10 COMMANDMENTS FOR BUYERS

• I. Thou Shall Not Be Greedy! Sellers deserve a fair price for the years they have spent developing their business. Be prepared to pay for the goodwill of the business.

• II.Thou Shall Have A Good Reason For Buying! Buying a business is hard work! It takes a commitment! Spend time deciding why you want the responsibility of owning a business.

• III.Thou Shall Provide Background Information! Be prepared with a resume and financial statement. Remember, the seller will most likely be your banker and will want to know that you can run the business successfully.

• IV.Thou Shall Keep An Open Mind! There are no perfect businesses.

• V.Thou Shall Keep In Mind Tax Benefits! Remember tax benefits are realized from intangible as well as tangible assets.

• VI.Thou Shall Offer A Reasonable Down Payment! A low down payment indicates a lack of commitment. When sellers question commitment, serious negotiations are in jeopardy.

• VII.Thou Shall Realize Businesses Are Priced On Profits! A business making huge profits with few assets could save you money later in capital outlay for expansion.

• VIII.Thou Shall Remember Time Is Of The Essence! After all parties have agreed upon price and terms it is important to quickly proceed toward closing.

• IX. Thou Shall Be Prepared To Meet the Landlord! Landlords usually have little to gain by cooperation. Therefore, come to meetings armed with resume and financial statement.

• X.Thou Shall Avoid Surprises! Disclose pertinent information early and avoid surprises that might destroy your credibility.

HOW TO CHOOSE AN ATTORNEY

While you may not need legal advice on a regular basis, it probably pays for you to have an attorney for your company on call. That way, when you need legal advice and assistance, you'll be working with someone whom you're comfortable, and who understands the needs of your business.

When will you need legal counsel? Here are some typical situations:

• When you're deciding whether to incorporate - and need to file the appropriate paperwork.

• When you're trying to write or decipher a complicated contract.

• When you're threatened with a lawsuit.

• When you need help collecting a debt.

• When you need information on regulations pertaining to your business, and assistance in how to comply with them.

Hire an attorney who understands your business.

Make sure that your attorney (and any other professional advisor) understands the specific needs of your business. When interviewing to select a lawyer, ask whether he/she has previously worked with a company such as yours - you don't want to have to pay for learning time. Has the firm worked with small businesses before? What kind? And if your industry has specialized regulatory or other legal requirements, you'll want a lawyer who is familiar with them.

Use referrals.

Referrals are the best way to find just about any service you might need, and finding an attorney is no exception. Talk to other small business owners, to your banker, accountant, or other trusted advisor. You can also check with your local bar association, although not all of them verify an attorney's specialty or experience. A bar association referral will, of course, guarantee that an attorney has passed the bar exam.

Understand your charges before you get a bill.

An attorney's fees will vary depending on the location of the practice, the experience of the attorney, the specialty, and whether you're dealing with a large firm or a small legal office. Fees can range from under $100 an hour to more than $300. Be aware of how the attorney charges. When you call for assistance, are you being charged for the time on the phone (chances are that will be the case)? If so, how are these charges calculated? Are there different rates depending on who works on your account -- a lawyer, a researcher, a paralegal? Also, ask in advance whether there is a charge for the initial consultation.

Negotiate a billing method that suits your needs.

Most small business people pay attorneys when they need them -- if an attorney does two hours of work, you pay for that time. If you have an ongoing relationship with your attorney, you will probably be billed once a month for services rendered.

Another option is to have an attorney on retainer, but that is rare for small business owners. Retainer means you pay a fee to an attorney to be available to do an agreed-upon collection of duties for your company on an ongoing basis. If you head into heavy litigation, or a special project, additional fees are negotiated.

It is sometimes possible to obtain a prepaid legal plan where you get a variety of services for a flat annual fee. Ask your local bar association if this is available in your area, or contact the American Prepaid Legal Services Institute at 312-988-5751.

There are a number of ways you can save money on your legal bills. Here are some suggestions:

• Be organized for all meetings with your lawyer, because the clock is ticking.

• Make nonlegal phone calls yourself.

• Do basic research yourself.

• Prepare a contract and show it to your attorney rather than asking him/her to prepare it.

Hiring Employees - Do You Know How to Pick Them?

Your business is growing, the market has a need for the product or service you're selling, and you're bringing in employees to expand your business. What could possibly go wrong? The answer is, a lot, if you don't hire the right people.

One of the differences between businesses that boom and those that limp along or flounder is good employees. Obviously, your talent as an entrepreneur has a lot to do with the success of your business, but you can only go so far by yourself. As the head of the company, it is your job to find good employees, figure out what motivates them, and then place them into the job that will make them and your business thrive.

Hiring employees is time-consuming and requires a lot of patience and energy. You have to resist the temptation to fill the job quickly with one of the first few people who comes along or hire someone who is only sufficient because you want to stop interviewing and get back to the business of running your business. You also need to hire people who will adapt to and thrive in an entrepreneurial environment.

Generate a Pool of Candidates

The first step in the process - after you've determined what kind of person you need - is to generate a pool of candidates. In order to do this you can use some conventional and not-so-conventional approaches.

Always be on the lookout for people

Even if you are not in a position to hire someone right now, you should be thinking about who you may need in six months or a year, and start keeping an eye out for candidates.

Beat the bushes

Once you've decided what you want, contact peers, people you used to work with, friends of friends, and your trade association for leads. If you are looking for a salesperson, talk to your customers to find out who pays the best sales calls to them.

Look in unconventional places

One small business owner who needed an assistant hired the waitress at the breakfast place she frequented. Why? She knew she was good with people, smart and hard working even before she talked to her about the position. Other good places to find administrative or entry level help are college recruitment offices. They can either provide you will help for hire or sometimes interns who work for free.

Spend money

If you are looking for high-level people and your network hasn't turned anything up, you may need to hire a recruiter. "Entrepreneurs have to get beyond not wanting to spend money if they want someone good," said Kathi Elster, founder and president of Business Strategy Seminars, a small business consulting and seminar firm in New York City. "You can negotiate a fee with a recruiter or pay it out over time."

Evaluation Time

Once you've created a pool of candidates, it's time to start the evaluation process. This is the phase in which you should pay close attention to whether a person has the skills for the job (as opposed to just a good personality or a price tag you like) as well as the aptitude to work in an entrepreneurial environment. There are lots of highly-skilled former corporate employees on the job market now, but not all of them are suited to working for a small company.

The way to determine if someone can function in a small business is to ask some unconventional questions. Applicants are less likely to have pat answers to those types of unconventional questions, which means you'll be able to gather some real information during the interview about a person's judgment, willingness to take risks, and decision-making capabilities. Qualities they'll need to thrive in a small company.

Kathi Elster of Business Strategy Seminars recommends using the questions below, and others like them, to determine if an applicant is cut out to work in an entrepreneurial environment.

What risks did you take in your last job and what were the results?

This question accomplishes many things. First, it lets you determine the candidates definition of risk. One person may think that speaking up against the party line is daring, while another's definition is breaking from the company's longheld advertising strategy. It also enables you to see how the person follows through on endeavors he or she undertakes and how they manage change and uncertainty.

What methods do you use to make decisions?

This may tell you if the person has trouble making decisions. A person who does things the way they have always been done or who relies heavily on other people's opinions to make a decision may not be an ideal candidate for a small company which usually needs independent people who can make decisions under fire. To get at the true patterns of someone's decision-making processes, pose a situational question.

Should employees be able to criticize the boss? In what ways?

This separates yes-people from applicants who could enhance your business by asking intelligent questions. But you also want to make sure you don't hire an argumentative person who disagrees just for the sake of it. To figure out which camp an applicant falls into, ask them if they have ever disagreed with a boss, and what the situation was. You can also ask for an example of a time they challenged their supervisor and had the situation turn out positively.

RESTAURANT LINGO

The world of "restaurant lingo" is a unique language. Like most subcultures, the restaurant industry has its own jargon.

Whether you are applying for financing, negotiating with suppliers or navigating your way through bureaucratic red tape, your chances of success are greatly enhanced if you talk the same language as those with whom you are dealing.

The following are some important terms and definitions that will help you understand the business when you are purchasing a business:

Ability to Pay. Refers to the borrower's ability to meet principal and interest payments on long-term obligations with money generated through the business' earnings.

Account. Generally refers to the contractual relationship between buyer and seller under which payment is made at some agreed upon date in the future. The record of the transactions made under that agreement is referred to as the "statement of account."

Accounts Payable. Amounts your business owes on open account to its creditors for the goods and services they have already supplied.

Accounts Receivable. Money owed to your business by its customers for the goods and services you have sold to them on open account. Some lenders will accept accounts receivable as collateral for short-term financing.

Ad Valorem. Latin for "according to value," this refers to a method of determining taxes on goods or property, such as duties on imported merchandise or real estate taxes on commercial properties.

Asset. Anything your company owns that has commercial or exchange value is considered an asset. These can run the gamut from cash and inventory on hand to intellectual property and "goodwill"

Audit. A professional examination and verification of a company's books, financial documents and supporting material.

Bad Debt. This is the kind you don't want to have. It refers to an open account balance or other funds owed your company that you have not been able to collect and are not likely to be able to collect in the future. It can be written off against profits on your tax return.

Balance Sheet. A financial report that shows the status of all a company's assets and liabilities and the equity of its owners on a given date, usually the last day of a month.

Barter. Trade among small businesses where goods and services are swapped rather than bought and sold. Be aware that the IRS still views barter deals as taxable transactions.

Break-Even Point. The point at which your sales volume equals your expenses. All sales after this point translate to profits.

Budget. An estimate of your income and expenditures for a given period of time. Ideally, the first should always be equal to or greater than the second. If not, your company -- like this country -- is running a deficit.

Capital Gain. The difference between an asset's purchase price and selling price. If you later sell your business for more than you paid for it (less what you have invested in it, of course), you will have a capital gain that is subject to tax.

Depreciation. This refers to the wearing-out of machinery and equipment in a business, and to the amortization of the costs of fixed assets over time. Depreciation reduces a company's tax liability without reducing its cash.

Fiscal Year. An accounting period covering 12 consecutive months, 52 consecutive weeks, 13 consecutive four-week periods or 365 consecutive days. A company's books are closed and its profit or loss is determined at the end of each fiscal year.

General Ledger. The formal ledger that includes all of a company's financial statement accounts.

Goodwill. This refers to the value of your company as an operating business (especially to another company or individual interested in acquiring it) above and beyond the collective value of its inventory, property, assets and accounts receivable.

Lien. A creditor's claim against property that allows the creditor to seize that property if the terms of an agreement are not met in a timely fashion.

Net. A term that describes everything left after all relevant deductions have been made. It can be applied to sales, earnings, expenses and worth.

Outstanding. "Wonderful" in everyday talk, "not so wonderful" in business. Outstanding refers to unpaid balances, items that have not yet been presented for payment and accounts receivable with balances due.

Profit and Loss Statement. Often referred to with the shorthand "P&L," this is a summary of all a company's income, costs and expenses during a given period. A P&L and a balance sheet together comprise a company's financial statement.

Secured Debt. This is debt that is guaranteed by a pledge of assets (collateral) with some corresponding value to the loan.

Seed Money. The first money invested in a new start-up business. It can come from the entrepreneur's own pocket, a venture capitalist or other sources.

Shell Corporation. A company that is incorporated but has no real assets or operations. Shell corporations are sometimes formed to raise money before starting up a legitimate operation, but more often they are created for fraudulent purposes such as tax evasion.

Subchapter S. The section of the Internal Revenue Service Code that allows the formation of so-called "S corporations," which must have 35 or fewer shareholders and meet certain other requirements. S corporations are taxed as if they were partnerships, which allows them to distribute income directly to shareholders and avoid the corporate income tax, while still benefiting from the other advantages incorporation offers.

Undercapitalized. The condition of a company not having enough money to carry out its normal business functions. Under capitalization is one of the leading causes of failure among new start-up businesses.

BEFORE BUYING, GET THE FACTS AND PROCEED WITH CAUTION

• BEFORE purchasing a business opportunity, get as much information as possible.

• READ the disclosure documents and the contract carefully. Understand what you are purchasing.

• SHOP AND COMPARE Look at other operations of the same type. Other companies may offer a better deal.

• CONSULT an attorney and/or accountant before investing.

• TALK to current investors; preferably, visit them in person and see for yourself. Their names and addresses may be in the disclosure document. If they are not, ask the business to provide them. Ask these investors whether information in the disclosure statement matches their experience with the company. Failure or refusal to provide names and addresses of investors should serve as a warning sign that the venture may be questionable.

• ASK QUESTIONS Investigate earnings claims. Keep in mind that once you invest your money, you may be competing with other, more experienced independent operators.

• GET all promises in writing from an authorized representative of the company.

• LISTEN closely to the sales presentation. A seller with a good offer doesn't have to use pressure sales tactics.

• INVESTIGATE and determine if there is a market in the area for this product or service. In the case of vending machines, racks, etc., are you going to find locations to place them? INVESTIGATE and determine if there is a market in the area for this product or service. In the case of vending machines, racks, etc., are you going to find locations to place them?

• CHECK with your local Chamber of Commerce, Better Business organization, local consumer affairs office, or the business directories at your local libraries for more information.

WARNING SIGNS - BUYER BEWARE

• Pressure to sign a contract immediately.

• Unsubstantiated claims of extraordinarily high or guaranteed earnings, possibly on a part-time basis.

• Claims that profits can be achieved easily or with little work or time investment.

• A required initial investment that greatly exceeds the fair market value of any products, kits or training.

• A large fee payable before you receive anything in return.

• Promise that no selling or other experience is necessary.

• Evasive answers by the salespeople or unwillingness to give disclosure documents required by law.

Ten Secrets To Buying A Business

1. FOCUS ON TERMS, NOT PRICE -- You want to concern yourself with the down payment and the cash flow of the business. If those two are structured favorably, then price will not be as big an issue.

2. WHAT DOES THE SELLER WANT -- You must understand what the seller really wants out of the deal. Does he or she want a large down payment or in the case of seller financing, is the concern mostly the interest rate. Find out what the seller really wants from the deal. Once you know this you can structure the deal to achieve your goals and satisfy the seller.

3. FOCUS ON CASH FLOW RATHER THAN PROFIT -- You might say "I'm buying a business to make a PROFIT"! Well when buying a business, cash flow is as important as profit. Most businesses sell for about 2 times the cash flow. So it's vital to know true cash flow.

4. BUY A BUSINESS YOU CAN IMPROVE -- You MUST feel confident that the business can be improved in some way. So when buying a business, look at ways YOU can improve it. Perhaps by reducing certain expenses or increasing sales through more aggressive marketing, you may find a number of ways to improve the business.

5. LAWYERS, DEAL KILLERS -- Don't let your lawyer KILL A GOOD DEAL. It's easier and less risky for the lawyer to say "No" to the deal rather than saying "YES". So do as much investigation and analysis yourself. This will save you legal fees and give YOU a firm knowledge of the operation, then bring in the lawyers.

6. FIND THE PROBLEMS -- Not all business are sold because of problems, but they ALL have them. Make sure to identify them and determine if they are correctable or manageable or if they are terminal. If terminal, RUN from the deal.

7. KNOW YOUR COMFORT ZONE -- You must know the type of business you will feel comfortable with and proud of owning. Don't buy a business that doesn't meet this criteria.

8. FINANCING -- Along with trying your local bank, you could consider other funding sources. If, for example, you are buying a business that is saving or creating jobs, the state, county, and city may offer incentives in the form of grants, job training, and LOW interest loans. Also there are SBA programs that may be appropriate in your case.

9. AVOID BEING OVERLY CAUTIOUS -- Sometimes being too cautious will cause you to pass up a GOOD deal. So do your homework and then MAKE A DECISION. If you wait too long someone else may buy the business. To give yourself some time you can issue a non-bonding letter of intent.

10. WALK IF NECESSARY -- If you are not happy with the deal for whatever reason, walk away from it. Also be careful not to invest too much money in the deal because that can make it harder to walk away.

RESTMART QUICK LINKS...
4Testimonials 4Seller Questions & Ad Rates 4Fax Your Ad  4 Search Restaurants for Sale 4Contact Us  4Terms and Conditions