If you are a salesperson with experience selling to businesses and are looking for a good opportunity, you should become a business broker. Here’s why:
- You can make a good income.
- You have flexible hours.
- You are in a growing market.
- Your competition is limited.
Business Brokerage Press recently came out with their 2013 annual survey of the industry. According to their survey, when asked “How much should an industry veteran earn a year in commissions?” the average answer was $156,000, with the most frequent answer being $100,000. When asked how much a new business broker should be able to earn in their first year, the average answer was $47,000 with the most frequent answer being $50,000. Not much difference. The last numbers point out the reason that people may not become business brokers – it takes time to make money. When asked, “How many months did it take for your newest broker/agent to have a closing or sale?” The average answer was 7.8 months. That’s because of the two step sales process. First, you need to list businesses for sale and then you need to sell them. After the business is under agreement, it typically takes two or three months to close the sale. Not surprisingly, the average age of business brokers tends to be older. Again, according to the BBP survey, the average age is 52. One reason is probably because someone this age has saved up enough money to afford to wait out the time when they start making commissions.
Another benefit of being a business broker is the flexible hours. With a laptop, a cell phone, and an Internet connection, a business broker can work from almost anywhere. We want a new broker to work out of our office most of the time so they get more guidance. But, if they need to work from home for personal reasons, they can do so.
I’m the owner of a business brokerage agency with two other business brokers. Both of them are in their thirties. We do a few things differently than most agencies to get a new broker going. First, we have a lead generation program that brings in seller leads and we give the leads to them. Getting leads is one of the hardest things to get when you are starting out. The second thing we do is give a new business broker a draw. It’s less than they could make if they just went out to get the best paying sales job they could find, but it gives them some income while they are getting started. We are also a member of BBANE, a group of New England business brokers that co-broke. This gives the new business broker businesses to sell. These programs are working.
The future for business brokerage is very good. The baby boomer generation is just beginning to retire and, for many years, retiring boomers will be a steady source of potential clients. At the same time, the number of business brokers was recently reduced by the recession. My personal opinion is that the number has not returned to the pre-recession level.
What does it take to be a successful business broker? The first thing you need is sales ability. Not just general sales ability, I look for business to business sales experience and skill. You have to be willing to make cold calls. You need to be persistent and followup. You need to be able to relate to business owners on a peer level. You also need to have some attention to detail. The sale of a business involves a lot of items and you need to stay on top of them. You also need to understand the basic financial statements of a business – the income statement and balance sheet. This can be learned. This is not a complete list, but it covers the basics.
If you are reading this, live in Eastern Massachusetts, and are interested in becoming a business broker, please contact me.
A liquor store can be a profitable business to buy but, like any other business, requires good management, organization and people skills to operate. You should be able to manage employees and direct tasks to maximize profitability for your store. If you plan to work on the floor, good customer service skills are essential. The more products you can recommend to customers the better your store will do and you will ensure repeat customers for many years to come. In Massachusetts you also must be a citizen of the United States and a resident of Massachusetts to get a new liquor license or transfer an existing one. Good credit is also important because you will need to establish credit with your vendors to purchase products.
How Much Do Liquor Stores Sell For?
How much you pay for a liquor store will vary based on the geographical area where you want to buy the store as well as individual business factors such as store margins and rent. For example in Massachusetts, where most towns do not have any licenses available, you can expect to pay around 50% of sales or 3-4 times seller’s income for a liquor store. Stores in more desirable towns may sell for more, as well as stores that have updated interiors, high product margins and reasonable rent. To get a bank loan to buy a liquor store you will need 20% of the total purchase price (including inventory) liquid for a down payment and will need to have good credit. You should also make sure to have some money left for lawyer and accountant fees and working capital. Banks will also want to see some related experience – if it is not directly in owning or working in a liquor store, it can be general business experience, retail experience or related education such as a business degree or MBA.
How Will You Run the Business?
Liquor stores require either a full-time working owner or an owner who can put a trusted full-time manager into place. A working owner can expect to work about 50+ hours a week and will be involved in the ordering, inventory management, employee management, bills/financials and other management activities for the business. Liquor stores are difficult to run absentee because there is a lot of cash involved in the business and you need to make sure that it goes into the right hands – yours – and not your employees. Correctly managing the inventory is extremely important in running a successful liquor store and typically requires a hands-on owner.
What is Your Exit Strategy?
Yes, even before you buy a liquor store or license you should have an exit strategy. It is important to plan the future of the store so that you can make smart business decisions. You may decide to undertake renovations if you plan to own the liquor store for a while and it will increase business, or hold off if you see the liquor store as a shorter term investment. Keeping accurate and detailed financial records will be important when you sell the liquor store. Accurate financial records are essential when selling so that a buyer can easily verify your figures, get a bank loan for the business and pay you in full at the closing. You should keep yearly invoices and daily register receipts and also consider putting in a POS system which will help you run the business and allow you to download detailed reports. Putting the right procedures in place now will ensure a smooth transition when you are ready to sell the liquor store.
If you’ve been in business for awhile, you probably know many of your competitors and other owners of businesses in the same industry. If you are getting near retirement age, some of them may have told you to contact them when you are ready to sell your business. Now that you are ready to sell your business, selling to one of these potential buyers may look very attractive. You avoid the expense of a commission to a business broker to sell the business. You keep it off the market so it is less likely your employees or customers will hear that you want to sell. Since the buyer is in your industry, they are less likely to back out of the deal. Due diligence is probably going to be easier because the buyer knows the industry, will zero in on the most important information, and may ignore other information another buyer, or their attorney, may ask for.
So, what’s the downside? You may be selling your business for much less than it would sell for if you put it on the market. How much less? A few years ago, I sold a business for 4 times what an industry buyer offered to pay. This amounted to several hundred thousand dollars in this sale. When I met with the industry buyer and he gave me his offer, I pointed out that it was low and the seller was likely to reject it. I asked if this offer was just to start a conversation or what they expected to pay. The buyer, who had made many industry acquisitions, told me that this was in the ballpark of what they usually paid. When we put this business on the market, the seller received 5 offers and a sale was made to another industry buyer at a good price for the buyer and seller.
Let’s look at the reasons not to put the business on the market:
Confidentiality: A business broker should be able to maintain the confidentiality of the sale. A business broker will screen buyers to avoid breaching confidentiality and have them sign confidentiality agreements before revealing the identity of the business for sale. Their advertising will not identify the business by name or the characteristics that are advertised. We have our sellers review and approve our advertising copy before we use it. It seems that owners in almost all industries question whether other companies in the industry will honor the confidentiality agreements they sign. They do.
Saving the commission on the sale: Our commission is usually 10%, less than that as the amount of the sale goes up or if real estate is included. We increase the selling price, by putting the business on the market, by much more than this. We reach many more buyers, by the multiple ways we market a business, than a seller could know or deal with.
An easier sale to an industry buyer: We make many business sales to industry buyers – who pay a reasonable price for the business. We contact potential industry buyers directly and reach them with our other advertising. Since we know what the business should sell for, we can avoid dealing with buyers who are clearly offering too low a price.
How can you identify a bottom feeder? This is difficult for a business owner. It is likely that the potential industry buyer will connect with the owner because of their similar background in the same type of business. The potential industry buyer may even be a “friend”. They usually have strong opinions that they know what the selling price of the business should be better than anyone else.
The best way to avoid being taken advantage of by a bottom feeder is to get a business valuation from an accredited appraiser. An alternative is a selling price estimate from a business broker. This will give the business owner a good estimate of what the business should sell for. Then, find a business broker who will market the business to find a qualified buyer who will pay a good price for the business.
If you are thinking of selling your business, and own the real estate, you may have had someone approach you to rent the business and real estate, from you rather than buy the business and rent the real estate. This may seem attractive. You keep the property and have a tenant. You save on broker’s fees. And, hopefully, the renter is paying you more than a market rate for rent. Despite all of these “benefits”, renting your business is usually a bad idea.
You own a business and you own the commercial real estate where it is located. Each of these has value. Your business generates an income and has value. You have customers, equipment, and employees, and other assets. The business, like the real estate, can be sold. Commercial landlords are, typically, renting an empty space. That has value also and that is what a tenant pays rent for.
I’ll assume, first of all, that you are renting the business and real estate for more than just the rental value of the real estate. If not, it’s really a bad deal. You’ve just made a deal to give away your business. But, even if you are getting more, it’s usually a bad idea. A comparison to a business sale will show you why.
Let’s assume that you could sell your business for $500,000. In most of our sales, the buyer would get an SBA loan for that amount. The buyer would put down about 20% and borrow the rest from an SBA lender. In some deals, the seller provides a seller loan of 5% to 10% of the purchase price. At the closing, you would normally receive $450,000 to $500,000. This is your money no matter what the buyer does with the business.
Now let’s look at your situation if this same buyer rents the business from you. Let’s assume a ten year lease with options – a typical commercial lease. Let’s assume also that, being a smart businessman, you want to get paid what the business is worth over the term of the lease. $500,000 at 6% interest over 10 years is about $3,600 per month. I’m using a typical SBA loan rate for this analysis. An SBA loan is 75% guaranteed by the SBA – a much better guarantee than the personal guarantee you should get from your tenant. Because of the much higher risk and no down payment, the interest rate should be much higher. This rent should be in addition to the market value of the rent for the space.
What’s wrong with this? Here are a few things:
You’ve hurt yourself tax-wise. Rental income, including the rent for the business, is taxed at normal rates. It’s likely that a large part of the sale of your business will be taxed at capital gains rates which are much lower.
You may get your business back, if the tenant defaults on the lease. If so, it is very likely that your customer base and equipment will not be in the same shape as when you rented out the business. It’s also likely that many of your good employees will have left. You are not getting back the business you rented.
Even if the tenant fulfills his obligations, do you want your business back in 10 years? By that time, you will be doing something else, or retired, and the last thing you will want to do is go back into this business.
I would also point out that renting your business is “like” selling it with no money down and a seller loan over the term of the lease. If a business broker brought you this deal, you would probably turn it down fast and tell him, or her, to bring you a buyer with some money. Most of the sellers we work with are looking for as much cash at the closing as possible.
When you are ready to sell your business, sell it. Take the money. Put the business behind you.
What is a Term Sheet?
According to Wikipedia, “a term sheet is a bullet-point document outlining the material terms and conditions of a business agreement. After a term sheet has been "executed", it guides legal counsel in the preparation of a proposed "final agreement".” When a buyer presents a term sheet, they are presenting a document that lists the basic terms of an offer. The document is negotiated back and forth until the parties reach an agreement on the basic terms. Then, the attorneys draft the legal documents for the parties to sign. Because the term sheet is merely the outline of a deal, it is important that the parties use disclaimers so the term sheet does not become a binding agreement.
Advantages of Using a Term Sheet
Terms sheets are a good way to make an offer to buy a business for a few reasons. They save time and money. Term sheets are usually presented in email format. They are usually drafted by the parties or their brokers, not attorneys. By only including the most important terms of the proposed deal, they can be drafted, edited, and sent back and forth more quickly than legal documents. By not having an attorney draft a complete letter of intent, a buyer can save money, and time, if his offer is not accepted.
It is important, when presenting a term sheet, that there is clear language that it is not a binding agreement. When we are negotiating a term sheet, here is the disclaimer that we start any email with: “The contents of this email are not intended to represent or form a legally binding offer or an acceptance, nor should the contents otherwise be considered as a contract or interpreted to create a contract or other legally binding obligation on the part of the buyer or the seller.” If you are using a term sheet to negotiate an offer, get similar language from your attorney.
What to Include in a Term Sheet
When presenting a term sheet offer, it is important to include all the important terms of the offer:
What assets are included, or excluded? Does the price include accounts receivable, inventory, assumption of any debt? Be clear on what is or is not being bought.
What price is being paid? Is there a deposit? Is all of the price being paid at the closing? Is anything being paid for training? Is any of the price an “earnout” based on sales after the closing?
How is the price being paid? How much is the buyer putting into the deal? Is there any seller financing? If so, how much, what term, at what interest rate, and how is it being paid back? A personal guarantee is usually required by sellers so that should be addressed – whether the buyer will, or will not, give it. What third party financing will the buyer seek to obtain. Again, what are the terms of the third party financing? A seller will want to know that what the buyer is seeking is realistic.
Obtaining a lease on the facility where the business is located is usually a contingency in an offer. The basic terms that the buyer is seeking should be included in the term sheet: The rental rate and term of the lease should be stated. If the buyer is seeking any changes in the basic terms of the seller’s lease, these should be pointed out.
If the business is a franchise, the closing of the sale is contingent on the approval of the buyer by the franchisor. This should be stated in the term sheet as a contingency. The term sheet should state who will pay any franchise transfer fees.
The terms of training and transition, or continued seller employment, should be included in the term sheet. This specifies how the buyer is getting trained and what other post closing support the sellers will provide. It could include how much the seller is being paid for the training if the training will be more than normal.
The Letter of Intent or Purchase Offer
A purchase offer, letter of intent, or non-binding letter of intent should follow the term sheet. The buyer should state which he requests. If the buyer is proposing a non-binding letter of intent with an exclusivity period, the length of the period should be included in the term sheet. The buyer should state what agreement will be the final sale document – such as an Asset Purchase Agreement. The buyer may wish to add that this document will have standard representations and warranties.
Depending on the type of business and the situation of the buyer or seller, more terms can be included in the term sheet. For example, the sale of a liquor store would be contingent on the transfer of the liquor license. The sale of a vocational school would be contingent on approval by various government agencies and the trade association.
This list of what should be included in a term sheet may seem excessive. It isn’t. By having agreement on these basic terms of the deal, it will speed up the process, reduce the risk that the deal will fall apart later, and save money on attorney fees by not using the attorneys to negotiate these substantive parts of the deal. One last reminder, use disclaimer language. And, use your attorney to draft the offer and final purchase document. A term sheet should not replace either.
Small business owners generally do not have a Board of Directors or other peer group to turn to for advice on the many issues which come up in the course of running a business. After years of association, many business owners turn to their attorney or accountant for expert advice on a wide range of issues. While these individuals may be experts in some areas, they may not be an expert in the advice the owner is looking for. Here are some things to keep in mind when getting advice from your attorney or accountant.
Like physicians, attorneys tend to specialize in specific areas of practice. An attorney may be an expert on personal injury claims, trusts and estates, patent and trademarks, or family law. A business owner should seek out an attorney who specializes in business law as their primary attorney. In fact, there may be instances when a business owner may need to consult other attorneys as well. For example, if the business is involved in a lawsuit, the business owner should engage an attorney with experience in business litigation. Labor disputes require an attorney versed in labor laws while defending a patent or trademark requires a qualified patent attorney. The law is too complex for one attorney to be an expert in all areas.
A Transaction Attorney
Selling a small business requires an attorney who is not only familiar with business transactions, but one who has the ability to negotiate successfully. This may or may not be describe the attorney the business already uses. Before engaging the attorney in the sales process, a business owner should evaluate the following:
- Is the attorney a good negotiator?
- Can he advocate for the owner in such a manner that he can secure the most favorable terms without killing the deal?
- Will your attorney respond promptly to the buyer’s counsel so the deal can move forward in an efficient manner?
- Can the attorney complete the deal without excessive “lawyering”, keeping the legal fees in check?
Choosing an Accountant
Unlike attorneys, accountants are not as specialized. Most prepare business financial statements and tax returns. However, some have specific industry specializations and business owners may benefit by using one that specializes in their industry. An accountant with expertise in the particular industry should be able to give the business owner better guidance on how the business financials compare to their industry and point out areas for improvement.
Not all accountants are able to do business valuations. It is not unusual for us to meet with business owners who have received a business valuation from their accountant that is unrealistically high. You need to be certain that the valuation is based on accepted methods for valuing a business. Make certain your accountant has credentials and training that qualify him to do a business valuation before taking their advice on how much to ask for a business.
Selling the Business
Another area in which a business owner should be cautious in taking the attorney’s or accountant’s advice is when they are deciding whether or not to sell the business. In most business sales, the decision is based on lifestyle issues – retirement, burnout, health, etc. – rather than financial considerations. The owner is the one to make that decision. I have also seen situations where an owner was at retirement age and the business was not doing well, yet the accountant continued to advise against selling, apparently because the accountant did not want to lose a client.
Beware of Confident, but Uninformed, Advisors
Getting general business advice from an attorney or accountant may not be wise if the advisor has no special expertise on which to base that advice. Just because an attorney or accountant works with business owners doesn’t make them an expert in how to run a business. At some time in our lives we have all dealt with people who are very confident in the advice they give – even when it isn’t necessarily good advice. I haven’t seen any study that shows a correlation between the confidence of the advisor and the quality of the advice.
Every business owner needs trusted advisors to give them advice, and you should build a good team of qualified people to turn to. Just be careful that you are getting advice that is within the advisor’s area of expertise.
The majority of our business sales are financed with an SBA 7A loan. This type of financing is a win-win situation for both the buyer and seller when compared to seller financing. The buyer benefits from a lower down payment and longer financing period. The typical SBA lender requires a down payment of 15% to 25% with a 10 year repayment period. Seller financing, on the other hand, generally requires 40% to 50% down with the balance to be paid within 5 years.
The lower initial cash investment and monthly payments allow the buyer to purchase a larger business than would be possible with seller financing. Sellers also benefit when buyers acquire an SBA 7A loan. The lower down payment greatly increases the number of potential business buyers and that in turn increases the chance of receiving a higher price for the business. The biggest win for sellers, however, is that they get all or most of the purchase price at the closing.
Types of SBA Loans
There are two types of SBA loans commonly used to buy a business. The 7A loan mentioned above is used to buy the business, its assets and goodwill. These generally have a 10 year term with interest rates 2.75% above prime. The maximum loan size is $5,000,000 with the SBA guaranteeing 75% of the loan amount.
A second type of SBA financing is a 504 loan which can be used to buy the equipment and commercial real estate used by the business. This loan usually has a 20 year term with slightly lower interest rates than a 7A loan. The focus on this blog is the 7A financing.
Most people seeking to buy a business are somewhat familiar with SBA loans, but they are often unaware of how to find good SBA lenders. These are generally banks, and while the SBA has certain loan requirements, the banks often establish their own additional requirements and preferences.
The first thing a business buyer should look for is a “Preferred” SBA lender. These lenders must be approved by the SBA and are more experienced in handling this type of financing. Dealing with a preferred lender simplifies and shortens the process because the lender is allowed to approve the applications rather than requiring the application to be approved by the SBA. Dealing with a Preferred lender will generally shorten the length of the process. For a list of SBA lenders, that identifies those who are Preferred lenders, go to your local SBA website.
Cash Flow vs. Collateral Lenders
SBA lenders fall into two broad categories, “cash-flow” lenders and “collateral-based” lenders A cash-flow based lender is interested in financing businesses which generate enough cash flow to make the loan payments, cover the buyer’s income needs and provide a margin of safety. A collateral-based lender uses this criteria also, but, in addition, will require enough collateral to support the loan. We primarily send prospective buyers to cash-flow lenders.
Another factor to consider is that each lender has its own preferences regarding the types of business they do and do not want to finance and the minimum size loans they are willing to offer. It’s important to find a lender with preferences that match the type of business you wish to buy. Finally, keep in mind that the quality of the loan officer is critical to a smooth process. This is the person who will quarterback your loan. A good officer can process the applications quickly and efficiently, providing you with a prompt answer regarding loan approval.
Finding your Lender
If you are buying a business, be sure to look for financing as soon as you have a purchase agreement in place for the business. Obtaining SBA financing typically takes a couple of months and is the task that usually takes the longest in the process of closing on the purchase of a business.
The last thing I would tell you is not to put all your eggs in one basket. Contact several SBA lenders to find a loan. Because most of our deals are financed with SBA loans, we know several good SBA lenders in our area that meet the criteria listed above. We can give you contact information for them and help you with the process.
There are a variety of ways to handle the sale of working capital when buying or selling a business. In accounting terms, working capital is the difference between current assets and current liabilities. By working capital, I’m generally referring to the sale of inventory and accounts receivable when a business is sold. Here is a short primer on the most common ways the purchase of working capital is handled in the sale of a business.
Working Capital Sold Individually
When an individual buyer purchases a smaller business, the company is usually sold free of any debt. The individual working capital components, such as inventory and accounts receivable, are purchased separately at cost. The seller normally keeps the cash balances used in the business.
Inventory purchases should be handled carefully. For instance, a purchaser does not want to buy too much inventory or purchase products which are obsolete. A prudent buyer should determine the inventory requirements of the business independently to eliminate the need to rely on the seller’s judgment. Inventory can either be paid for at the closing or be financed by the seller or a lender.
Buying Accounts Receivable
Companies that sell to other businesses usually have a significant amount of receivables. They generally offer purchase terms to their customers and it is not uncommon for this type of business to carry 30 days worth of receivables. In a sale of this type of business, it is beneficial to both the buyer and seller for the buyer to purchase the accounts receivable. The advantage to the seller is that he no longer has the work of collecting accounts receivable and “chasing” past due accounts. Some clients may become less willing to pay in a timely fashion once they discover that the seller no longer owns the business and cannot use the threat of withholding future purchases in response to slow payment.
For the buyer, there are also several advantages. For example, a seller who no longer owns the business may not be as motivated to preserve the customer relationship as the new owner who wants to maintain the customer base. With nothing to lose, a seller may be more likely to offend a client while pursuing a past due receivable. Buyers also want a seamless transition. They want the client to continue making payments to the same business at the same address.
There are several issues which need to be addressed when negotiating the sale of accounts receivable. What, if anything, should the buyer be paid for collecting the seller’s receivables? Does the buyer bear any of the loss of the uncollected accounts receivable? How will uncollectable debts be treated? In most instances, agreements regarding the sale of accounts receivable call for payments to be applied to the seller’s oldest receivables except in case of a disputed invoice. Once receivables have aged beyond a pre-determined time limit – typically 60 or 90 days – the debt reverts back to the seller who is free to pursue collection. These policies are why delinquent debts are not usually included in a sale of the receivables.
If the business purchase includes inventory or accounts receivable it is common to set caps on the amount that the purchaser is buying. These limits are essential to ensure that the buyer will not run out of money before the closing on the business. If the amount of receivables and inventory to be purchased becomes too large it can either force the seller to extend financing on the excess or the deal may not close.
Net Working Capital
Another way of handling working capital that is popular in larger transactions is for the buyer to purchase all of the current assets (except cash) and to assume all of the current liabilities (except current portion of funded indebtedness). This is commonly referred to as “net working capital”. The parties need to agree on several essential elements such as exactly what components of the current assets and current liabilities are included in net working capital and the level that the buyer is purchasing. They may agree that these should balance out at zero and any difference is adjusted at closing. They may instead agree that the net working capital level being purchased is that which is reported as of a specific balance sheet date with any changes to the net working capital to be adjusted at the closing.
The purchase of working capital is an important element of buying a business. There is usually a significant amount of money tied up in working capital so both parties need to be careful to determine that the approach used will serve their needs. A successful sale requires that both parties believe the terms of the sale of working capital is reasonable.
Business owners sometime think of hiring a real estate agent to sell their business. This seems like a good idea for a few reasons. If the real estate agent is charging a lower commission rate than the business broker, the owner figures he can save money on the commission. In addition, if the business owner is also selling the real estate with the business, he may think that he needs to hire a commercial real estate agent. Actually, many business brokers have real estate licenses and can sell the commercial property with the business. Since real estate brokers and business brokers are both called “brokers”, some sellers question how much difference there is between them.
It is a bad idea to hire a real estate agent to sell a business for a number of reasons.
The first reason it is a bad idea is that the area of expertise of real estate agents is real estate, not business. A broker needs to know a lot about business in order to do a good job of selling a business. A good business broker does. They have experience selling businesses. Many have owned businesses before becoming a business broker. Many business brokers have business degrees. They understand financial statements. They may have experience selling the type of business the seller owns.
Another reason to use a business broker is to price the business. The methods for pricing real estate and businesses are different. In most business sales, the business broker helps the owner decide on a selling price. He also needs to justify the price and be able to have an intelligent negotiation with a buyer about how the business should be valued. Business brokers have that training and experience.
Once a deal is under agreement, the process for closing on the sale of a business is not the same as the process for closing on the sale of real estate. In particular, the due diligence, financing, and purchase and sale agreement are all done differently.
A business broker and a real estate agent have different types of buyers. A business broker has clients who are looking for a business to buy. A real estate broker either has people looking for a house to live in or investors looking for a real estate investment. One reason real estate buyers like this investment is because it doesn’t require active management. This is just the opposite of a business which requires active management. If you are selling your business, it helps to hire a salesperson who already knows prospective business buyers. A good business broker will have a list of active business buyers.
Today, the primary advertising for commercial real estate or business sales is on the Internet. But, the sites where each is marketed are different. Most business for sale websites require a monthly subscription. Only by selling many businesses can a business broker afford to market businesses on many of the websites. In addition, Google will rank a business broker’s website more highly for the search terms buyers will use when searching for a business to buy. This makes it more likely a business buyer will find the business broker’s website, and the business for sale, when doing a search.
What about the situation where real estate is included in the sale? A commercial real estate agent probably knows more about selling commercial real estate to an investor than a business broker. But, in a business sale that includes real estate, the sale of the business is what drives the transaction. The choice to buy the real estate is only made after, and is dependent on, the decision to buy the business. Selling the commercial real estate in this situation is not complicated. The buyer is not making the same investment decision that a real estate investor makes. They are determining if the cost to purchase the real estate is acceptable as compared to what the rent would be.
There are business brokers and there are real estate brokers. Although both are called brokers, that doesn’t mean they are the same. If you are selling a business, hire a broker that specializes in selling businesses. You will end up with a better sale using a business broker to sell your business.
The automobile has been a staple in society for more than a century, and as cars began to spread throughout the country, auto repair shops appeared as well. Unlike businesses which rise and fall when fashion or technology changes, car repair continues to offer stability and opportunity for the business buyer. If you are looking for a business to buy, here are 7 good reasons to buy an auto repair shop.
Reason 1: Auto Repair Produces a Good Income
Information from Bizcomps®, a database which tracks financial information on small business sales, shows that auto repair shops enjoy a median cash flow of over 20% of revenues. This means that if a shop has $750,000 in revenue it can generate an owner’s cash flow over $150,000. This is also a business which can thrive in any economic climate. During strong economies, auto repair shops can cater to both new and used car owners by offering standard maintenance and repairs for much better prices than those charged at auto dealerships. During tough markets, consumers are more likely to hang onto their cars longer, considering it more economical to pay for car repairs than to buy a new car.
Reason 2: Lower than Average Purchase Price
It’s not uncommon for franchises or businesses in a variety of industries to carry price tags of 2 to 3 times the amount of the owner’s cash flow. According to Bizcomps, this is not true with auto repair shops which have an average cost of only 1.69 times the owner’s cash flow. This means that, on the average, an auto repair business generating $150,000 in owner’s cash flow sells for about $254,000. This makes buying an auto repair shop a much more affordable option for a business buyer.
Reason 3: Limited Cash Outlay
While operating an auto shop requires a certain amount of equipment and tools, owners do not have to worry about having their cash tied up in accounts receivable and extensive inventory. Auto repair shops operate on a pay-at-the-time-of-service basis and very few stock large inventories of parts. In most areas, parts can be obtained quickly from parts stores as the need arises.
Reason 4: Strong Industry Outlook
There are several trends which show that the outlook for independent auto repair shops is excellent. For one thing, the number of cars on the road continues to grow. It is estimated that there are over 247,000,000 vehicles registered in the United States and that number increases annually. With just a few exceptions, the number of cars has increased over 3.5 million each year since 1960, and there is nothing to indicate that this trend will change.
Another factor includes the extended life of today’s automobiles. In the past, cars were frequently traded in before they reached 70,000 miles, but improved technology has significantly lengthened the life of most automobiles, and it’s not uncommon for owners to continue driving a car with has more than 100,000 miles on the odometer. The increased age of these vehicles creates a corresponding increase in the need for repairs and on-going maintenance.
During the recent recession the average number of miles driven by Americans has been stagnant. Families struggling with unemployment or underemployment issues are less likely to drive on vacations or non-essential trips, but as the economy improves industry forecasters are predicting a steady increase in the number of miles driven. In fact, the US Energy Information Administration (EIA) is predicting that the number of car miles driven annually in the US will increase from 2.6 trillion in 2011 to 3.6 trillion in 2035; an annual growth rate of 1.2 percent. These facts all point to a sustained demand for independent auto repair businesses.
Reason 5: Positive Competitive Landscape
Unlike many brick and mortar businesses, auto repair shops have not been replaced by internet businesses. This industry also faces little consolidation. While major auto dealers offer repairs, their market share has been shrinking. One reason for this is that auto dealers charge significantly more for auto repair work than do small car repair shops, and a Consumer Report survey found that customers who go to independent auto repair shops report a higher satisfaction level than those who visit an auto dealer for repairs. The independent market is highly fragmented and the typical auto repair shop may have just two to five employees.
Reason 6: Limited Shop Hours
Another reason to buy an auto repair business is that the owner still has time for a personal and family life. Most car repair shops operate during business hours Monday through Friday and are only open until noon on Saturday.
Reason 7: You don’t need to be a Mechanic
You don’t have to be a mechanic to own an auto repair shop. Much of the repair business involves maintenance work and minor repairs for which there are many auto mechanics who can do the work. For the owner, good business management skills are more important. Classes in auto repair shop management are readily available.
If you are a business buyer looking for an affordable, profitable business to own and run, consider an auto repair shop.