Top 10 Things To Know When Buying a Business in Orlando
As a business broker at Crowne Atlantic Business Brokers, I speak with new buyers on a daily basis. We ask what they are looking for and we try to match up possibilities and assist buyers in their search whenever we can. However with some buyers there seems to be a huge disconnect with what some buyers think they can purchase and should be able to find, verses what business they can actually purchase and what can actually be found. Below are some of the top 10 things buyers should know when they search for businesses for sale in the Orlando and Central Florida area.
1) Most Small Businesses Don’t Keep the Best Books and Records.
When looking to purchase a small business, buyers need to keep an open mind on books and records. Most businesses do the best they can with the time and resources that they have available, but most small businesses will not have fully audited financials that could hold up to SEC standards. Some businesses take some cash on the side or they take business deductions that may be legitimate business deductions or more personal deductions that buyers may be cautious on accepting. If buyers are looking at businesses priced under $100,000 or even businesses priced under $2,000,000, they will need to expect to see some kind of accounting that may not be deemed absolutely perfect. These businesses however may be a perfect fit for a buyer. Our advice is for buyers not to simply judge all businesses for sale based only on tax records and 100% accuracy and to concentrate on the overall picture of each business. By doing this buyers can find other ways to prove a business’s income and analyze things like business turnover, purchase receipts, sales receipts, and the total operation to determine whether or not a business is a great opportunity for them. If buyers refuse to keep an open mind they will most likely limit their options to fewer than 5% of businesses for sale on the market. Keep in mind, fewer than 10% of businesses for sale, actually sell. At the same time, fewer than 10% of business buyers searching will ever purchase a business and many times due to this reason.
2) Most small businesses do not qualify for bank financing and most buyers do not qualify for bank financing on a business.
Many buyers call business brokers on businesses for sale and are of the belief that their personal bank will give them money for a business simply because they feel it is a good deal or because they asked for the money. Other buyers are of the assumption that the SBA process will give them a loan on any business as long as their credit is good, or they have an MBA, or they’re a veteran. In actuality the loan process is always a complex process. To decide whether or not to approve a business loan, banks will form an equation and try to balance the buyer’s qualifications and their net worth with the qualities and inner workings of each business to determine whether the proposed equation will work. The bank can find faults in the equation with either the business or the buyer applying and decide that the loaning conditions on that deal are not safe. The loans that succeed pass extreme scrutiny. When a business buyer gets an SBA approved bank loan for a business purchase it means they have the correct amount of personally held money available and have documented experience and/or background applicable to the business they are purchasing. In order for a business to qualify for a successful business loan, the business needs to have an understandable business model, with consistent cash flow and/or hard valuable assets along with close to perfect tax records documenting as much profit as possible. One quick tip for buyers is that banks will not do an SBA loan on anything priced under $100,000 and in most cases the best SBA lenders will not work on any deal priced under $200,000. So don’t call on a business priced at $65,000 expecting to get a bank loan. SBA lenders will sometimes loan on businesses over $2,000,000 if there are special circumstances. If there is property involved, sometimes going for a commercial loan is a better deal.
3) How much a buyer can spend on a business and how much they actually want to spend can be two different amounts.
When buyers begin looking at potential businesses to purchase, we as business brokers always recommend that they establish what their budget is before they start looking. A buyer may have $1 Million dollars in cash, but may only want to spend $200,000 on a business purchase. There is nothing wrong with this and at the same time we encourage this method for buyers if it is available to them. The main mistake that buyers need to avoid is pulling a bait and switch where they tell business brokers and business sellers that they have a certain amount of cash available but in reality have no intention of spending all that cash. Buyers should be up front with business brokers and business sellers. If they have $500,000 available they shouldn’t let sellers and brokers assume that they will do a cash deal only to come out further in the process and say they only want to spend $200,000 or only want to put $200,000 down. Buyers will do everyone including themselves a better service if they are up front with sellers and/or their brokers about their intentions. For example, if a buyer is looking for owner financing and that is the only way they will do a deal, they should say so up front. This way if the seller is not interested in owner financing with those terms, they can save the seller’s time, the broker’s time, and they can save their own time.
4) Don’t expect small businesses to operate with the same efficiency and resources as large Fortune 500 Companies.
Business brokers receive inquires from a lot of potential buyers that are from the corporate world. We also receive a lot of potential buyers with professional backgrounds such as attorneys, accountants, and doctors. Some of them have been managers and some have been CEO’s of massive companies. Often times we feel that these buyers are looking to purchase a small business that is a smaller clone of the large corporations they were accustomed to working in. This will be difficult for them to do, especially since many businesses owners have never worked in the corporate world and do not run their businesses according to those protocols. Buyers need to be realistic. When they see a janitorial supply distribution business with 3 employees for sale at $200,000, they can’t expect that it is absentee owned business making a huge income stream complete with statistical analysis charts, middle management in place in addition to offering employee benefits and a fully scheduled out 5-year marketing and growth plan. Small businesses in many cases have to compete with larger businesses. One of the ways business owners do this is by being personally involved and focusing on their customers and their service as opposed to formulating and documenting everything they do on paper. They simply don’t have the time. For buyers looking for their own mini-super-corporation we typically recommend that they find a business that they like and work to put in their own corporate structure. If they want to run Hal’s Smoothie Shop like they would run Walt Disney World, we don’t want to get in their way. Buyers from the corporate world should not expect that corporate sized structures will be in place for them when they look to purchase a business unless they are searching in the $3 million dollar and up price range.
5) It is virtually impossible to find a complete and 100% absentee owned business.
Every week business brokers hear from buyers on businesses ranging in price from $50,000 to $5 million and half the time buyers want the business to be absentee-owned. Guess what; truly absentee owned businesses are a rare thing. First off buyers need to keep in mind that most sellers are selling a business because for whatever reason they can no longer operate them. This might be due to illness, relocation, or retirement. If it was truly absentee owned, isn’t it safe to assume that these sellers would not need to sell? Most businesses especially if buyers search in the $1 million and under price range will require some owner input to run on a regular basis. This may be anywhere from a few hours a week to 20 hours a week. Many buyers claim that they know people that have absentee owned businesses, but when you press them for details, it comes out that their friends’ companies are not absentee owned at all. Sometimes companies are significantly larger and have an extremely well paid managers or a president in place. In most cases where businesses seem absentee owned, the owners either make a much smaller percentage of profit or the business runs fine until there is a problem and the owners have to be ready to drop everything and rush over to fix the situation. For most buyers looking for a business, they need to be prepared for the fact that they may need to run things in the business themselves for a while before they get settled in. Even if they purchase a business that is close to absentee owned, there is no guarantee that the workers will stay there forever or that they will be as loyal to the new owner.
6) Buyers should not see businesses that they cannot afford.
Too often business brokers come across buyers that think the process of looking at businesses is similar to attending a Parade of Homes Showcase. The Parade of Homes Showcase is where the public is invited to check out high-end newly built homes and in some cases newly built mansions for a small price of $15. Here the public gets to dream-build and check out homes that they may never be able to afford, but they love the thrill of the hunt and they feel better about themselves because they get to imagine what their living situation could be like. The process of buying a business is completely different. It takes up a seller’s time and they put their business at potential risk by letting a stranger come in and take a look at their operation. It also wastes a broker’s time. This is time they could be spending helping the buyer find an affordable business that would suit them. Most importantly, seeing a business they cannot afford wastes the buyer’s time. In most scenarios unless dictated otherwise, purchase money won’t appear from a wealthy grandfather. If you don’t have the money for a business, don’t waste everyone’s time to see it.
7) Businesses for sale in the Orlando area sell differently than businesses for sale in other states and other countries.
At Crowne Atlantic Business Brokers we work with business sellers to come up with prices that reflect both nationally based pricing models and local pricing models based on what rates buyers are paying in the Orlando area. Some businesses in Orlando sell for higher premiums than they would elsewhere in the country. For example, a vacation property management company or a lawn service business in the Greater Orlando area will sell for a higher premium than they would in other parts of the country. Because good businesses for sale can be scarce on the market, business buyers in many cases will gladly pay more for businesses that have excellent financial records or businesses that operate in a more white-collar office setting. Due to real estate prices, rental rates are also different in Orlando than they would be in Texas for the same space. If a buyer is looking to purchase a restaurant, the liquor license regulations are different here than they would be in states like New York. At the end of the day buyers should not ignore things that they learn simply because it sounds contrary to how things work where they are from. Things do operate differently in Orlando. Potential buyers need to make sure they listen first and then ask questions. From there they can verify by searching comparables instead of jumping to conclusions.
8) The happiest place on earth doesn’t always have the greatest selection of businesses for sale on earth.
The brokers at Crowne Atlantic Businesses Brokers have lived in the Orlando area for decades. It is no surprise to us that people want to relocate and live here. However, Orlando is only so big and for that reason the industries that are based in Orlando are also limited. Most small businesses in Orlando are service-oriented businesses. We have lots of restaurants, cleaning services, hospitality businesses, and contracting businesses available for sale. If you’re looking for chemical companies, manufacturing businesses, or high-tech businesses, you may be searching for a long time simply because we do not have a lot of those businesses in existence here let alone that many for sale. For those that want specific hard to find requests, waiting can be an option or you can go with other business for sale options that will fulfill your needs.
9) If the business proximity to buyer’s house is a hot issue, the buyers should be prepared to move close to where the business is located.
As most business owners know, living close to where they work can be a huge benefit especially in the event of emergency situations at the office. While Orlando is not the most populated city in the country, we are spread out. The city of Orlando alone is over 50 square miles in size and that is not including the surrounding suburbs. Business brokers in Orlando often get calls from people who want to live in newer places with high-end homes like Windermere, Lake Nona, or Lake Mary. These areas are wonderful places to live, however they are located on the outskirts of the city, so when we get requests from buyers who want businesses located close to where they live and they live on the outskirts town it makes their search much more difficult. How can business buyers expect to move to areas developed less than 10 years ago and expect to find established 30-year -old businesses being sold in the area? We’re not sure. Neither are the buyers when we ask them. Our advice on this is clear: there is no shame in driving some extended time to get to one’s business. However, if a business buyer’s priority is living close to their future business, then they should rent a home for a year, find a business first, and then find their dream home close by. Good businesses are hard to find so buyers should take them when they see them. Good houses however are easy to find in Orlando. This is a great place to live and the city is laid out so that most businesses are within just a few miles away from a great neighborhood to live in.
10) Be specific on your needs, lifestyle, and income.
Business ownership is not for everyone. When searching for a business, buyers need to get an idea of the income and lifestyle that they require. If a buyer’s household requires a $100,000 income stream, but they only have $50,000 available for a purchase, they may not have enough to purchase a business that will support them. Buyers also need to be aware that most small businesses do not operate Monday to Friday from 9am to 5pm. Most businesses are open or need to be available during the weekends and in some cases need to be open until late in the evening. For example, one buyer told us they wanted to buy a pizza restaurant, but when we told them that they would need to work at least 50 hours a week mostly on Thursdays, Fridays, and Saturdays from 11am until 1am, they said perhaps they should look at other businesses. For some buyers however, the pizza business fits into exactly the lifestyle they want because it allows them flexibility for other things during the week and the income they desire. Be specific on your needs and wants because they more you know about what you want, the easier your search for a great business for sale in Orlando will be.
There are many other tips that buyers should keep in mind when searching to buy a business in the Orlando and Central Florida area. The majority of businesses that are advertised for sale on the open market are represented by business brokers, and as members of the Business Brokers of Florida we can help you purchase any business you may find or want to pursue whether it is listed by Crowne Atlantic, another business broker, or directly by individual owner. If you have any questions please feel free to check out our website www.crowneatlantic.com or call us at 407-478-4101.