Business Buying Services: An Overview
Over the last 25 years providing business buying services, I have marketed small to medium businesses for sale and helped turn them around to being profitable.
Because I am a CPA, I also deliver help to buyers by doing financial and non-financial fact finding (due diligence) when they are interested in purchasing a small to medium size business.
I have been very interested in the true condition of businesses I have come in contact with over the years. These activities have resulted in me looking at thousands of financial statements of all types of businesses, ranging from A to Z in the yellow pages. There are some specialty businesses that have generated a large amount of requests for my review, especially among the main street businesses.
I have written blogs and articles about specific types of businesses, such as buying a restaurant, buying a gas station and buying a body shop. Naturally some areas have received more attention than others. Given enough years left in my life, I probably will have one or more articles on every industry.
The only areas that I have not had extensive experience with are because of moral considerations and are listed below:
- Bars and Gentlemen Clubs
- Liquor Stores
- Medical Marijuana Dispensaries
- Massage Parlors
Your Company is capable of making more money.
Very few business owners think they are making all the income their business is capable of making. In fact this is overwhelmingly the number one complaint that business advisors hear. Unfortunately many are not experienced in finding out WHY their client is not making enough money.
Have you ever heard the phrase? “If the problem is what you thought it was, it would not be a problem.” What exactly does that mean?
It means that asking the right questions will get you the right answers. That is part of my business buying services.
Let’s look this over very carefully. For example, let’s take a situation where the profits are down and the sales are stable. What do you do first? Find out what changed. If you do not know what changed, you cannot put it back the way it was. Conversely if you know what changed, you can use your experience to solve the problem and return to the prior, higher level of income.
The normal solution for a business that is not making as much money as they were before, is to go to their banker and say. “I need money.”
“If I have money it will solve the problem.” Does the problem get solved? No! Normally, the next step is to look for an investor because the company still needs money. If they find an investor, the money is received and spent. The problem, of course, does not go away.
On the other hand, if the reason why the income went down is found, a plan can easily be developed to correct the problem.
Let me tell you some true life stories I have been involved with.
The Printing & Mailing Company:
The company profits stopped at the end of the Christmas. The CEO looked around and saw that the company was doing poorly. He blamed the President and demoted him to salesman. He put in a new president. When I was brought in, as part of my business buying services, I looked at the invoices and saw that the printing was being sold very cheaply. When I called the CEO and told him, his response was that the salespeople were told not to sell cheaply. The salesman was called and he responded with the excuse that the printer salesman had complained about losing jobs after quoting. The CEO made a comment “do what has to be done.” Based on that remark, the prices were slashed by the sales staff and the work was being done at an actual loss on each deal. The company had been doing this for six months and was on the verge of bankruptcy. The CEO had assumed that when he gave an order it was followed. It was. The sales staff did what they had been told to do, which was give the work away.
The President who was demoted to a salesman had a personal problem which was at the bottom of a lot of the company’s mismanagement. He was so concerned about making money for himself rather than the company that he was draining the company.
When he was demoted to salesman he went on commission, so he needed to close those sales orders, even if at a loss to the company. Why? He had bought a house on speculation and was remodeling it. It was taking 2 years to remodel the house and was costing $100,000 over budget. While President, the now salesman had submitted a workers compensation claim and borrowed money from the company, while the company was borrowing money on its credit cards at 24%. He also was taking bonuses based on false production reports. The reason why had been found and now could be corrected.
Auto repair center:
The owner was making only $25,000 per year profit. His solution was to sell the business. I looked at his P & L statement and instantly noticed that his cost of parts was too high. Auto repair shops all have the same cost of goods (direct parts and labor) in relation to sales. I asked where the parts were kept. He showed me a screened in room, with no lock on it. I explained someone was stealing $30,000 per year in parts.
Now that he knew that the company had an employee stealing, it only took him 30 seconds to tell me who it probably was. I told him to lock the cabinet, and the theft would stop. He did not get around to locking the cabinet or firing the employee. Not acting on the reason why the profits were low would not correct the low profits.
The owners were having cash flow problems. Their solution was to not pay the customers who they were collecting debts for. That is theft. They found out two years later that their bookkeeper had stolen $500,000 from them. That is why they had a cash flow problem in the first place.
The owner pays his electricians in cash. I was brought in to provide business services and figured out that the reason he is paying in cash is because he can’t manage the business. His solution is to sell the company. Because it is impossible to switch cash employees to taxable employees without a big raise, the business would not sell for anywhere near the desired price. The reason is that changing to honest payroll records will cause the staff to quit. The owner’s real problem was he needed a manager to help run the staff. Now the business needs to be overhauled. That means downsizing to a manageable level by doing 20%-30% less business. He can afford to do that because 20% of his volume was generating 80% of his profit. He just gets rid of the low profit businesses and his profit would stay up and he could easily control his company.
When you have a problem with no apparent solution, anything you do is probably wrong. First step is finding the real problem and then the solution becomes easy. You do that with the help of someone exterior to your company; someone who has enough familiarity, with the industry to know what the business should look like, if it was operating properly.
If you have any experience in making more money for your company please let us know.
Willard Michlin is a CPA, CFE (Certified Fraud Examiner) and Business Broker. He offers assistance, anywhere in the USA, in the key areas involved in the buying of a business: Due Diligence and Business valuation. He is an experienced, honest and trustworthy consultant. He has published many articles and is in demand as a public speaker in and for the business community. You can write to Willard at Willard@EvaluateABusiness.com and he will always answer your questions. He can also be contacted at his Seal Beach, California office by calling 805-428-2063
Creative Commons Attribution: Permission is granted to repost this article in its entirety with credit to Business Buying Services and a clickable link back to this page.