Needs a mentor or someone very wise with the need to help

[maybe]

Hi all,

I am starting a LLC. To acquire businesses around the Chicago area. My first question is would it be better to get a restaurant with a good reputation over a gas station? My dad is willing to help me. He said, the most he will give me in cash is $200,000. And the businesses I am looking to acquire are all owner financed. As long as I can meet half or twenty percent of what they are asking. Obviously, I should try to negotiate a lower price? But I still want to go to the bank and get a loan. What do I need to do to get a loan from a bank? I'd like to acquire roughly five businesses within the next year. And the total price of these businesses would probably amount to 3-4million dollars.

[Wozcreative]

You will need proof of being able to pay for the loans. You need a business plan, a proposal. You will need to figure out how much money you need, how much you will spend on rent, supplies, employees, utilities, profit margins, how you plan on marketing your business, how many employees you plan on having and how you will acquire and pay for them. You will also need to show past experience or how you will get help with a restaurant (do you know how to run one?).

All of the above, and then you will need to go into detail about your debts, how much you've made for the last 2 - 3 years. Any debts that you have, how much you are paying for your own cost of living etc.

There is a lot to go through when getting a business loan. It is more complex than getting a personal one. Go to a bank and set up a meeting, they will give you all the explanations of what you will need to provide for them.

[Freelancier]

My first question is would it be better to get a restaurant with a good reputation over a gas station?

Both are really hard work and very long hours, so you should try to be in love with the idea of owning one of them. Since you had to ask, I'm not sure you should own either.

[nealrm]

The first thing that you need to ask yourself is where your interests lie. If you are interested in food and cooking, then a restaurant is a good choice. If you are interested in cars, and small merchandise sales then a gas station would suit you better. Whatever you choose, it needs to reflect your interests. Getting into a business that doesn't interest you will result in either the business going bust through lack of attention or you being successful in business but unhappy with your work. The former is more likely than the latter.

Since you are asking some basic questions, I'm guessing that you have little business experience. So why would you try to run 5 different business, acquiring them all within a year, with a 3-4 million dollar debt load? So unless you have a 100 million dollar trust fund and this is just a hobby, I suggest try a different route. This route will take longer, but the results will be more financially secure, able to better withstand economic downturns, provide you with work that you enjoy and have less risk. My suggest is to find one business that you love. When cash flows allow, build and expand on that business. Live with in your means, and your life will be less stressful, happier and you will retire a very wealthy person. Borrow millions of dollars, spend beyond your income and your happiness will be short lived.

I am also suggesting the following books: The millionaire next door; Rich dad, poor dad; How to stop acting rich and start acting like a millionaire. These book are not going to tell you directly how to finance a business, nor are they going to tell you how to run one. Instead they will lay the foundation of principles and idea that will result in long term success.

[maybe]

Both are really hard work and very long hours, so you should try to be in love with the idea of owning one of them. Since you had to ask, I'm not sure you should own either.

Appreciate it. But I am love with all the ideas.

[maybe]

The first thing that you need to ask yourself is where your interests lie. If you are interested in food and cooking, then a restaurant is a good choice. If you are interested in cars, and small merchandise sales then a gas station would suit you better. Whatever you choose, it needs to reflect your interests. Getting into a business that doesn't interest you will result in either the business going bust through lack of attention or you being successful in business but unhappy with your work. The former is more likely than the latter.

Since you are asking some basic questions, I'm guessing that you have little business experience. So why would you try to run 5 different business, acquiring them all within a year, with a 3-4 million dollar debt load? So unless you have a 100 million dollar trust fund and this is just a hobby, I suggest try a different route. This route will take longer, but the results will be more financially secure, able to better withstand economic downturns, provide you with work that you enjoy and have less risk. My suggest is to find one business that you love. When cash flows allow, build and expand on that business. Live with in your means, and your life will be less stressful, happier and you will retire a very wealthy person. Borrow millions of dollars, spend beyond your income and your happiness will be short lived.

I am also suggesting the following books: The millionaire next door; Rich dad, poor dad; How to stop acting rich and start acting like a millionaire. These book are not going to tell you directly how to finance a business, nor are they going to tell you how to run one. Instead they will lay the foundation of principles and idea that will result in long term success.

I have no problem with living with my parents until I have positive cash flow. I have read TMND. There is nothing better then having financial security. I do believe that if I were able to get the loan. I would be able to pay it off within 5-8 yrs following my business plan. But then again, anything can happen.

[JohnB]

You said "...acquire businesses..." and up to 5 in the next year, so it sounds like you're thinking of your business as a holding company for other businesses. If this is the case, then I assume you have the ability to hire effective and trustworthy management for these businesses. It is true that either of these takes a big time commitment, so remember "effective and trustworthy" if you're not going to be personally hands-on with each business on a daily basis. This probably means a well-compensated experienced manager for each business. If you don't have personal expertise in the fine details of running these businesses, then you will need to pay for it, and you obviously can't be at all businesses at the same time, so you need trustworthiness and effectiveness. If you don't set good people and good systems in place, then you leave the door open to certain employees spotting a weakness and using it to steal from you. So get good advice, do your homework, and trust but verify.

It also seems like you are planning to buy existing businesses. If this is the case, then you will have the opportunity to perform your due diligence when deciding whether to purchase the business and how much it is worth. This will give you access to the business books for recent years so you can determine the profitability of the business.

If you're not an accountant, you should get a competent small-business accountant as an advisor at this stage. The accountant will help you understand the business books and your expected finances. If the business is currently profitable, then it should be producing the income you will need for the monthly payments. Again, the accountant can help you organize this information for financing approval and also give you an idea of what else the banks will want to see; for example a history of successful business management, or an experienced advisor or manager.

As far as which type to acquire, if you don't have a strong pull one way or the other (such as from experience in one vs the other, or a competent manager in mind for one vs the other) then a lot of it might depend of the specifics of the individual businesses you are considering. Consider things like profitibility, location, past performance + expected future performance, existing staff, existing reputation, how well the books have been managed, how well the business has been maintained, internal working culture & attitudes, etc. Find out how current customers feel about the business. Do they have a reputation on Yelp, etc. Without a strong predisposition in one direction or the other, these factors might be more important for you in making your decision.

In addition to this, there are some basic rules for what a business is worth. I'll cut this off now, but I'll be happy to go into what I know about that if you're interested.

[maybe]

You said "...acquire businesses..." and up to 5 in the next year, so it sounds like you're thinking of your business as a holding company for other businesses. If this is the case, then I assume you have the ability to hire effective and trustworthy management for these businesses. It is true that either of these takes a big time commitment, so remember "effective and trustworthy" if you're not going to be personally hands-on with each business on a daily basis. This probably means a well-compensated experienced manager for each business. If you don't have personal expertise in the fine details of running these businesses, then you will need to pay for it, and you obviously can't be at all businesses at the same time, so you need trustworthiness and effectiveness. If you don't set good people and good systems in place, then you leave the door open to certain employees spotting a weakness and using it to steal from you. So get good advice, do your homework, and trust but verify.

It also seems like you are planning to buy existing businesses. If this is the case, then you will have the opportunity to perform your due diligence when deciding whether to purchase the business and how much it is worth. This will give you access to the business books for recent years so you can determine the profitability of the business.

If you're not an accountant, you should get a competent small-business accountant as an advisor at this stage. The accountant will help you understand the business books and your expected finances. If the business is currently profitable, then it should be producing the income you will need for the monthly payments. Again, the accountant can help you organize this information for financing approval and also give you an idea of what else the banks will want to see; for example a history of successful business management, or an experienced advisor or manager.

As far as which type to acquire, if you don't have a strong pull one way or the other (such as from experience in one vs the other, or a competent manager in mind for one vs the other) then a lot of it might depend of the specifics of the individual businesses you are considering. Consider things like profitibility, location, past performance + expected future performance, existing staff, existing reputation, how well the books have been managed, how well the business has been maintained, internal working culture & attitudes, etc. Find out how current customers feel about the business. Do they have a reputation on Yelp, etc. Without a strong predisposition in one direction or the other, these factors might be more important for you in making your decision.

In addition to this, there are some basic rules for what a business is worth. I'll cut this off now, but I'll be happy to go into what I know about that if you're interested.
I'm interested, go on please.

[Harold Mansfield]

Hi all, I am starting a LLC. To acquire businesses around the Chicago area. My first question is would it be better to get a restaurant with a good reputation over a gas station?

I've never owned a restaurant, but I've managed and opened quite a few Restaurants, Bars and Nightclubs over the years in 3 different states. The first thing I will tell you is, if you have no experience running a restaurant, it doesn't matter how good it's reputation is, how good the location or how nice of a place it is, you will fail. That is one business that you cannot BS your way through and learn as you go(well you can, but you will lose a crap load of money while you are learning). Someone in charge needs to have some strong experience in the business.

It is a very involved business with a lot of moving parts from Managing staff, Management salaries, vendors, health department, building codes, liquor laws, insurance, not to mention the over all marketing to keep people coming in the door.

The success rate of even experienced owners is low and risky. Any business plan you have assumes that everything goes well and on schedule and that there is a steady flow of businesses for you to meet those payments. That business plan doesn't take into effect competition, blizzards and bad weather, slip and falls and frivolous law suits (EVERY Restaurant has them), staffing issues, and a million other things that don't go as planned in the everyday life of the average restaurant and bar.

The next thing that stood out from your statement is that plan of acquiring 4-5 businesses over the next year, on borrowed millions ( assuming you will ever get anywhere close to that kind of financing), with no experience in any of them with the plan of living with your parents, is a really crappy one that doesn't show much personal responsibility.

Why the rush to buy 4 businesses in a year? Do you have a staff that will help you manage them? A new restaurant alone is at least a 12 hour a day job. It takes months or even years before an owner has it running well enough to only show up a few hours a day.

I applaud your zeal, but I don't think you are realistic in how hard it is to run a successful business or how much risk you want to assume all at one time, on credit. How about making one business work first, and then moving on to the next one, Insteand of failing at 4 all at once? Do that, and it will be easier to get additional financing for the next one.

[JohnB]

OK, well I'm not an accountant, and don't take anything I say as accounting advice, but rather as thinking points; maybe some alternative ways to evaluate the situation.

I've been in a lot of discussions regarding how to value a business for purchase. People tend to think about a variety of factors like the amount of revenue, the capital equipment, reputation, location, etc. etc. A lot of these people tend to "over-think" the situation. But as an investor, it's important to look at return on your investment. Think of it this way: If you have a given amount of money, let's just say $500,000 for example, you have a lot of alternatives for how you might invest this money. From a simple CD at your bank, to individual stocks, to stock funds, bonds, bond funds, to complex investment instruments, there are a variety of ways you can invest that money. For each specific investment, you can come up with an expected annual return, or likely annual return on your investment. Of course you probably don't have a crystal ball, so you don't know for sure, but if I had this money available to invest, I would consult with a reputable investment advisor (one who is paid only by the hour, and is NOT selling investments for commission or has any other possible conflict of interest) to find out what return I could reasonably expect to get from this money through these conventional investment avenues. Then I would look at the business that is for sale and make a comparison: look at the end-of-year profit, and make a determination; for the same amount of investment, is this business going to give me a better annual return than conventional investments? The business may have a lot more risks, require much more of your time than conventional investments, etc., so you need to be reasonably confident that the business is going to provide you with greater annual return than a conventional (and easier) investment. Just how much return you expect is up to you, and again you should seek professional advice on this, but some business investors want to be reasonably confident of 20% or 25% annual return-on-investment (ROI) in order for them to take the plunge.

This is just a simplified look at it, but in the end, ROI should be a big part of the decision.

Also, I should say that in the due diligence phase, you should find out about the need for future large expenditures that could impact your ROI. For example at a gas station, is everything meeting the current and anticipated regulations for safety and environmental conformance? Or are you going to have to dig up and replace the underground petroleum storage tanks in the next few years to meet environmental regulations? Something like this could have a big impact on expenses and require that you own the business for a very long time before you realize your desired ROI.

I hope this plants a few seeds of ideas on how you might evaluate the situation. I think you are wise to seek advice, and for this size of investment, I think some expenditures on some professional advisors will be well worth it for you.

[nealrm]

I have no problem with living with my parents until I have positive cash flow. I have read TMND. There is nothing better then having financial security. I do believe that if I were able to get the loan. I would be able to pay it off within 5-8 yrs following my business plan. But then again, anything can happen.

I suggest you go back and read TMND. Find the part where it talks about all the successful business owner going millions in debt. Take your time, let me know when you find it......... (hint, it's not in there)

You asked for a mentor, that job includes slap you upside the head when you need it. Will start with living with your parents while you have negative cash flow. Negative cash flow means you are eating into cash reserves and liquidating assets, do you have assets and cash reserves. Are you expecting your parents to pay for things like food, clothing, gas, insurance ....? How about the vendors for the business, who will pay them? Nothing will close down a business faster that your vendor stopping delivery because you haven't paid them. You will be shelling out about $40,000 per month just to pay the loan payments to buy the businesses. If you add needing money for a cash reserve, that will increase the interest rate you are charged.

Given your questions, it does not appear that you have years of business experience. So, how will you judge if the manager you expect to hire will do a good job? How will you know if that accountant is keeping 2 sets of books, if the purchasing agent is getting kickbacks, the expected profits for next month....

You state that anything can happen, that is true. Both good and bad will happen over the next 8 years, you will make mistakes. The problem is with millions in loans over your head all the good will be muted and the bad will be amplified. What would be a minor issue, could easily result in losing the business due to the loan payment. Also, you may be pressured into decision that are not in your best interested due to the loans.

I'm not trying to discourage you from starting out in business, instead I am trying to encourage you to take things slower. This means starting out on a slower scale. Buy a single smaller business, or start one from scratch. Learn while the mistakes are small and won't involve years to recover. Consider working for someone else while you learn the ropes.

[JohnB]

And keep in mind that I have limited my comments to a narrow focus.

But I have to agree with Harold Mansfield regarding the subjects of experience, expertise, and risk. When you see the big chain restaurants running their local outlets, obviously the owner isn't on site every day, but they have well-developed management and operations programs that result from years (probably decades) of combined experience in the business. And sometimes even those businesses have to close their doors because they're not profitable.

Also, too many people acquire a business based on an emotional decision (such as when buying a car or a smartphone) rather than a business decision. Do all of your homework, educate yourself, account for all the advice you're getting, and in the end make sure your decision makes real business sense.

[billbenson]

Both a restaurant and gas station are low margin businesses. Gas stations make their money selling beer just like movie theaters make money selling popcorn. I wouldn't consider either of them a good investment when there are plenty of more profitable businesses out there.

I'd do the reverse. I'd look for the most profitable high margin businesses that you are either knowledgeable in or that you can learn. Why pick the most difficult businesses out there to make money at?

[huggytree]

a gas station at an expressway off ramp should be an easy self-running type of business....as long as you keep it clean i dont see how you can lose

a restaurant on the other hand is something i would avoid....most restaurants disappear in a year or 2.....you need to continuously change the menu to keep it new....i would think it would be one of the most risky types of businesses...it wouldnt be for me