Our Kids Know Their Shit!

Knowledge is Power!

(And Experience Counts!)

I’m on the Board of Directors for our local children’s choir. (I have no real musical talent, but my daughter was in the choir for ten years.)

We were at a board retreat last year. It was actually the whole team: the Board, the admin staff, and the artistic staff. We were coming up with values and priorities and normal retreat stuff. Our kids are very talented and very knowledgeable on advanced music theory. We were trying to come up with the best way to communicate that fact. Something short, catchy, you know. Then it hit me; the perfect slogan. Just right for the T-shirt.

“Our kids know their shit!”

It didn't go over so well. I guess it was a little too vulgar for that crowd. Story of my life…

But it’s a true statement. It’s full of passion. It would catch people’s attention. It shows how much experience and knowledge our choir members have.

Knowledge and experience are super important when it comes to business buying, too. There are several reasons or situations where you will need to have experience, and need to prove it. Yep, prove it.

You think you’re the buyer, right? But really, you’re the seller. Wait what?

• You’re selling yourself to the business owner.

• You’re selling yourself to the bank.

• You’re selling yourself to an investor.

• You’re selling yourself to a potential partner.

• You’re selling this crazy idea of buying a business to your spouse!

Experience counts! Knowledge is power!

You’re selling yourself to the business owner.

You may be looking at dozens of businesses for sale, maybe even hundreds at some point, but this business owner that you’re negotiating with right now has only one business to sell. They have probably put their whole life of blood, sweat and tears into this company and they care who takes it over. Sellers always say they want a giant pile of money in order to sell, but in reality, they require so much more.

Sellers worry about their employees. Who is this person that will soon be their boss? “How will they treat my team?” They wonder if you’re going to cut benefits in order to cut costs.

Sellers worry about their reputation. How will you handle the name they’ve built in this community, in their hometown? Will the buyer continue to support the causes they’ve been supporting for years?

Sellers worry about the product. They’ve always maintained the highest possible standards while charging a fair price. What if the buyers cheapen it, like most things on the shelf these days?

And back to the giant pile of money the seller wants. Most small business deals, around 65% of them, have some component of seller financing. You can read more about this type of deal structure ​here​, but the essence of this is the seller is loaning you money. They become your lender just like a bank would. That means they have to trust you. The seller has to trust you not just to take care of their staff and reputation, but also their own financial future. You may end up asking the seller to “loan” you several thousand dollars or several hundred thousand dollars. If you go the SBA route, the SBA will not only allow, but also encourage up to 10% seller financing. Do you think the seller is going to loan any Joe Schmoe a few hundred thousand dollars? Would you?

You’re selling yourself to the bank.

This one may seem more obvious. ​(See the banker's viewpoint here.)​ We all know that bankers only loan money when you don’t need it. (Just kidding!) But seriously, there is an experience component to business acquisition financing. I had an SBA guy explain it like this.

We really like to see at least two years of direct experience in the field of the business purchase. Another option is three years of experience in a related field.

You really can’t blame them. What would it take for you to loan out $5 million dollars? (That’s the SBA lending cap, by the way.)

And less experience may require a higher down payment.

Amongst the bazillion documents your lender will require, that list will likely include:

• Your resume.

• Your business plan, explaining how your skills will be utilized in managing and growing the business.

• ​SBA Form 1919-​ Borrower Information Form.

• ​SBA Form 912-​ Statement of Personal History.

You’re selling yourself to an investor/potential partner.

This may or may not be on your radar, but your business buying journey doesn’t have to be solo. Some people work better alone, and some people work better as part of a team.

When I say alone, I don’t mean completely alone. Whether you buy 100% of a business or some other percentage, you will still need a deal team. At minimum, this should include an attorney and an accountant or some other financial due diligence professional.

What I’m referring to here is securing some, or all, of your business buying funds from private investors. Ask around your network. I’m sure you know professionals and business owners with cash to invest. They may be willing to “buy a business with you”. This could mean loaning you money, with interest, like a bank. (But far less paperwork, probably.) Or they may want equity in exchange for their contribution of cash, better known as capital contribution.

Don’t be too quick to give away equity, though. I recently had a gentleman in my DMs who is working on his first business purchase. His plan was to develop a board to advise him on his acquisition journey. Not a terrible idea. But he was also planning to give each of them equity in his purchase. Not a great idea IMO. Too many cooks spoil the broth? I just don’t think it’s a good idea for a new business buyer to hand out equity to a bunch of advisors, and have to answer to them, and have to manage their expectations. How big of a pie would you need to keep everyone full?

I think it’s way better to buy a J-O-B, a small, owner operated business that you manage yourself on a day-to-day basis. This will allow you to both earn and to learn. You can earn a great “paycheck”, even bumping your current lifestyle up a notch while learning to run and manage a successful business. ​Small Deals= Huge Gains!​

On the other hand, buying a business with one, more experienced business partner is a fantastic idea! That’s part of how I had so much success.

You’re selling this crazy idea of buying a business to your spouse.

It’s not impossible, but any major “project” is more difficult to do without the support of your spouse or partner. Even worse is if your partner is actively against the prospect of buying a business.

Maybe you should buy a business with your spouse. Maybe your spouse should keep their normal job as an insurance policy of sorts. The main point is that the two of you need to be on the same page.

Giant Tip: The SBA will require you to pledge your real estate, your HOME, as collateral for the loan. Your spouse will have to agree to this in writing or no deal. So, you can’t skip this step!

And speaking of family, what about your kids? Are they old enough to know what’s going on? Old enough to notice a change in the family schedule? Old enough to help? Even when my kids were pretty little, I would occasionally ask them this, “How are you doing with Mommy Time?” Do you need more Mommy Time? Do you want less? Or is it just right?” (Said in your best Goldilocks voice.) Some parents will brag that their kids will always say they want more time with them. I’m not going to comment on parenting styles, but I am proud to have raised a couple of independent young women.

You think you’re the buyer, but you’re really the seller. Are you with me?

Where is all this knowledge and experience supposed to come from?

Below is a list to get you started:

• Find an industry mentor.

• Past work experience.

• Industry associations.

• Industry conferences.

• Relevant Facebook group.

• Online courses.

• Get a part time job (while searching).

• Read books.

• Interview local business operators.

• Industry podcasts.

• Internships.

• Industry networking groups

And here is a starter list of items and trends you should be getting a grasp of for the industry(ies) you’re interested in:

• Industry standards and KPIs.

  • Common profit margins.

  • Expected sales per staff member.

  • Size of the industry.

  • Is the industry growing or shrinking.

  • Biggest players.

  • How inflation will impact the industry.

  • Biggest issues.

  • What role are cultural and economic influences playing?

• Industry regulations.

  • Licensing.

  • Government regulations.

  • Special reporting requirements

• Compatible industries.

• Who will your main competitors be?

• Demographics of the workforce for this industry.

Experience counts and knowledge is power!

Go get you some!