INTERESTED IN BUYING A BUSINESS?

Once you have determined the type of business owner you want or are able to
be, you can then dive deeper into the type of project, risk level, and
capital involved.

If you are interested in buying a business, there are several different routes to determine your path, involvement, industry and more. While it can feel like a “choose your own adventure” situation, there are key factors to identify when entertaining the idea of buying a business.

PASSIVE vs. ACTIVE:

WHAT TYPE OF BUSINESS OWNER DO YOU WANT TO BE?

1.   THE ACTIVE INVESTOR

An active investor, or owner-operator, in essence means the purchase of a “job.” An owner- operator is willing and able to be an involved member of the management team and active in the day-to-day logistics of owning AND running a business.

Most likely, this type of owner brings a specific, specialized skill set to move the business forward. Whether it’s a background as a CPA, Operational Specialist or HR Manager, they step into a strategic role of reorganizing, activating, and increasing profitability while appropriately backfilling the holes to support business growth as a whole.

2.   THE PASSIVE INVESTOR

This buyer is interested in taking a cruise control approach. That means the acquired business is fully operational with an existing team in place. A passive buyer comes in as an advisory partner and doesn't need or necessarily want to be hands on. Maybe they own multiple businesses or have a full-time job themselves, this buyer is interested in a slow, steady, consistent investment opportunity with very little personal engagement in the everyday business operations.

RISK LEVEL:

Once you have determined the type of business owner you want or are able to be, you can then dive deeper into the type of project, risk level, and capital involved.

This is where the “choose your own adventure” comes more into play.

THE “PROJECT” PURCHASE:

For an active investor or owner-operator there are a few options.

The first is stepping into an existing business and strategically refocusing or realigning to grow and expand. The second, is taking on a reclamation project.

A reclamation comes from purchasing a distressed or stale business. It is not actively growing and quite possibly losing sales. A number of factors may be involved; perhaps a key manager was lost - along with their valuable contacts, or the operations are antiquated and don’t meet the needs of the current clients. Quite possibly, the current owner is checked out or unable to be involved.

This type of purchase is usually at a reduced initial investment but requires a heavy capital infusion to keep it going. This is a high-risk, high-rewards opportunity.

As an investor of this type of purchase, creativity is key. Can you identify the business value? Is there a possible value add? Are there pivot opportunities for a buyer with niche knowledge or contacts to use the assets, equipment or real estate in another more profitable way?

THE STATUS QUO PURCHASE:

This purchase is not a project. The acquired business is solid with decades of steady, consistent sales and incremental growth. The customer base is established along with daily operations run by an effective management team. Everything is set up to cruise slowly forward with minimal adjustments. The risk level is low but so is the initial return - similar to accruing interest on a bank account but builds over time.

This type of purchase will cost you more up front, but you are almost guaranteed a stable and steady return over time.

GEOGRAPHY, INDUSTRY & SEASONALITY

Geography, industry and seasonality can play a role in the purchase of a business but depend heavily on the type of buyer and type of industry.

Location for a passive investor may not be important at all, especially if their involvement level is limited, however an active, owner-operator, location may be a crucial, key component.

Industry plays into this as well. A satellite or remote business that can be operated 100% online does not need to be regionally specific, but the owner needs to be fundamentally comfortable with remote workers, operations and clients.

Prior to 2020 there may have been a greater resistance to this, but as we have all made the collective pivot, more and more people are comfortable with this type of model - but again, industry specific.

Seasonality is an interesting approach to business buying and can be categorized differently.

Seasonality as a “semi-retired” approach means the goal would be to work 8 - 9 months out of the year, and to take the remaining time off.

We often see this with landscaping or pool companies, specifically in the Midwest. This takes a focused, organized individual to ensure the business can support a year-round lifestyle while only operating for a portion of the year.

Seasonality can also be a factor when there is an opportunity to merge entities and create a year-round profitable business. For example, maybe a landscaping company operates one arm of the business early spring to late fall, then shifts and runs a snow removal business in its “off season.” Or an accounting business looks to merge a tax focused firm with a bookkeeping business so there is consistency (and income) year-round.

THE MARKET RIGHT NOW:

The field is competitive and the current climate of the world has changed the game. More buyers are thinking about buying while more sellers are hesitant to sell.

With the lingering pandemic we have seen a several trends:

In business, it's a buyer’s market in the hospitality and retail sector. But it is a seller's market for manufacturing, distribution and COVID resistant brick and mortar stores like outdoor recreation companies or home improvement.

The biggest surprise is the number of buyers who are asking about off market deals. With inventory low moving into 2021, we see the need for buyers to get creative to find businesses and deals that suit their investing style, preferred involvement level, risk factor & more.