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Is now – December 2016 – a Good Time to Buy or Start a Business in the USA?

As this post is being written, it is 1st of December, 2016.  We are almost one month after an historic, divisive presidential election, and the president-elect is Donald Trump.  Mr. Trump is himself, a divisive, complicated man, marked by mood swings, changeable positions on public policy, and indistinct as to his true intentions in fiscal and social direction.

Within the past several days, OPEC somewhat severely reduced its oil output, and petroleum prices increased overnight, in a dramatic manner.  The US Federal Reserve has almost guaranteed that Interest Rates will go up later in the month.  And Mr. Trump and the Republican majority in Congress has emphatically stated that the ACA (Obamacare) will at least be radically changed, if not completely overturned and swept side.

What the heck is anyone to do in trying to make a decision over whether to start or buy a business, in this tumultuous time in US history?

And frankly, there is no clear-cut answer.  There are certainly some considerations that can be made or discussed; but to some degree, the ultimate decision will unquestionably have to be made by specific individuals, solely related to their specific plans for their particular business concerns.

The most sweeping generalization that can be made is that, in any change, there is opportunity.  Whether it is the election of Donald Trump, or the alternative of Hillary Clinton, change was going to be certain.  And again, that change would unquestionably spawn such opportunity.  Whether the change is good or bad – and we offer no editorial opinion on whether Mr. Trump’s election is either good or bad – that change will generate needs that will offer a chance for some businesses to flourish.

The question is, what businesses will flourish?  Because there may also be businesses that offer reduced opportunity by this change.  And as can be seen from the first two paragraphs of this post, the presidential election is only one of many changes going on at this time.

The results of the presidential election is certainly the most visible of these issues, and perhaps one of the most difficult to project, from the perspective of attempting to plan for future needs or impact on the Economy that might also impact a decision on what business to start or purchase.  Mr. Trump’s initial promise to overturn Obamacare as soon as he is in the White House is unquestionably a concern to anyone contemplating entering the healthcare industry.  But in our view, Obamacare will not be completely eradicated; it is more likely a situation where it will be radically changed, hopefully for the best.  The result could well be that someone looking at purchasing or buying a health-oriented business should look toward basic health needs, rather than super specialties that might suffer the most.  Diagnostics should theoretically be safer as an investment, particularly if they are based on lowering costs of alternative diagnostic systems.

Real Estate investment is also a murky area.  Mr. Trump and the Republican-controlled Congress have made a number of statements that suggest that Real Estate investment could be in jeopardy.  Republican Senators and Congressmen have wanted to do away with Fannie Mae, for a number of years now.  Fannie Mae is the entity that assists homebuyers in obtaining loans that banks might not wish to offer them, without assistance from that governmentally supported operation.  Fannie Mae is one of the many entities blamed for the 2007 recession; it’s finances are complicated and have historically been largely hidden by its management.  Congress is in many ways justifiably concerned, but if it is removed completely, buying a home will be out of sight from many US buyers.

Even more of a concern is the Republican intention to completely remove Mortgage Interest as a deduction from the US Tax Code.  This would even further reduce home buying, and all of the jobs and businesses surrounding home purchases and Real Estate, in general.

These last two issues are very confusing, since Donald Trump is at heart, a Real Estate developer and investor.

The OPEC issue is a concern for virtually everyone.  Gas Stations in particular, suffer any time gas increases substantially.  People will, at least temporarily change their driving habits.  A large amount of the change will revert over time, and once people get used to the higher prices they are forced to pay, most will go back to their previous driving patterns.  Gas sales will then increase, almost to historic numbers.

The real issue for Gas Station owners is that, because current pricing may also be accompanied by lessened availability, Gas Dealers operating non-branded stations, or stations with lesser brands could find themselves lacking supply.  We have seen this several times over the past couple of decades, where the people in the Middle East disrupted oil imports into the US.  Companies like Exxon and BP were able to maintain their supply to their own stations, but non-branded stations in many cases were forced to close their doors for days and even weeks at a time, because they could not obtain gasoline inventory for their own tanks.

The issue of interest rate increases may be much more imagined than real, at least for the short term.  The Federal Reserve (Fed) threatened an increase in the fall, which did not occur; but it has virtually guaranteed one will occur at its December meeting.  Moreover, economic gurus aligned with the upcoming presidential administration have voiced their displeasure with the Fed’s decisions for the past several years, stating that the Economy of the United States has been less than robust, specifically because of the actions of the Fed in keeping interests at such low levels.  Their opinions are that lower Interest Rates have caused the stock markets to rise as a result of corporate investment, which has in turn been a result of lower Interest Rates.  They see even higher potential stock market increases when Interest Rates rise, because there will be less corporate investment, yielding higher profit reports, which in turn will increase investment in corporate stocks.

Others see the stock market as already too hot and too high, and believe the stock market is ready for an “adjustment”.  That is a euphemism for another recession.  It may be that both of these differing opinions are correct; it is also equally possible that neither of them is correct.

The short term effect of a Fed interest rate increase is probably negligible, in terms of its real impact on the Economy.  The December rise is seen as potentially no more than one ¼ of 1%.  This would cause investors and people looking to purchase or start businesses to be concerned, but the overall impact on a purchasing decision would ultimately be relatively low.

The long-term effect is much more concerning, because the Trump administration would probably replace the current officers of the Fed, all of whom are nearing the end of their terms.  A new management team may enter with a completely different philosophy that could increase Interest Rates substantially over the ensuing years.  Again, we make no judgment as to whether this is good or bad; it is a matter of attempting to determine how to deal with it, if one is attempting to make decisions regarding its own intentions with respect to small businesses.  Whether Interest Rates remain at somewhat low levels, or rise substantially, business people will have to make decisions.  And  they should think through both sides of the equation, in an effort to allow themselves to react quickly, if and when something significant does occur.

Keep in mind that, if you have a business concept in mind, and you believe it will survive and even grow in the coming months and years despite all of these economic and governmental gyrations, virtually everyone will be affected by Interest Rates.  A competitive impact on any given business may not be a substantial detriment, unless the owner is so terribly leveraged that he/she is solely dependent upon a mammoth amount of ongoing borrowing, in order to survive.

To some degree, the process of buying a business may demand more attention with respect to the pricing, but not necessarily kill a deal.  The business Seller may be more profoundly affected than the Buyer.  This is because the Cash Flow of small businesses is what normally dictates the selling price.  This is particularly the case if the business is large enough to require a lender to become involved in the acquisition.  Lenders will examine how much Cash Flow historically exists, deduct the Buyer’s own personal and professional financial obligations, then determine whether there is sufficient profit to pay the lender, at current Interest Rates.  That historical Cash Flow is viewed as relatively fixed.  The Buyer’s own personal Cash Flow needs are also somewhat cast in stone, depending upon his/her current expenses for things such as home mortgages, car loans, utility bills and credit card payments.

The amount of Cash required for paying a business loan, (Debt Service,) is then also fixed, dictated by the bank and SBA.  What would then vary is the amount to be paid for the business itself.  If the interest rate rises, it represents a larger portion of that remaining Cash to be used for Debt Service, reducing the amount available to be paid for the business itself.  So as Interest Rates rise, prices would normally stabilize or even come down.  The Seller can do one of three things:   (1) He/she can sell it at a lower price, dictated to a large degree by the Cash Flow and the amount allowed by the bank; (2) He/she can attempt to maintain a higher price, and provide easier terms for the prospective Buyer by taking a note, essentially acting as the lender or bank; or (3) the Seller can simply decide not to sell at this particular time, and wait until market conditions are more conducive to a sale at a higher price.

Finally, in trying to make a decision as to whether this is a good time to buy or start a business, and keeping in mind that such a decision is predicated upon decision surrounding specific industries or kinds of businesses, it is always, ALWAYS best to look toward businesses in which one already has experience.  Trying to project whether a business could be successful in the coming several years is going to be a somewhat difficult task.  Already knowing something about that business or industry can be a large part of that decision-making process.

As can be seen here, there are a mammoth number of variable issues.  And the ones cited in this post are but a few of those.

 

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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Why Are Ads to Sell Businesses so Misleading?

We have received requests from a number of Buyers recently, asking us to help them find businesses that met their specific requirements.  They came to us because they felt that the advertisements on several bulletin boards for business sales were found to be either horrendously vague or terribly misleading.

We took the time to go through several of the advertisements they had reviewed, and certainly there were several businesses that appeared to be exaggerated in their claims, if not in fact misleading.  But not all of their accusations were accurate.

It is unquestionable that a lot of the information on the Internet is false.  Ben Franklin, himself said, “do not believe everything you read on the Internet!”  (Okay, that was a joke; but remember that you are reading this on the Internet.)  Because such information can be delivered anonymously, or in ways that allow the writer to be difficult, if not impossible to trace and validate, the Net provides fertile ground for con artists.

Scamsters find it harder to sell a business – particularly one that has a fixed address, (like a retail store,) or  has documentation, (such as tax returns,) that can be verified- than one that does not have any of these traceable characteristics.  The biggest scams in this area of the Net seem to be in the area of financing.  People that are desperate to get a loan will find huge numbers of offers from supposed lenders, promising ridiculously low interest rates, with little to no qualification required.  All they asked this for you to provide your name, address, date of birth and Social Security number.  The problem with that is of course, once armed with that information, the con artist has the ability to steal your identity.

We have performed a certain amount of due diligence on some of these financing deals ourselves, and find that many of them do not originate in the states or even countries where they claim to be residing.  Most are from countries where there is no legal recourse for anyone that has been cheated by these thieves.  We have openly and publicly questioned the validity of several of these organizations, and on at least one instance, have been threatened with violence for not, “…minding your own business”.

But getting back to the Buyers that have complained about the nature of some of the advertising, one of the chief complaints is the vagueness of the ads.  Why, they ask am I unable to receive the name and location of the business, from the very beginning?

The answer to that is very simple:  The vast majority of businesses of any kind, are sold with extreme confidentiality.  No Seller wants his/her employees, customers or suppliers to know the business is for sale.  Faced with the uncertainty of a business sale, employees will frequently abandon the owner, thinking that their jobs would be terminated under new ownership, anyway.  Customers, even in a retail setting, can lose faith in the business, thinking it will change under the new owner, and that the current owner will simply, quickly lose interest and forfeit thoughts of quality orientation, now that he/she is made the decision to move on.  Moreover, they worry that new ownership will not honor warranties and guarantees for any purchases made under the old ownership.  Suppliers may change terms of doing business, particularly if their own products or services are billed, for payment at a later date.  They would worry that invoices incurred by the current owner would be difficult, if not impossible to collect on, once settlement has occurred.

Most Brokers will not release the name and location of the business until the Buyer has signed a Nondisclosure Agreement, and sometimes provided a Personal Financial Statement, which gives proof that the individual Buyer has the financial capability to make an acquisition of this size.  This should not be viewed as insulting or unusual, to the perspective Buyer.  As Brokers, we frequently get calls from would-be Buyers who have no more than about $0.10 in their pockets, but tell us they want to make a $1 million purchase.  Some of these people have absolutely no idea how business works, especially with respect to the lending aspects of such businesses, while others are simply dreamers.  Either way, as a Broker who is charged with the responsibility of protecting the interests of the Seller, we do not want to put such information out on the street, in a cavalier manner.

The other, and more difficult aspect of the complaints we receive from Buyers, is in the nature of them receiving information that would appear to be misleading.  Again, unfortunately we need to go back to the fact that some of them are, in fact purposefully misleading.  Others are simply exaggerated.  But even defining the word “exaggerated” is somewhat difficult.  One Buyer may think that, “an extraordinarily profitable store,” is pathetically low to another.

The key to any business is in the Cash Flow and how it relates to the Price.  But that ratio or multiple, or however you relate Cash Flow to Price, can be extremely subjective.  A number of ethical guidelines among Accountants and Business Brokers suggest how certain things should be evaluated.  Bankers and the SBA may have slightly differing methods of qualifying Price.  And even among these groups, things are not so infinitely detailed that they are not somewhat subject to further interpretation.  Some Buyers, such as experienced Gas Station Dealers or Motel Operators, have completely different industrial rules of thumb for Pricing, that would seem to make no sense to an outsider.  Some of the Gas Station Dealers in particular do not even want to say a Tax Return.  They ask for the Cash Register Reports showing the number of Gallons that are pumped each month, and the Monthly Gross Revenue produced in the Convenience Store, in a matter of 60 seconds or so, will tell us how much they will pay for a given Gas Station.

The difference in terminology and analyses of financial documentation does not necessarily mean that the Seller or Broker is wontedly attempting to be misleading.  In most cases, it is simply a matter of variances in interpretation.  Some such analyses are done by the Sellers, themselves.  And a portion of those  simply may not understand how this kind of information needs to be structured, so that the Buyer can understand the data in a structured manner.  As for Brokers, there are simply different interpretations of the same data.  Moreover, some are extremely good and well experienced, while others have little or no training and may simply not be practiced.  Just like Doctors, Mechanics, Attorneys, Accountants and others, there are good ones and there are bad once.  Knowing the people with whom you are dealing, their experience, their standing in the marketplace and other issues are imperative.

But regardless of all other issues, the key to any Buyer in performing any initial screening on a business purchase, or down the road with a more detailed due diligence, is validation.  Do not take the Seller’s word for it.  Do not take the Broker’s word for it.  Do not necessarily even take and Accountant’s word for it in a concrete manner, without questioning his/her conclusions.  Everyone can make mistakes!  If you, as a Buyer see numbers that appear to be in conflict, get everyone together around a big table and demand explanations.  With the possible exception of your own home, the investment you make in a business could be the most crucial financial decision you will ever make.

Do not get frustrated.  Do move forward, but only with the utmost in caution.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com.  Thank you for your interest.)

Business Buyers want to know why Sellers are Selling

Buyers are always suspicious of businesses that are for sale.  They are suspicious about the true net profit.  They are suspicious of the potential, rosey future that is sometimes painted by the Broker or Seller.  And they are always suspicious of the reason the Owner is selling, to begin with.  One of the most common questions in that area is, “If it is such a profitable business, why does the Seller want to sell?!?”

There are endless reasons – legitimate reasons – for a business Owner to want to sell at any particular point in time.  It may simply be for retirement.  It may be for illness.  The Owner may have passed away and the family does not want to continue the business.  The deceased Owner may also not have planned for his/her own demise, and the business needs to be sold in order for the heirs to be able to pay applicable estate taxes.  Reportedly, this is why the Washington Redskins ended up being sold to current Owner, Daniel Snyder.  Similarly, a divorce may demand that the business Owner sell in order to generate enough cash to provide for a settlement that is dictated in the terms of the divorce.

Frequently, an entrepreneur will want to sell his/her business and use the proceeds in order to start or purchase another, even larger business.  There are also circumstances where the business Owner determines that he/she the best years for the business are behind him/her.  That does not mean that the business is necessarily going down the toilet!  But a business that has grown 30% a year for three or four years, will gradually reach a maturation point, where it is still very much a profit maker, but has less in the way of aggressive growth ahead of it.  The Seller may want to go on to other businesses that are more growth oriented.  The Buyer then needs to look at it and determine whether he/she can tweak the business in terms of marketing, promotions or perhaps more efficient operations, in order to achieve greater profitability.  There are some circumstances where a Buyer may simply be happy with the current level of profit, and wish to do nothing more than to continue the kind of earnings that the current Owner now enjoys.

There is nothing wrong with either of these kinds of scenarios.  But the wise Buyer needs to understand the state of the business and where its future may lie.

There are also some circumstances where the Seller may see that the business’s true best years are behind it, and the future may either be stagnated, or even rather bleak.  We had a circumstance many years ago when two guys came to us to list their Public Phone business.  They owned a string of such Phones throughout the area, and appeared to be making it of money.  We were uncertain as to why they wanted to sell, and sell in relative haste, no less.  We did a little research of our own prior to taking the listing and realized that there was this new phenomenon called the “mobile phone”, that was just now becoming popular.  The real threat to their business was the fact that the prices for mobile phone equipment and associated services were beginning to drop substantially.  They knew that their Public Phone business was going to die very quickly and very soon, and they were trying to sell out while they still had something to sell.  We did not take the listing.

So there are some circumstances where Sellers will be less than forthcoming about the prospects for the business’ future, and it is up to the Buyer to do in-depth research about the market, before buying.  This is one of the reasons why we are so strong in our suggestion that Buyers should ideally be looking to purchase or start businesses in industries where they have some experience and knowledge.  Particularly with quick changing technologies, something that looks very promising today can be popping up in surplus stores or antique shops tomorrow.

When you review a business for sale, you are looking at historical data.  At no point does (or should) a Seller or Broker suggest to you that the growth and/or profitability of that historical data is guaranteed to be replicated, once you purchase that particular company.  But outside of that, the ethical obligation to tell you about the future is somewhat hazy.  There may be a highway that has been planned to come through and destroy the location of the business you are contemplating buying.  That highway may have been in the planning stages for 20 years, and it may be yet another 20 years before a final decision is made, and 10 years after that before appropriations before funding is assured – if it is assured, at all!  In that kind of scenario, a Broker or Seller is not obligated to give you warnings about the fact that you could be buying a business that MAY need to be closed in another 30 years, because that highway MAY BE coming right through your store.  In that context, that highway may never actually been built, and may never impact the business under consideration.  The Seller or Broker is not obligated to tell you that a comet MAY some day strike the Earth, thereby destroying your entire market.

On the other hand, if that highway has already been approved, appropriations have been granted, contracts have been signed with construction companies and they are beginning to break ground within the next 12 months, certainly the Seller or Broker has such an obligation to disclose that kind of information.  The disclosure is theoretically required because it is no longer a possibility that the highway MAY affect the business; it is now a matter of fact.

A lot of research and subsequent decision-making in between these two scenarios would be purely up to you.  As a prospective business Buyer, or as an entrepreneur looking to start up a new operation, it is up to you to perform your due diligence on the industry, the business, the market, the economy, the technology and any other variables that may affect your business’ future.  And the way you start doing that is through the development of a detailed and thorough Business Plan.  (See our post about Business Plans:  http://comBrokerbusiness.wordpress.com/2012/01/23/business-plans-who-needs-em/)

In our experience, the vast majority of business Sellers provide information about their selling intentions in honest ways.  There are always the exceptions!  But you, as the Buyer should greet any statements with a certain amount of healthy skepticism.  In working with Financial Statements, review them with your CPA.  In working with Contracts, review them with your Attorney.  Always seek professional assistance when dealing with any technical issues, such as these.

Do not become paranoid about such information, and simply walk away; look at it aggressively and analytically, and always make informed decisions.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Buying a Motel:  A good or bad idea?

As always, the question is not whether to buy or not to buy…the issue is always:  location, Location, LOCATION!!!

In general, Motels convey a terrific investment.  One of the best parts about it is that a huge portion of the business is wrapped up in a single, tangible asset:  The land and the building.  With few exceptions, Commercial Real Estate has increased at a steady rate, for the last several decades.  This provides the profitable Motel Owner, not only with ongoing cash flow through operations, but added equity in the property.

But there are a lot of concerns, and even negatives involved in acquiring, operating and holding onto a Motel.  Perhaps the most easily noted is as a result of the recession that actually began in 2007, but was most readily noticed by the non–business community in 2008.  During that time, gasoline prices were all over the place, but frequently rising more than falling.  This caused vacationers to stay at home or take shorter trips, with the net effect being that they did not stay in Motels as frequently, or for as long as they had in previous years.  Business travelers were also curtailed, in their travels.  And business travelers actually make up a larger amount of the market in Motel stays, particularly in off-season and Monday through Friday occupancy.  The convention market virtually died.  And the hotel/Motel market depends on conventions, in many areas.

Gyrations in the economy definitely have an impact on the Motel business.  But the bigger issues are probably a function of the way “flag” Motel chain Operators deal with their own Motel Operators.  And there are a number of issues that should be of concern, for anyone that is looking to purchase or build a Motel.

The positive of dealing with the flag operation – and by flag we mean a chain operation it is branded in a regional or national manner, such as Holiday Inn, Choice, Best Western and so forth – is that the brand is recognizable and suggests reliability and good service, to the general public.  These brands are normally segmented by the kind of building that is constructed, the quality of the furnishings and linens, and the general service that someone staying there can expect.  That also suggests the kind of pricing that would be expected.  A Days Inn is going to furnish rooms with a level of quality that is less than what would be found in a Hampton Inn.  But the price of the Hampton Inn is liable to be twice that of what you would find at the Days Inn.  It is not a matter of being good or bad, it is a matter of segmenting the market so that there are Motels available for people of varying budgets.

Most frequent travelers will deal with only one or two specific flags, because those Motels provide them with a balance between quality and price that they find acceptable.  That is where being part of a major brand becomes an asset to you, the Motel Owner because when someone from Minneapolis wants to travel to Georgia, they can call the 800 number four the brand they prefer and make their reservations, without a huge amount of muss and fuss.  If you own the Motel in Georgia with that brand, that is a tremendous benefit to you.  And this is not only the case with Motels.  Any franchise or licensing operation that carries a brand that is widely known, saves the individual franchise Owner from spending a mammoth amount of additional money out of his/her own, on advertising.  This is one of the major reasons to purchase a franchise.

But this is also where some of the negatives start to come in.  You pay for that advertising, in the way of franchise fees or marketing fees or percentages of what you receive from that referral, from the parent organization.  This can be costly.

And there are all kinds of other types of referral systems, such as Expedia, Hotels.com and others.  These have become invaluable as travelers (like everybody else in the world,) becomes more and more dependent on the Internet.  But again, you pay for that!  You pay either a set fee or a percentage of what you charge the traveler, or both.  It adds up and it is not getting any cheaper.

Being an independent can save you money by not paying franchise fees.  But again, a huge number of people in the traveling market depend upon those brands for assurance of quality, and they will avoid non-branded Motels in many, many cases.  As a result, the majority of non-branded Motels can only compete by reducing their rates.  They save the franchise fee, but they probably lose even more in terms of the discounted rates and lowered occupancy levels, than their branded competitors.

Another thing to consider when you’re dealing with flagged operations, is that the parent organization will dictate the kind of construction that can be used, and even the architecture that can be employed.  And they can change their requirements, sometimes to the Motel Owners’ detriment.  For example, years ago many Motels widely used what are known as “exterior corridor” designs.  You have seen these all over the country.  This is where the doors to all the rooms open to the outdoors, and the traveler walks up steps or takes an elevator to a walkway that surrounds the outside of the Motel.  That kind of construction is frequently open to the weather, and therein lies part of the problem, as far as the parent company is concerned.  Who wants to see someone staying at your Motel struggle up the stairs with suitcases, and then be pelted with rain and snow while they fumble for the keys, trying to get the door open?  Security can also be more assured, in an “interior corridor” design.

So virtually all flag Motel operations have gotten away with new construction for these types of exterior corridor designs.  Which is not bad, unless you happen to own and exterior corridor Motel with a flag, and when your agreement with the parent corporation expires, you are told that you may no longer use that brand because the corporation no longer wants exterior corridors for any of its Motels.  Moreover, none of the other flag operations want that kind of architecture anymore, so it is not like you can simply go from a Ramada to an Econolodge, because Econolodge doesn’t want you either!  Suddenly, you are non–branded, whether you want it or not.

That is a radical example, but one that has actually occurred.  There are other designs that are less obvious, but no less damaging to the business Owner.  We viewed one $10 million property that lost its flag because the corporate entity simply decided that the architecture was “outdated”.  That Owner had not even finished paying off his construction note, and now he was going to take a radical discount by selling the building.  Not only was it going to be difficult for him to find a company that would flag the Motel under its label, but this occurred in 2009 when the Motel industry was still reeling from the effects of the recession.

Another financial burden in dealing with flagged operations is that they will intermittently inspect the property and determine what, if any improvements need to be made.  It is not unusual, for example for an inspector to come in and decide in March, that all televisions throughout the Motel must be replaced by the end of the year.  If the Motel has 150 rooms, that can be a sizable outlay.  A good innkeeper will keep those things in mind, put money aside for such improvements and anticipate how often items such as furnishings, appliances that might be in the rooms, bedding, signage and other things will need to be replaced.  Sometimes the corporate office and the inspectors are terrific in letting you know that kind of scheduling well in advance; sometimes – not so much.

Perhaps the worst scenario we have seen is with a flagged operation that is doing very well, and the corporate entity decides there is business enough for additional rooms in the area, and decides to recruit a new innkeeper to go into the same market.  We do some repeat business with an exceptional Motel Owner – we will call him “Joe” – who just had such an experience.  The corporate office attempted to attract an innkeeper for a piece of land right next to Joe’s Motel, and offered a brand that represented cheaper rates than Joe’s current facility.  When they thought they had such a recruit, they went back to Joe and told him of the situation, but conveniently leaving out the fact that they had actually, aggressively recruited this new Operator.  The corporate office then offered Joe the opportunity to build that new Motel himself, which would then put him in the position of competing against his own Motel!

Most flagged operations and franchise companies promise a certain area of noncompetition.  But when you have a flagged operation, they will frequently operate several distinctly different brands.  Choice Hotels International, as an example, operates under Choice, Sleep Inn, Comfort Inns and more.  A company like that can make a pledge that they will not compete with a given innkeeper under brand “A”, but that does not prevent them from operating under brands “B”, “C”, “D”, “E” and others…

In places along major interstate highways, particularly in many areas of the Southeast USA, land has been historically cheap, traffic is high and flagged hotel operations have flooded the market.  This is why you see so many inexpensive Motels in some of these areas.  (Cheap opportunities do not necessarily mean good opportunities!  See our post on this subject at:   https://combrokerbusiness.wordpress.com/2012/04/10/looking-for-a-cheap-business/)

What we are saying is NOT that buying or starting a Motel is a bad idea!  We happen to think it’s a great idea!

But we also, firmly believe that like ANY business, research must be done, and understanding the market in general and your market in particular is vital.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Buying a Business: Vital Factors in Pricing

Profitability is a crucial element of looking at whether to purchase a business. But the Profit that the Seller says he/she is reporting on his/her tax forms is unquestionably not the entire picture. There are any number of adjustments that can and should legitimately be made in most businesses, that add to the bottom line from the Buyer’s perspective. These are things that we need to examine, prior to rendering any kind of a decision on estimating the Price.

Every Buyer seems to want a “quick and dirty” pricing estimate. Frequently, even some of the more amateurish Brokers will lean on multiples of Profit or Cash Flow. (That is to say, multiplying a rather arbitrary number by the stated Profit, in order to determine the Sale Price.) This might be fine for casual discussion, but it is an approach that quickly and frequently breaks down, providing misleading results for many, many businesses. One of the big problems is that the multiples change from industry to industry. Another is the nature of the relationship that the business has with its clientele, which can increase or decrease the multiples utilized, even within a given industry.

Moreover, even if one insists on solely utilizing some sort of multiple, there are a huge number of additional, less tangible factors that come into play. The following is a list of only some, emphasize S-O-M-E of these intangibles:

  • The number of years that the business has been open is a mammoth consideration. The SBA will frequently not even entertain thoughts of financing an acquisition unless there are three (3) years of tax returns filed on behalf of the business. The reason for this is that many businesses go through a “honeymoon” phase, where the operation can be doing extremely well for the first 18 months, and then sales fall appreciably, thereafter. With less than three years of experience, the Price can frequently be lower, compared to other businesses of similar size, but with greater maturity. And in some industries, the longer the business has been operational and Profitable, the higher the Price expectation may be, even past the three-year threshold. E-commerce is an example of one such type of business.
  • Consistent performance and growth is a huge factor. When a business goes down even marginally, we will often hear the Sellers say that it was a “blip”, or temporary decline that will be quickly overcome. Frankly, the Buyer and the bank do not want to hear that – nor should they! They want to see proof. That “blip” may be just what the Seller says it is. But the Buyer and bank take the perspective that for all they know, that “blip” may be just the start of a long-term erosion in Revenue and Profit, which could well bury the business. Wise Buyers want to buy a consistent, if not growing business entity. They certainly do not want to buy a company that is in its death throes, or at least struggling. And if they do – such as those people looking for a “turnaround” opportunity – they are absolutely not paying top dollar for such an acquisition. More typically, Buyers should want to know that they are purchasing a company that is not only growing by itself, but is part of an overall industry that is expanding and growing. This is part of what the smart Buyer will examine, in developing a complete Business Plan. (See our other posts, on this subject.)
  • Customer loyalty is something that Buyers could or should be looking for. This is often evidenced by repeat purchases or customer referrals. The more professional Sellers keep a tracking mechanism of some sort, any Buyer should ask about this.
  • There is no such thing as a “recession proof” business. But Buyers will want to see proof that the business has few, negative influences caused by outside factors. As an example, an e-commerce business needs to demonstrate that it did not suffer broadly if and when Google updates occurred.
  • One of the most critical issues to any Buyer or lender is the involvement of the current Owner, and the confidence that the business can continue to operate once that Owner has departed. Businesses where the Owner makes all the decisions and is “the face of the business”, carry a tremendous amount of liability with them, and their pricing suffers as a result.
  • The Seller should be able to demonstrate what, if any growth opportunities lie ahead and briefly, how they might be captured. Frequently, the intelligent Buyer wants to make sure that he/she is buying a long-term investment, rather than just a job.
  • Excellent relationships with suppliers can be important. Written contracts with such suppliers are also preferred.
  • Depending upon the business, written contracts with customers, maintenance agreements and similar instruments that can work toward guaranteeing a certain amount of income will absolutely increase the Price.
  • Profit margins, compared to the industry standard or other competitors can and should be examined. We are dealing with one business right now that, for the purpose of generating market share, has a 20% lower Profit margin than the industry, as a whole. Anyone that is studying the business sector as part of the due diligence process understands this, and has consistently stayed away from making offers at the level the Owner has arbitrarily set as a threshold.

As a Business Buyer, these of some of the things to which you need to be extremely sensitive. These are the kinds of things that will add to or detract from the kind of offer you will ultimately make.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Who does the Business Broker represent?

Any Buyer or Seller should always make certain which end of the deal Broker represents. Any advertisement to which you respond is almost always placed by the Sellers’ Broker or Agent. Never, ever assume anything different.

Why does it make a difference?

When the Broker is not representing you, you must be extremely careful about what you say to him/her that might cause your position to be compromised, in some way. For example, if you are the Buyer and the Broker is representing the Seller, you would never want to make a statement such as, “I’m going to offer $100,000, but I am actually willing to go up to $150,000.” As the Seller’s representative, the Broker would be totally justified and ethically correct in going back to the Seller and telling him/her to decline the first offer, because you know that the Buyer is willing to increase the offer by as much as 50%, in the final analysis.

As the Seller’s representative, the Broker may understand that the Seller is asking $200,000, but is actually willing to take as little as $150,000. But because the Broker represents the Seller and has a fiduciary responsibility to guard the Sellers interests, the Broker is under no obligation, and in fact would be in violation of his agency relationship with the Seller, if he were to say anything to the Buyer that suggests the Seller’s willingness to discount his/her price.

Taking it to the next, logical extension of this thought process, if the Buyer retains a Broker to represent his/her own interests, that Broker is then prevented from saying anything to the Seller or his/her representative about the Buyer’s willingness to increase his/her initial offer, throughout the negotiation. But though it is common practice for residential home Buyers to retain their own Agent, it is relatively rare for a Buyer to retain such representation, in the Business Brokerage field. In most cases, it is most commonly Commercial Buyers who retain us to represent them on the buying side of the Business Brokerage transaction.

Probably a huge reason for the difference is that Residential Real Estate Licensees almost always share their commissions between the Listing or Seller’s Agent, and the Buyers own agent. It is then much more financially feasible for a Buyer to acquire the services of an Agent to represent him/her in the purchase of a home.

In Business Brokerage, the vast majority of Brokers do not share their commissions with a Buyer’s representative. This means that the Buyer must pay the Broker out of his/her own pocket. Banks and the SBA do not recognize a Buyer’s Representative as part of the cost that can be included in the funding of the business acquisition. The Buyer then must pay the Broker completely out of pocket, and many Buyers are strapped for the cash it takes to purchase the business itself, making payment of the Broker at settlement that much more difficult and onerous. Moreover, a given business could be acquired at a specific price because it makes financial sense, where paying a Broker over and above that amount could make that purchase simply less attractive, economically. Unless, of course the Broker is able to get a reduction in price that is lower than the Buyer might negotiate on his/her own.

Frankly, we believe that Brokers who do not share their commissions, do their Seller-clients a tremendous disservice. But that is for another blog post.

When you deal with a Broker, it is imperative that you receive a written statement from him/her that suggests which side of the transaction he/she represents. In our Business Brokerage practice, when we provide a Non-Disclosure Agreement to any Buyer, it clearly states that we represent the Seller. If we work on behalf of the Buyer, we would provide a completely separate document that further defines our relationship, as the Buyer’s representative. Moreover, when we work with the Buyer who is not represented by another Broker, and we officially and legally represent the Seller, we frequently cautioned buyer when it appears that he may be going overboard in disclosing his/her negotiating strategy in a way that might be to his/her disadvantage.

Not all Business Brokers do that. Should they? That is a philosophical argument, perhaps rather than a legal or ethical issue. If the Buyer has been amply warned ahead of time that the Broker represents the Seller, one could make an argument that the Buyer then has the responsibility to safeguard his/her own interests. And frequently, the local or state authorities are no help in this area. This is essentially the case because only about 20% of all of these United States require Business Brokers to be licensed. Therefore, Business Brokers do not have many of the regulatory obligations in their industry, that Real Estate Licensees have in theirs.

One of the key lessons here is not to assume anything! Always know each phase of the transaction and each of the players, getting everything in writing.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Asset or Stock Purchase, in Buying a Business?

The first thing that needs to be disclosed with this post is that we are not Attorneys and we do not provide legal advice; we are not CPA’s and we do not provide accounting advice. Our intent here is to provide the reader with enough information to let him/her know some very basic information about the difference between an Asset versus a Stock purchase. The goal is to provide sufficient incentive for the prospective Buyer to understand that he/she should engage the services of both an Attorney and a CPA, when making such a purchase.

When buying a small Business, the vast majority are executed to the purchase of the Business’ Assets. This means that you, the Buyer establishes your own Company, and through the purchase, you transfer those Assets to your own Corporate or Company entity. (We are talking about Corporations or Companies, but you could very easily establish your own partnership, proprietorship or whatever Business classification you feel is best for you and your Business interests, again hopefully in cooperation with and guidance of both your Attorney and CPA.)

The key to why this is such a popular method of acquiring the Business, is that the Buyer is then purchasing only the positive elements of the Business. These may include the Company goodwill, equipment, Company files, inventory, etc. It very purposefully does not include any liability. Liabilities might include past bills that the Seller has yet to pay, any legal issues that may be hanging over the Company’s head, and so forth. This allows the new owner to obtain the Business on a “free and clear” basis. The Contract of sale will normally include clauses that state that any income and bills generated prior to the time and day of settlement belong to the Seller. Any income generated or bills originating after the time and day of settlement are the responsibility of the Buyer.

An important aspect of this is the fact that there may be unknown liabilities hanging around out there – things of which even the Seller is not aware. You do not want this to come back to haunt you, particularly if you are in a Business where these kinds of liabilities may crop up, from time to time.

By comparison, a Stock purchase means that you are purchasing the entire corporate umbrella, owned by the Seller. In this scenario, you do not establish a separate Corporate entity, because you are taking his Company over, completely and wholly. You purchase all of the Assets, which now include any cash in the Sellers checking account, any petty cash, any invoices that are due from customers, and any bills that the Seller owes, at the time of settlement.

In some cases, there are real advantages to purchasing the Company’s Stock. For example, the Company may be doing most or all of its Business through signed Contracts or Purchase Orders. If you were to buy the Assets of the Company, you are now doing Business under a different Corporate umbrella, which may invalidate the very Contracts you need in order for it to make sense to buy that Business. Stated another way, in buying the Assets of the Company, if the Company’s Contracts are written in the name of the ABC Corporation, and you have formed a new Company called XYZ Corporation, the Business’s service Contracts may not cover you in any way they are written in the name of the old Corporation. The Clients are contracted with ABC, not your XYZ Corporation.

Even if you are purchasing the Stock of the Company, there is no guarantee that the Compan’s Contracts can be transferred to you. Many Contracts of this sort stipulate that any change in majority Stockholders can give the Client a reason to cancel any remaining Contract, or at least review the new ownership and make a decision as to whether to continue as a Client. This is important to the Client for a number of reasons. Suppose the Client is purchasing computer software development services from the original Company, and the new Buyer happens that have a background that consists of nothing more than perhaps being… maybe a Business Broker. A Business Broker may have been a software engineer, prior to becoming a Broker; on the other hand, the Broker may have worked only at cutting lawns for a living. He may be a GREAT grass cutter! But what does he know about writing software?!? The Client needs to understand that the new ownership has the education and experience to fully execute his software development needs. He needs to reserve the right to cancel that Contract, if he has a realistic concern that the new ownership will be unable to meet his professional need.

Keep in mind that a huge number of variables are negotiable, in any purchase. Accounts Receivable, (abbreviated as either AR or A/R,) represents invoices for work done in the past, that have not yet been paid to the Company you are buying. Accounts Payable (AP or A/P,) are those bills that same Company owes, theoretically to pay the expenses for all that same work that was done in the past. In an Asset sale, the Seller will normally retain both AP and AR. That is not a guaranteed thing! Again, everything is negotiable. But you cannot assume that you, the Buyer will retain AR and AP, particularly since in the vast majority of small Business transactions, they do not convey with the sale. Each of these things needs to be very carefully delineated in the Contract of sale, and this is why you need to very carefully work with an experienced Contracts Attorney.

Some of these issues are very routinely conducted, and there is very little in the way of decisions to make about these terms. Others, depending upon the Business, are critical to both the short term and long term health of the Business. These are the kinds of things that you need to know, before you go looking for a Business to purchase.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

Buy a Business?!? That’s too Expensive!

That is what we hear from people, from time-to-time. And though we not say it directly to them, we believe that anyone that would make that kind of a blanket statement should not be in business! They do not have the objectivity and the understanding of business in general, to be successful in owning their own business.

Even as Business Brokers, we believe that there are SOME businesses that should not be purchased; they are much more cost-effectively obtained as a start-up. And there are SOME businesses that should not be sold; because of their reputation, debt, management systems, culture and other features, they would be more expensive to turn-around and make profitable, than if you a start-up of a similar business on your own.

But to make a generalized statement that suggests that ALL mature businesses are too expensive to warrant purchasing is absolutely ridiculous. It shows that the person making that kind of comment knows nothing about the costs of starting up a business.

And invariably, the person that makes that kind of statement has never considered writing a Business Plan, which is your key to understanding whether it is financially more beneficial to buy or start a business from scratch. You cannot look at a business’ P&L, or the Executive Summary about a business and make the off-the-cuff assumption that you would not buy that business. It takes careful study to determine whether that specific business acquisition makes sense.

To do a start-up, you need to understand that there are costs involved that demand your payment in advance. For example, if you are setting up a store, you will have to put at least one month’s Rent in the form of a Security Deposit, plus at least the first month’s Rent in place, at the time you sign the Lease. It can be three (3) months or so before you open your doors. So for a 2,500 square foot storefront, with a modest $25 per square foot Rent (including CAM,) your Rent can be just over $5,200 per month, and that means you would be required to have $10,400+ in place for the deposit and the first month’s Rent, then another $10,400 for the balance of those other months, prior to even opening the door. And that is just for Rent.
Utility companies will often require at minimum of a $500 deposit for new service. Telephone companies will ordinarily require a deposit, and installation of service will need to be paid either in advance, or just about the time you start your business.

If you are putting a Restaurant together, unless you lease a space that has already been set up as a Restaurant, your build-out costs can be dramatic. Retail Landlords normally provide you with a “cold, dark shell”, which means you get a space that has only minimal electricity for light, pipes that are present but not connected to anything usable, and perhaps no ceiling tiles or drywall…you have to put up your own walls! And in food preparation areas, wall linings and ceiling tiles need to be specifically manufactured for such purposes, according to most Health Department regulations. Those kinds of special materials are much more expensive than are used in most other commercial spaces. You are also responsible for putting in all usable electricity and plumbing, which is normally about the most expensive part of any Restaurant build-out. In Maryland, the kitchen needs three or four-section sinks for dishes, a separate sink for hand washing, a separate sink for vegetable washing, and a separate sink for mops. Then you have bathroom requirements, on top of all of that. None of that is cheap!

Depending upon market conditions, you may be able to delay making lease payments for three (3) months or so, giving you that time to do your build-out. But three (3) months can be a terribly short amount of time. You have not even thought about getting an architect in to look at the space, decided on appliances that will fit your space and need, getting that in and ready for installation, and then starting the build-out itself. And you probably need to pay the architect, the utility supplier and portions of the payments to the Construction Contractors in advance. If your build-out costs $150,000 in total, you will need to fork over at least 33% of that as a deposit. That is $50,000, in addition to the $20,800 already paid to the Landlord and $1,000 for Utility and Telephone deposits. That is a total of $$71,800, and you are at least three (3) months from opening your doors. If equipment does not show up, if getting permits takes time – and we have not even discussed that part of the process – and if other things occur that delay your construction process, the Landlord can (and will) demand you start paying Rent as agreed, even though you may be several months from opening. We are aware of at least two stores that are now in their sixth months of tenancy, but have not even started the build-out process because of a number of difficulties. So, there is another $10,400+ for two (2) months’ worth of delays that are theoretically beyond your control.
What about Furniture, Fixtures and Equipment (FF&E) that may be required for your business? Counters, chairs, tables, racks, computers, point-of-sale equipment, deposits on rentals or purchase prices for credit card equipment… Most of that will need to be paid in advance, unless you are already in business and have credit you can use from that source. Restaurant FF&E can be very expensive. The $80 microwave you buy for your home can easily cost $400 for a Restaurant. Signage is not cheap, particularly if it is to be illuminated because the electrical wiring is very specific and expensive. Inventory? If you are opening a Liquor Store, you could be looking at $100,000 or much more, and you will not get credit from suppliers for the same reasons suggested above.

There are a myriad of other expenses that need to be addressed, prior to opening. And all of these will need to be paid for in advance. Even if you borrow a portion of that money, you have to start making loan payments on a monthly basis, immediately. And start-up loans are not easily obtained.
And when you open the doors, depending upon the kind of business you open, the location, the competitive environment and your ability to do pre-opening promotion, the money does not necessarily roll in, immediately. Many SUCCESSFUL businesses can take eighteen (18) months or more just to break even on monthly Operational Expenses. And overcoming the original investment can take five (5) years or more.
Compare that to purchasing a mature business. There are a lot of “ifs” and “buts” and “depending ons” that have to be considered, and researching the validity of all of this is vital to the successful purchase. But IF PRICED PROPERLY, the acquisition is more easily financed and has a regular, historical Revenue that can be most frequently replicated, under proper conditions. Is it a guarantee of success? Absolutely not! Nothing is guaranteed in business. Starting your own business, even with the best planning, is not guaranteed, either.

But if the business you purchase is correctly priced and the Cash Flow is both validated and replicated by the new owner, you should theoretically walk into a positive Cash Flow scenario, almost from the first day. (Because of Accounts Payable issues, some businesses are normally characterized by a three-month or so lag in Income; so many, many businesses have some vestige of red ink in those first months. This is why people who purchase businesses can most often not go into the acquisition with no cash on hand – poor capitalization is the largest reason for businesses to fail, bar none!)

When you are buying a mature business, you are buying all of the equipment and such described above, but the “goodwill” that the business has built up over years, as well as the systems and infrastructure that that Seller has put into place, all of which is what equates to the continuation of Revenue that you – the business Buyer should enjoy. This is what you are paying for, in the way of a “premium” price.

Again, it does not guarantee you anything; but it should and in the vast majority of cases, does provide you with some semblance of assurance that the business will succeed, if you do nothing but replicate what the Seller has historically done.

Many Buyers improve on the businesses they purchase. Sellers frequently get tired or bored with their operations, and their ideas can get stale and stagnate the business. The Buyer can come in with a new attitude and new ideas that can refresh the business.

A real mistake is to take a prosperous business and do one of two things that can often destroy it. Some Buyers will look at a given business and think, “That Seller is just dumb; I am going to change everything and make a mint!!!” Or, they will simply take the historical success for granted and decide they really need to do nothing, assuming the business will run itself and they can simply put their feet up and let the dollars roll in.
Either way, people that fail frequently look for someone to blame – and they rarely look in the mirror. Those same people would almost certainly fail at no matter what business they operate. Buying a mature, successful business is not a guarantee, as we keep repeating. It is something that should be carefully considered and, if appropriate for your business concept, can make life easier, provide faster profitability and be no more expensive in total the total, long term investment to arrive at the same level of success than a start-up would offer. And frequently, it is less expensive, in the long run.

How do you know which is better: A start-up or an acquisition? By developing a Business Plan for the start-up and comparing it to specific measurement of a mature operation’s financial documentation. There is no real shortcut.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

E-2 Visa: Buying a Business can speed US Immigration

First and foremost, let us state that WE ARE NOT ATTORNEYS. The information with which we are providing you is for you to further qualify with an Immigration Attorney, and though we can provide you with names of such people, we cannot provide you with further, more definitive information on the regulations.

Obtaining Visas for entrance into the USA is getting more difficult, in some ways; however, if you are a Business Person and have the qualifications – including the ability to invest in a business here – this can be a speedy way to enter the US.

Although an initial E-2 Visa only permits a two-year stay, the Visa can be extended almost indefinitely, as long as the business continues to qualify for E-2 standing. Because you are investing in a business purchase or startup, you do not need to rely on anyone else to sponsor you. There are a wide variety of businesses that would be eligible, according to current Immigration regulations. However, there are a number of qualifications:

1. Your originating country must have a qualified visa treaty with the US. To our knowledge, there are 79 countries or so that have such Visa Treaties.

2. You must have made, or be in the process of making a “substantial” investment in a business, in the US. There seems to be no real minimum investment, although it appears that an investment of $100,000 provides almost instant qualification. That is not to say that $100,000 gets you automatically in the Country! It means that the Government will pay serious attention to your application, if you are ready to invest that kind of money; anything less is not disregarded, but may cause your application to be scrutinized more heavily. Generally, the amount that is required varies with the kind of business you are purchasing.

3. The business must earn more than a “marginal” income. This means you need to prove that the business will not only break even on expenses, but that there would be sufficient Cash Flow or Profit to provide a livable income for you and your family. Some allowance is made for businesses that can show it will create local jobs or have a positive impact on the local economy.

4. You must have a “controlling interest” in the business, which normally means you must own at least 50% of the stock of the company.

5. Spouses can work in the business and are eligible for Work Permits, in order to do so. Children that are over 21 years of age can come in through the E-2 Visa, if they have a 50% ownership in the business. Their spouses are then also eligible for Work Permits. Our understanding is that no other family members are permitted to work in the US, outside of the E-2 business.

Again, you will need an attorney for putting this E-2 Visa into place. This information is provided solely in an effort to let you know that this program is available; however, although we could potentially help you with purchasing a business, we are not qualified to provide you with legal assistance in actually making the application.

It is not a simple process, but it is far better than many alternatives, and for that reason, it is a very popular mechanism for both obtaining your own business, and entering into the USA.

One note when working with Brokers is that we get an enormous number of inquiries from outside of the USA, and many of these are bogus. You will be required to provide firm documentation about your financial abilities, in order for them to take you seriously. This is not vastly different from what is required of people within the USA, but it does seem to take people by surprise when asked financially-oriented questions, almost from the very start.

Good luck!

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

The Keys to Starting or Buying a Business

We frequently get calls and email, saying that the person contacting us has $50k, $75k, $150k or more available, and asking what he/she should buy or start, in the way of a business. They want to know what is the safest, best way to invest their money, in order to get a good return on that investment.

Frankly, the key is not the amount of money or the type of business. It is YOU!!!

The real critical points are: What do you know? And how well can you manage and grow that business?

This may mean understanding the technical side of a particular business. (If you are Software Engineer, do you know anything about Auto Repair?) It may mean knowing how to manage a large number of Employees. (The biggest reason people want to sell their businesses – other than perhaps retirement – is because of how tired they are in managing a staff!) It also many mean being able to understand how to deal with Inventory Control and Cash. (We know of one Restaurateur that owned several locations, and whenever he was not in one particular Restaurant, Revenue dropped 20%; miraculously, when he visited that store again, the Revenue increased 20%!) And it may also mean knowing how to promote and grow the business. (Many business people believe that, if you are not growing the business, you are losing ground; staying where you are is actually suffering losses, for one thing, because your competition will always be after your back.)

A lot of people believe that Liquor Stores are generally, great businesses. But if you do not know Inventory Control, if you cannot determine how to buy in bulk at the right time, you can lose considerable money in getting the volume discounts that allow stores to compete with their larger neighbors. And if you are in a Wine market, not knowing the kinds of Wine, when to drink them, what foods should be paired with them…you will find your clientele will simply erode to other stores where the owners are more educated.

Keeping with the Liquor Store example, Beer is a losing proposition, in many stores. National brands like Budweiser and Coors have the worst Profit Margins. Newer, “craft brews” have great Margins, but you need to know what to look for and when to order them.

With a lot of Liquor Stores, it is not a matter of the Customer shoving a bottle and a credit card at you, and walking away. The same can be said for all other businesses. Laundromats? Pricing and mechanical knowledge is key. Buying an ongoing location can be a nightmare, because of financing. Starting one up can be extremely expensive. Convenience Stores? Competition can kill you, unless you have the perfect location. Theft, Inventory Control and Employee difficulties are huge, in that industry. Each business can offer tremendous opportunity for financial reward; but you need to study and understand the limitations and dangers as well, in order to overcome those difficulties and protect yourself from disaster.

We have written another post, detailing this subject from a different perspective. You can find it at: https://combrokerbusiness.wordpress.com/2012/01/06/what-kind-of-business-should-i-buy-or-start/

We would urge you to take this to heart. It does not matter how much you have to invest, the issues are the same.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)