Platt Perspective on Business and Technology

Should I stay or should I go? 22: selling-off and buying out an already established business 2

Posted in career development, job search, job search and career development by Timothy Platt on July 18, 2016

This is my 22nd installment to a series on intentionally entered into, fundamental job and career path change, and on best practices for deciding both when and how to carry through on it (see Guide to Effective Job Search and Career Development – 3, postings 416 and following for Parts 1-21.) And this is also my second posting to this series on buying or selling a small business or professional practice as a next step career move.

I began this subseries of postings in Part 21, where I put buying and selling an established small business into perspective with the rest of the series and its discussion as a whole. And in the course of writing that posting, I noted a succession of more specific topics and issues that I will address here, starting with this second, follow-up installment.

My goal here is to start with the fundamentals, and by outlining a basic due diligence process, which I plan on addressing from the business buyer’s perspective, and then from the seller’s perspective. As a general orienting statement for what is to follow, and for both sides of that transaction process, both buyer and seller benefit from more fully understanding each other’s basic needs, goals and priorities, to both increase their changes of coming to negotiated agreement and to improve the terms of any sales transaction from their own perspective, and ultimately for all concerned.

And as just stated, let’s begin this from the potential buyer’s perspective and with some basic due diligence questions that would arise for them.

• What does a potential buyer see as their overall, long-term goal in buying out and taking over a small established business as a next career step?

I begin with this question for a very important reason. This, and I add any other fundamental career path change should be approached and entered into strategically, and that means from a longer-term goals and priorities perspective. If you start out thinking too much in terms of the details that are immediately at hand, you might find yourself making a good move tactically and for its immediate details, but one that is wrong for you and with long term consequences. So approach this from a longer-term perspective and not simply in terms of immediate needs and preferences and short-term considerations.

• Would this move be good for you now? Would it satisfy a here and now interest or need?

These might be important too, but more importantly as a starting consideration: would this be a good move for you five years from now too? I pick that five year timeframe intentionally here, thinking to a piece of career planning and development advise that I have found helpful and that I have shared with others:

• What do you want to be doing in five years, professionally and what can you do today that would help you at least incrementally in reaching that goal?

Before you seriously begin to pursue and invest in an option to take ownership of a small business as a next career move, be sure that would be your five year answer. Then work on the shorter term steps and goals and the tactical side to making that dream a reality. And with that noted, I turn to consider more short-term and tactical considerations and I begin with the financials and with the question of whether this is, or at least can be made realistically possible:

• How big a financial investment and commitment would you have to make, at least as an initial calculation to make this business acquisition work?

This is at least as much a question of identifying and listing potential and likely areas of expense as it is one of coming up with an initial rough guess estimation of what they would total to. Let’s consider at least a few possibilities here, noting up-front that any such list will be incomplete, and that some of the per-item expense assumptions will underestimate actual costs that would be faced, and even very significantly:

• Has the seller suggested a likely price to themselves to sell?
• Would this mean a buyer paying off up-front at time of sale with a single payment, or would the seller, or more likely a lending bank allow for scheduled payments?
• Very few small businesses of the type that I address here, that would be put up for sale are going to be turn-key ready. What is your initial minimum estimate of what you would have to put into this business to bring it back up to speed as a fully effective enterprise again? Assume here that a business that is being divested as a part of a retirement plan on the part of the seller, is probably going to need work and even a significant amount of it, and for its physical facilities if nothing else. People headed towards retirement are not as likely to see compelling need to keep everything in perfect order, as a new buyer would want. That costs.

My first of those three questions is probably the simplest and most direct of them. Final costs might change as a result of negotiations but it is important to at least know what a seller is thinking in terms of as their starting point, and as an indicator of their probably asking price range.

The second question might or might not be clear; many retiring professionals would simply want to move on and away from their soon to be former workplace and professional life. But they might be content to take payments over a period of time and for tax purposes if nothing else, so they would not have to take their entire one-time income from this in a single tax year and at the highest possible tax rate as a result. And if you would seek out a small business loan, that brings up a whole series of questions, and both for the fiscal prudence of taking that step and for the effort and costs of meeting their loan application and documentation requirements.

The third of those questions is rife with uncertainty and any answers that you develop as to “overall likely costs” there are certain to be underestimations. Why start with these three categorical rough estimations? Think of this as a first step reality check, and particularly if you would need your best case estimates for revenue generation as you re-launch this business, if you are to meet up-front and early costs.

I am going to continue discussing initial and early costs in my next installment to this series, and will consider the issues of investment savings and ongoing income that you might bring to the table for funding this venture there. It is very important to think through the issues of how much you would invest in this and where you would take this funding from. This is a place where clearly understanding your goals and priorities enter this narrative too, and with some seemingly simple questions that in fact demonstrate in practice, how the devil can be in the details:

• What is most important to you in taking over a business and being your own boss in it?
• And which of your wish list goals and preferences in this might be nice, but be more incidental and negotiable?
• And how much of the anticipated costs faced in this initial cost estimation, would likely come from those nice incidentals and how much of it would come from the essentials?

In anticipation of the next installment and its discussion, this is where you decide precisely what you would want in this acquisition, and what you would want to do and need to do in follow-up to it. The numbers you begin with in your initial cost estimations will change, but you need to think through your starting point for what you want and for what you would be willing to pay for, exactly as a prospective seller has to as they determine what they would want and require in agreeing to a sale. I have been outlining at least the start to an analysis of need and opportunity here that would help you determine your starting point as a buyer here, and I will continue that in my next series installment.

Meanwhile, you can find this and related postings at my Guide to Effective Job Search and Career Development – 3 and at the first directory page and second, continuation page to this Guide.

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