How to Buy a Business the Ed Pendarvis Way
Last night I had the pleasure of hearing Ed Pendarvis speak at the monthly meeting of the New England Business Brokers Association. Ed Pendarvis started Sunbelt Business Brokers, a chain of franchised business brokerage offices. After selling it, he started Business Buyers University to help buyers learn how to buy a business. It offers online courses that buyers can take to learn more about how to buy a business.
Ed made some interesting points about small business. He pointed out that with our relatively high unemployment rate and the likelihood that it will continue for awhile, more people will look at owning a business for an income. In particular, older Americans, who are having a harder time finding a job, may be looking at buying a business despite their being over 50 or 60.
Ed pointed out that the safest way to own a small business is to buy an existing business or a franchise, rather than starting a business from scratch. When you start a business, you have to find employees, put procedures in place, and persuade customers to shop at your business rather than where they have been shopping. It is unknown if your business will succeed. When you buy an existing business, you can see a track record of success. The people, procedures, and customers are already in place. As the buyer, you just need to maintain them.
Ed was speaking to an audience that consisted primarily of business brokers and he pointed out problems in selling businesses. He pointed out that most people don’t know that there are business brokers and that they sell small businesses. [Author’s note: “Small” is a relative term. The Small Business Administration has published its criteria for what is a small business, by industry, and it includes businesses with tens of millions in sales revenue and/or over 1,000 employees.] Secondly, most business schools are teaching about big business, not small business. Another problem is that buyers are trying to evaluate a business at their computer, based on financial statements, without seeing the business, or the big picture. Small business income statements are not the same as those of public companies who have shareholders. Small business owners are trying to minimize their taxes so their tax returns frequently don’t show much profit and need explanation. Ed pointed out that a business that has been operating successfully for many years and providing an income to the owner is showing that it is a viable business. Buyers need to get out and see businesses they are thinking of buying, rather than just studying financial statements. Buyers and business brokers need to meet face to face to better communicate and find the best business for the buyer to buy
If you have the chance to hear Ed speak, be sure to take advantage of the opportunity. He always has insightful thoughts on small business and business brokerage.