This is a PAID consulting call for a real viewer who needs help on a deal.
It's all incelebration of my new book 'Buying vs. Starting a Small Business: Search or Startup? A Guide to keep you from Going Broke'
Find it now at Amazon.com here: https://a.co/d/bdsOvUe
The Canadian Amazon store here: https://a.co/d/cEEPheJ
The UK Amazon store here: https://amzn.eu/d/7GFGeUz
The Australian Amazon store here: https://amzn.asia/d/g6ZbNa1
Or any other local Amazon store you frequent.
You can even buy a pdf copy from Gumroad here: https://dbarnett.gumroad.com/l/BuyvsStartSMB
My new book is now live and available for purchase on Amazon stores worldwide.
"Buying vs. Starting a Small Business: Search or Startup? A Guide to keep you from going Broke."
Find it now at Amazon.com here: https://a.co/d/bdsOvUe
The Canadian Amazon store here: https://a.co/d/cEEPheJ
The UK Amazon store here: https://amzn.eu/d/7GFGeUz
The Australian Amazon store here: https://amzn.asia/d/g6ZbNa1
Or any other local Amazon store you frequent.
You can even buy a pdf copy from Gumroad here: https://dbarnett.gumroad.com/l/BuyvsStartSMB
Thanks for all your support in this project and I would really appreciate and love it if you rated and reviewed the book on any platform where you find it.
It really does help a TON!!
Cheers
David C Barnett
Today, I’m addressing a great question from Jesse, who’s concerned about buying a business right before a possible recession. Here’s how you can approach this situation with caution: https://youtu.be/1MVbXYpYFCA
1. Assess Industry Impact
Recession Sensitivity: Different industries react differently to economic downturns. For example, luxury goods and travel-related businesses often suffer more during recessions than essential services like healthcare or basic consumer goods. Evaluate the industry of the business you're considering. Are its customers likely to cut back on spending during a recession?
Local Economy: Consider the economic health of the area where the business operates. If major employers in the area are vulnerable to a recession, the local economy might decline, affecting local businesses.
2. Evaluate Expense Structure
Variable vs. Fixed Costs: Businesses with high fixed costs (e.g., rent, salaries) are more vulnerable to revenue declines. Look for businesses with more variable expenses that can scale down with reduced revenues. This flexibility can help the business weather economic downturns better.
Cost Management: Review how the business manages its costs. Can it adjust its expense structure if revenues drop?
3. Review Reporting Systems
Financial Monitoring: Ensure the business has strong reporting systems to track financial performance in real time. Good reporting helps identify problems early, so you can act before issues become severe.
Data Accuracy: Verify that the financial data you’re reviewing is accurate and up-to-date. Strong reporting systems should reflect real-time performance and trends.
4. Negotiate Terms of Sale
Financing Structure: If possible, negotiate favorable terms with the seller, especially regarding financing. Seller financing can be flexible and might include terms that help you manage downturns, such as interest-only payments during slower periods.
Flexibility in Terms: Discuss terms that allow for adjustments based on business performance. For instance, you might negotiate terms that adjust based on future sales or performance metrics.
5. Understand the Seller’s Motivation
Motivation Check: Find out why the seller is selling. If they’re motivated by personal issues rather than economic conditions, they might be more open to negotiation and seller financing.
Seller Insight: A seller who’s transparent about their reasons for selling and willing to assist with the transition can be a good sign. Conversely, if they’re insistent on a high price with no flexibility, they might be trying to offload a problematic business.
6. Build a Relationship with the Seller
Trust and Communication: Developing a good rapport with the seller can provide valuable insights into the business’s true condition and the seller’s motivations. A cooperative seller can also offer support and advice post-sale.
Negotiation Stance: Approach negotiations with a mindset of collaboration rather than confrontation. This can lead to better terms and a smoother transition.
Final Thoughts
A potential recession doesn’t necessarily mean you should avoid buying a business, but it does require more careful consideration and due diligence. By evaluating the industry’s sensitivity to economic changes, understanding the business’s expense structure, and negotiating favorable terms, you can better position yourself to make a sound investment.
There is an entire module in Business Buyer Advantage: Online Training all about structuring purchase deals in a recessionary environment. Learn more at https://www.BusinessBuyerAdvantage.com
Today, we're diving into an important topic for anyone looking to buy a small business: how to recognize and avoid scams and frauds that can lurk in the business-buying process.
Understanding the Key Players
When buying a business, there are typically three main parties involved:
Buyer: That's you, the individual looking to purchase a business.
Broker: An intermediary who helps connect buyers and sellers. This could be a business broker or another type of agent.
Seller: The current owner of the business who is looking to sell.
Each of these parties can potentially be involved in scams, either directly or indirectly. Let’s break down some common scams and how to protect yourself.
Common Scams and Red Flags
1. Broker Scams
Upfront Fees: Some brokers might ask you for a fee before they provide any detailed information about the businesses they claim to represent. In legitimate transactions, the seller typically pays the broker's commission. If a broker is asking for money upfront just to provide details on a business, it’s a red flag.
False Listings: Some brokers may list businesses that don’t actually exist just to attract fees or interest. Verify the legitimacy of the broker and the business listings before proceeding.
2. Seller Scams
Pay-to-Peek: Sellers may ask for a non-refundable deposit or payment to access financial statements or other critical information. This is akin to a car dealer asking for a fee just to view the inside of a car. Don’t pay to view financials; you should be able to see this information as part of the due diligence process.
Misrepresentation of Financials: Sellers may exaggerate or fabricate financials to make the business appear more profitable than it is. Always perform thorough due diligence. Check the financial statements against bank statements, sales receipts, and other supporting documents.
3. Transactional Scams
Fake Financials: Sellers might create fake or inflated financial statements to make the business seem more valuable. They might show inflated sales figures or under report expenses. Scrutinize the financials and cross-check with actual business operations and documentation.
Fabricated Sales: Some sellers may create fictitious sales or revenue spikes to boost the appearance of profitability. Watch out for sudden, unexplained increases in sales figures and investigate the reasons behind them.
Protecting Yourself
Verify Broker Credibility: Check the broker’s reputation and reviews. Ensure they are licensed and have a history of successful transactions.
Due Diligence: Always verify financial statements and business operations with independent sources. Request detailed records and cross-check them with bank statements, purchase invoices, and sales receipts.
Avoid Paying Upfront: Do not pay any fees to view information or access business details. Legitimate brokers and sellers will provide this information as part of the due diligence process.
Structured Deals: Structure the deal to share risk with the seller. For example, you can negotiate terms that allow you to pay a portion of the purchase price based on future performance.
HC#011 Buyer007 has a license to search! This anonymous caller wants help to figure out why he can’t find good deals, why the sellers on bizbuysell are playing the Bait and Switch game and if a franchise might be the answer. If you listen to the end, however, you’ll hear a really juicy part about his mistake in calculating his BATNA (Best Alternative to a Negotiated Agreement) as he forgot to include one really big cost/benefit of doing a deal which may cause him to totally change his criteria.
