings or ownership experience this may be the perfect way to get started in the world of entrepreneurship.

Room to Grow

Many businesses started with someone who just had a passion, or wanted autonomy, or wanted to do something new (or all three!).  The good news is that a job can always grow into a business.

  • Generate more sales from existing products or services: Very rarely do we find businesses that are doing all they can in every channel to promote and sell.  There are always opportunities to be found. Smart execution here often leads to more discretionary earnings.
  • Delegate responsibilities and bring on staff: one of the first things you can do with those extra earnings is start to build a team that can help you execute and remove yourself as the single point of failure.
  • Create new products or services: Creating new income entirely allows you even more discretionary income, which can increase the long-term value of your business and put some more money in your pocket in the short term.

Whether you want to buy a job, buy a business, or buy a job you want to build into a business, we are here to help! Give us a call.

Last Minute Jitters before Closing the Sale

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JittersIt’s late at night, you can’t sleep, and you’re hearing negative thoughts.  You’re only weeks away from officially buying a new business, and questions like:

  • Should I do this? (perhaps you’ve got a great and secure job)
  • What if I lose everything? (you’ve spent many years saving and scrimping)
  • What if I fail? (what will your loved ones and friends think – you can’t bear to let them down)

come into your mind. The questions are not unreasonable, but should you listen to them or ignore them? We say do both.

Listen

Write down these questions and systematically go through what has brought you this far.  This can result in counter-questions:

  • Did you do the due diligence thoroughly and properly? Do you have any more questions you need answered?
  • Is the financing lined up? Are you clear on the details?
  • Is your legal situation settled? Do you have the structure in place that suits your accounting and tax goals?
  • Do you understand the business? Have you been a student not just of the products and services, but of the DNA of the company itself?
  • Do you have a plan for the first 100 days? Do you have what you need from the owner in order to make a great start?

Then, Ignore

You’ve taken the time to re-answer these questions, and so now it’s time to put these doubts in context and see them for what they are: totally normal. The jitters are a psychological reminder that you’ve got skin in the game. But use the jitters to guide your energy and excitement. Don’t let them dominate you or the transition.

What are questions you have about buying or selling a business that you’d like to have answered?  We’d love to help!

Apex is actively searching for top quality candidates to join our team of Advisors. If you’re interested in a career helping people buy or sell a business, think you have relevant experience, and want to find out more, please call Doug Hubler, President of Apex, at (913) 433-2303.

Key Questions to Ask Any Seller

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QuestionsAs brokers, we don’t often have to prompt buyers with questions to ask sellers.  They often come with their own lists, developed from curiosity and perhaps articles like these.  While each broker has different questions they like to ask sellers, there are a few that everyone who is interested in buying a business should ask.

Why?

There are many answers to why someone wants to sell their business, and there isn’t really any “right” answer.  There may be some “wrong” ones, though. There may be changes in the market which may make the future seem less bright for the industry.  There may be staffing issues. Perhaps a new competitor has moved in and sapped the last of the owner’s resolve. These are “wrong” only insofar as they aren’t the best reasons for the seller to sell.  But they represent great opportunities for the opportunistic buyer who has his/her eyes open but is also willing to put in the work if the business isn’t being handed over in ideal circumstances.

80/20 Rule

Tim Ferriss popularized and put into business context what had previously been known only to scientists and researchers as Pareto’s Principle: what are the 20% of activities that lead to 80% of the business income?  Or framed another way: what 20% of customer service issues take up 80% of your time?  There are many ways that a functioning business deals with these ratios. An informed seller has thought through these implications, though perhaps not in this ratio, and should be ready to give some answers (and corresponding strategies) to this question.

Staff

What is the cycle of acquiring and keeping good staff?  All seasoned business owners know that even the best, most aligned employees can move on after a number of years of good service. But there should be a history of employment that can give an incoming owner a roadmap to acquire new staff should the current employees move on with the outgoing owner.

If Not This, What?

If you didn’t sell the business, what would you do for the next two years?  Again, this might give you more insight into the personal life of the seller than the business, but good chances are that you’ll see an indication of either continuing on or push for growth.  If a business is in a position to sell, that means it’s healthy enough to support (or adapt to) an owner’s desire to work in more of a relaxed, lifestyle capacity or his/her desire to double or triple down and grow the business.  Follow up questions of why in either of these veins should give great insight into the fundamentals of the business.

The Daily Challenge

It’s often said that some business owners go to sleep with their businesses in their mind and wake up to those same thoughts first thing in the morning.  Even if a seller doesn’t think about his/her business this way, there’s a fundamental challenge to running the company. What is the most challenging aspect to running this business on a daily and ongoing basis?  The answer to this question should go right to the heart and mind of the potential buyer: do I have what it takes to do this?  Or even better, am I perfectly qualified to do this?

Now, enough of the questions, you might say, how about some answers?  We’ve got plenty of those here at Apex. Give us a call and give us a chance to answer!

Three Things Buyers Need to Make a Great Start

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threeBuyers have different reasons for buying businesses and even more varied ways they wish to operate them once they take over.

In this article, we won’t be discussing those businesses that will be near 100% absentee or will require a complete tear-down and reboot. 

Instead, we’ll be talking about the sort of business that we see very often. One that is running fairly well and can benefit from new ideas, energy and direction from a buyer humble enough to engage with the process.

1. Knowledge

No matter how well a buyer knows the industry, he/she will not usually know your business inside and out.

In those early days, and even towards the end of due diligence when it looks like any obstacles towards a successful closing have been dealt with, it’s important to learn everything you can about a business.  

This doesn’t just include information from the seller, but whatever you can read or discover: books, articles online, blogs, videos on YouTube, quiet conversations with people in the industry who you’ve networked with, etc.

Don’t be that unfortunate buyer who thinks he’s got nothing to learn and will be doing all the teaching. We can’t think of any circumstances where that worked out well in the end.

2. Employees

Confidentiality, as we consistently point out here, is key, and so a buyer will in all likelihood not have had the chance to get to know them or hear their future plans before the transaction closes.  

Therefore, after the sale is officially completed, the new owner should take every opportunity to get to know the employees, especially the key personnel, as well as possible.  

During this phase there should be a lot of listening and a lot of asking for feedback. “What is one thing you would change if you could?” or “What’s a way we could save money/earn more money?”

There’s literally been a regime change so there’s no better time to get a frank and honest opinion, and that can only be done if you come to them with a spirit of trust and openness.

3. Now, Plan

Once a new owner has had the chance to know intimately the business and the people who help run it on a daily basis, he/she can start to put together a plan that goes deeper than “cutting costs” and “new marketing.”  

Every business, no matter how old and established, always has opportunities to grow and make even more income. But those opportunities always become clearer with knowledge and time.

In a certain sense, the financial investment in the purchase of the business is the least expensive and least important part of the process. It only cost you the money and it’s only the beginning.

Now comes the part where you will be asked for your time, which, unlike money, you can never make more of. And now the journey begins where it’s not enough to simply stay in place but to grow, and that comes with risk.

But it’s that risk and that investment in time that makes the journey so rewarding. It’s also why the seller of these businesses is much less likely to go off and swim, Scrooge McDuck-style, through his/her gains. And it’s why he/she is probably going to go through this same process all over again before too long.

Have you been thinking about starting a business journey of your own?  Give us a call. We’d love to share our centuries (literally) of experience with you.

Why Buy a Franchise?

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WHYIn a previous article, we’ve made the case for buying instead of building.

However, you may be interested in buying a business run by a franchisee who has multiple locations in place. Every franchise is different as to what they expect from someone who is buying from an existing franchisee. 

Our goal in this article isn’t to explore those, but rather to discuss how running a franchise-type business is different from running an independent one.

Start with the Good News

We have discussed previously how important systems are to any business. In a franchise, those systems haven’t just worked one time…for one person…in one place.

They’ve literally been “field tested” many times, with many people, in many places.

They have extensive manuals for “how to run the business” which are written in the “for dummies” format.  You’re primed to open multiple locations in the future, thus expanding your cash flow against an existing back-office infrastructure.

You also have the power of an established brand and the ongoing publicity-spend pushed by the franchisor. Sure, you have to pay for part of that, but you often get a disproportionate benefit for this spend because of the lower costs. With many franchisees participating, better rates can be secured.

The “Bad” News

The “bad” news is that you have a limited sphere in which you can be creative. Unlike an independent business, in which you’re free to pursue new business opportunities or avenues of marketing, you generally have a rulebook which tells you what you may and may not do without consulting with the franchisor.  

This is only “bad” for those very creative entrepreneurs who buck at even the idea of running something by someone else in their own business. Whereas those who favor collaboration or who want ownership, but with a lot of help and guidance, can find great comfort in knowing they aren’t simply throwing spaghetti up against a wall.

However, these systems do come at a cost. You won’t be able to circumvent the obstacles the original franchisee went through just because you’re buying a mature, multi-unit operation.  

You will likely have to pay an upfront fee, demonstrate net worth, and pay ongoing royalties, the last of which you’re unlikely to have to do in an independent business.

What Matches You?

Ultimately, buying a franchise involves many of the same questions all potential buyers must answer. You need to begin with the end in mind and consistently ask yourself why you’re doing what you’re doing (in pursuing the purchase of a business) and how well this particular opportunity (the businesses you examine and screen) will aid you in accomplishing your why.

Our goal isn’t just to counsel you on the paperwork and financial questions, but on questions about personality as well. We have the experience to advise you on franchises vs independent businesses.  Give us a call!

Why You Should Buy Instead of Build

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buy a businessThere is an inordinate level of romance associated with building a business from scratch.  Shows like Shark Tank and The Profit only exacerbate the issue.  

Though such shows do show the struggles that these business owners face, the very appearance on television creates aspiration:

“I want to do that too.”  

First-time entrepreneurs looking to get into business see building from scratch as a great option. Seasoned entrepreneurs know better. They know it’s always easier (and often better) to buy than to build.

Why make it hard?

When you start from scratch, you have to build a customer base, market a new business (with a brand and logo you’ll need to come up with), hire employees, and oh yes, generate cash flow during the runway (the financial amount you can survive on during startup) you have to build the company.  Not so with an established business.

They have customers, they have employees, they have procedures, marketing and a brand in place. And yes, there’s cash flow from Day One. It’s even easier to secure financing from a bank, which views an established business as a much safer bet than an untried startup – even more so if the owner has never run a business before.

Lots of choices

You think you know what kind of business you’re interested in, but the truth is, you’ve often not even scratched the surface beyond some daydreaming.  Not only are there businesses out there you’ve never even considered existed, but they’re often for sale – and sometimes, in your price range.

If there’s a type of business that you have your heart set on and it’s not listed, we as brokers can go in as a trusted intermediary to see if maybe there’s an openness to selling.  

Rather than confine yourself to one specific idea that has to work, you can examine dozens of possibilities and see what really ticks the boxes for you.

Take your time

Buying a business isn’t something that most people do overnight.  It’s a process that begins with financial qualification – putting together your assets and seeing what you can afford.

It then continues on with meetings with businesses and owners who truly interest you. And it culminates in an exciting ending: you getting the keys to a business that already works!  

Your concern isn’t keeping the lights on, but deciding what to do next.  

Will you keep it as is?

Convert it to a lifestyle business?

Scale it to the moon?  

A bought business gives you that luxury. A business started from scratch never does.  The failure rate among started-from-scratch businesses compared to bought businesses isn’t an apples-to-apples comparison. Heck, it’s not even a galaxy-to-galaxy comparison.

Are you thinking about becoming a business owner?  Let us help you as we have helped so many before you.  Give us a call today!

Five Sobering Questions to Ask Yourself Before Buying a Business

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fiveIn everything we do, often the sheer excitement of an event, experience or a purchase pushes out everything else, including good judgment.

That’s to be expected, and sometimes, can’t be avoided. But buying a business is such an important event that has the potential to affect so many other things in your life.

Because of that, it’s important to put euphoria and excitement in their proper places and ask some sobering questions of yourself on your business-buying journey.

1. Am I interested in this business solely for the cash flow or prestige?

Both cash flow and prestige are perfectly legitimate reasons to be interested in a business. Money is important, as can be the feeling of being affiliated with something of value or class.  

But on their own or even combined, they’re not enough to keep someone building a business in the medium to long-term. There needs to be at least one other thing that attracts you, be it a fascination with the industry, interest in the city in which a business is geographically sited, or a desire to challenge yourself with something new (just to name a few).

An additional reason beyond money and prestige will make sure that this new business adventure is a long-term play.

2. Do I really want to do this all day?

In his book Restaurant Man food mogul Joe Bastianich goes a long way to disabusing people of the “glamor” of the restaurant business by discussing the realities of the hours (18 a day), and the days you’ll work (weekends and holidays), and how much money you’ll make (20% blended margin even on the high end).  

He does this to discourage the dilettantes who like watching Food Network and think getting into the industry would be “fun.” If the business requires an active owner/operator, are you willing to sleep/breathe/dream about the business during a large part of your waking hours?

If not, you should probably pass.

3. Will demand exist in the coming years?

If you’re interested in growing a business, not just in maintaining cash flow based on a product that is headed for legacy country, you need to ensure that demand will continue to maintain, and even better, grow in the years ahead.  

Look at regulations, the competitive space, and your own costs of capital as part of a blended approach (that includes examining news and reports and talking with veterans of the industry) to get a solid answer to this question.

4. Why is the seller selling?

There’s nothing wrong with someone being “tired” – either in the sense of working in this particular business or industry or working in general. It will happen to all of us at some point. What we want to be wary of are sellers making decisions to sell for abrupt reasons.

Sometimes a family illness or personal emergency will precipitate just such an occurrence. This doesn’t mean a good transaction can’t take place.

It just means that because it was unexpected there are necessarily things that might have been missed, and both buyer and seller (but particularly the buyer, who will be left with the business when all is said and done) need to ensure that the business can indeed not just survive, but thrive with a new owner.

5. How much does the business depend on him/her?

At APEX we’re advocates of Michael Gerber’s famous phrase: “Work on your business, not in your business.”  This flows from a desire to transform a business from a handful of people who are relying on hustle and willpower to a well-oiled machine that relies on processes, not personalities.  

Ensure that the business isn’t overly reliant on the owner. If that’s the case, and the owner isn’t willing to make changes before the business sale to address the issues, consider negotiating a longer transition period or additional seller financing.

One of the reasons we exist is to help people navigate these and other key questions when preparing to make the life-changing decision of buying a business. We’re always here to answer your questions. Give us a call today at 913-383-2671!

What Do Absentee-Owner Businesses and Unicorns Have in Common?

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unicornWe often hear from people who are interested in finding a business that won’t take much of their time – one that’s cheap to buy and provides a good return.

Something they can run as a sideline to their full-time job. The car wash is a common conception of the absentee-owner business.

It looks like a business you can set and forget. Just let it run and collect the money.

Well, finding that kind of business is about as likely as finding a unicorn walking down the street.

If we knew of one, we’d have already bought it ourselves, and we’d be the ones galloping off toward that imaginary rainbow!

If you do find a business that doesn’t require the owner’s constant attention – and we do sell those – it’s likely to be a longstanding business, which the owner has built over time.

He has managers and employees he knows and trusts, and he can look at the financial statements and easily identify and address trends before they become problems.

As a new owner, you wouldn’t automatically inherit the ease he enjoys.

To improve the odds of success, new owners should plan to spend a good portion of every week in the business. You need to learn your industry, your store or operation, your employees and your financials. You will want to build relationships with your customers.

How will you know if your car wash machinery is working right, your property is being maintained and your manager is depositing all the day’s quarters each night? It takes some footwork and close attention to look after all the details of the business.

We had a client who bought a few coin-operated car washes several years ago while holding down a full-time job. It wasn’t long before he learned his managers were stealing from him and failing to maintain the equipment. He quit his job to rescue the businesses but ended up selling the car washes eventually.

Don’t get us wrong; car washes can be great businesses. We have another client who is doing very well with car washes. He has taken some time to build them up and put strong managers in place. If they’re located in high-traffic areas, maintained properly and managed with integrity, car washes can return a solid return year after year.

So is the dream of an absentee-owner business possible? With several years’ investment, you may be able to achieve it. Otherwise, you’re better off leaving the unicorn on the storybook page.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

4 Time-Tested Truths About Making an Offer to Buy a Business

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We sometimes work with buyers who lose out on a great business because they’re hesitant to make an offer. Although we cover this topic when we begin working with a new buyer, the lesson sometimes gets forgotten when it’s crunch time. Here’s a helpful primer on the importance of this critical deal starter:

1.An Offer Is a Starting Point

We’ve refined a two-page offer form that has worked almost perfectly for us over the years. It lays out the expectations for how the deal will get done – the financing, leasing, timeline for due diligence, expectations for the seller, need for the asset purchase agreement, etc.

It’s designed to protect you – the buyer – in case you find out something you didn’t expect during the due diligence period. The offer usually comes with earnest money of $5,000 to $10,000 minimum.

offer2.A Deposit Shows You’re Serious

Putting money in escrow shows the seller you’re serious. It may even keep him from talking with competing buyers. Without it, how does the seller know to prioritize time with you to answer your questions and help you understand the business? He might otherwise write you off as a “tire kicker”.

Both the seller and the broker will take you more seriously and work harder for you when you have some skin in the game. By the way, the deposit is refundable.

3.It Opens Up the Books

You almost always have to put an offer on the table before you get access to the detailed financial information you need to make decisions. Sellers won’t take that risk without knowing you’re committed.

And the way you handle this part of the negotiation will set the stage for how you’ll relate to the seller throughout the deal and the transition. Starting off by demonstrating you’re serious can smooth the negotiations as the deal progresses.

4.An Offer Is NOT a Deal

While your earnest money backs up your intentions, it doesn’t represent a terribly large risk. Your business broker will typically keep the deposit in escrow, and it’s rare that the buyer doesn’t get that money back. In one case, Apex kept an escrow payment because the buyer backed out while driving to the closing and told us to keep the escrow!

As described in point #1 above, our standard offer document includes multiple contingencies that allow the buyer or seller to back out if the deal doesn’t proceed as expected. It saves both parties the cost of hiring a lawyer too soon. And it establishes the negotiating process right up to the much-more-detailed legal asset purchase agreement required to close the deal. This document also allows the buyer to start the loan application process.

If you find you’re truly interested in buying company, we hope these principles will help give you the courage to make a serious offer – before the deal slips through your fingers.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!