Manage-to-Buy Deal Can Benefit All When Care Is Taken
Q: I am interested in acquiring a small or medium-sized business whose founder is close to retiring or wants to sell soon. I’d like to structure it through a manage-to-buy type of arrangement, avoiding franchise deals. How do I locate business owners who might be interested? The published ads I’ve seen seem pretty anemic.
--Matt Krawczyk,
Manhattan Beach
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A: The deal you’re looking for is a situation in which ownership transfers gradually--perhaps over a period of years--while the new owner is brought into the business and trained to run it. Typically, the would-be owner will bring some money in upfront, to solidify his or her intentions, and gradually increase the investment in the company. Sometimes, a 51%-49% ownership deal is worked out during the transition period, in which the original owner maintains control until he or she is phased out.
This can work out well for all parties if the deal is structured right, everyone gets along and the business is a good fit for the new owner. One caveat: Make sure you get a legally binding contract, drawn up by an attorney and mutually acceptable to all parties, that clarifies when you will take full ownership. You don’t want to have three years invested in a company only to find out that the original owner has decided not to sell after all.
It’s not unusual that this kind of deal would not be advertised publicly. After all, a business owner has clients, vendors and employees depending on the company, and he or she may not want them to know that the firm is for sale. With this kind of situation, business owners depend on professional contacts, networking and professional business brokers.
As a would-be buyer, you’ll need to ask yourself if you are willing to put out some money on a retainer for a licensed business broker who will search out potential deals for you and represent you to interested sellers. A broker will help you get your financial records in order so you can qualify to buy a company when the right one comes along. He or she will also “sell” you to an owner and walk you through the consummation of the deal.
Think seriously about this: Buying a business is a big step. It’s not like looking for a job that you can take and then quit if the position doesn’t work out after a few months. You are not only buying assets, you’re buying your future. At a minimum, you’re likely to spend five years of your life toiling to make this company a success. You want to make sure this business is something you will enjoy.
--Bob S. Singh, vice president,
Gardiner & Rauen Inc., San Marino
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Q: I plan to retire soon and would like to open a small bookkeeping business out of my home. I have prepared personal income taxes for H&R; Block for the last dozen years and have done some bookkeeping in the past--all by hand. Can you give me any advice?
--Ruby Sylvestre, Los Angeles
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A: The first task for you is to get computer-literate, of course. Small businesses are all using computerized accounting software now, and you’ll need to master that in order to work for them. There are many computer courses being offered so you should have no trouble finding one. QuickBooks seems to be the most popular program, and there are tutorials available for it that can be downloaded online. It wouldn’t hurt to be familiar with some of the other top programs as well.
That said, there is a real demand for good bookkeepers, which is where I would advise you to focus your energies. Unless you are an enrolled agent or certified public accountant, you won’t be able to represent your tax clients before the IRS if that becomes necessary.
But most small-business owners need someone to help them manage their finances and pay their state and local taxes, so once you get established you should have no trouble keeping as many clients on board as you can handle.
Join a local chapter of the National Assn. of Women Business Owners, where you’ll get the opportunity to network and to meet other women entrepreneurs who will provide you with a wealth of advice and support. You should also join your local chamber of commerce and make contacts with some local CPAs who can refer some of their clients to you. Tell your friends and the people you’ve worked for that you are starting a business. If you are going to focus on bookkeeping within a specific industry, you could contact some industry associations and attend some of their meetings.
I’d recommend that you do your bookkeeping tasks at your customers’ offices rather than at your home. Some bookkeepers who work on site charge a higher rate, for one thing. For another, you’ll be able to sit down with the client and have better access to all the records and details you’ll need. If questions arise, they can be answered quickly and easily. This will also save you storage space in your home, where you would otherwise have to keep a lot of duplicate files.
Also, many small businesses are desperately in need of someone who is knowledgeable to help them arrange their files and records, which you can do for them if you work out of their offices periodically.
--Tana Davis, president, Davis & Dash Accountancy Corp., Encino
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If you have a question about how to start or operate a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.
