First time caller or emailer?

Want to buy a business in Las Vegas?

Then you need Ed Smith’s 40 years of experience on these issues!

Notice: The following are brief opinions only and not intended to be expert advice in the professional fields to which these expressions of field experience are derived. When in doubt, always seek competent professional advice.

The following tips are intended to be helpful “no nonsense” opinions that cut right into the issues.  These should help you decide whether or not you want to buy a business in Las Vegas and help you answer many questions prior to calling Ed Smith on his listings and ads.

1) Buyers: Any responsible person can buy a business. As a potential buyer, generally there is a certain amount of fear and apprehension.  Common questions include, “Am I going to make it?”, “Is the seller hiding anything that would be detrimental?”. We will help you get passed all that so you will see the realities of the business yourself. Don’t ask your friends, neighbors or other business experts like your dentist if the business you are considering is OK to buy. Generally these people don’t know anything about businesses and would be afraid to give you any positive opinions. Same for your relatives. You are intelligent, you will figure it out.

2) Out of State Buyers:  See #1 above. Many out of state buyers move to Las Vegas and buy a business. That’s generally the sequence. So please move here first (buy or rent) and then call us. “Send me the info and if I like it I’ll come out and have a look.” “I can always buy/rent the house after I know what I’m doing”, this just doesn’t work, I have never had any scenario like these ever happen and I hear it all the time. Call when you are in town buying a home or renting a place. There are always a lot of businesses for sale in Vegas, you’ll find something.

NOTE 1:  California buyers: You can easily come here for a few days and spend time looking at lots of businesses with lots of brokers.  Other than the one page information pages (#12 below), calling for all kinds of additional information to be sent to you just doesn’t work.

NOTE 2:  Other arrangements will be made for the out of state buyers calling on businesses that would sell in excess of $500,000. These buyers do fly in just to see the businesses.

3) Confidentiality: This is of paramount importance and an industry standard policy. Unlike residential and commercial real estate listings, everything in business brokerage is a big secret. No seller wants his/her business life story spread all over town to the competitors, employees and suppliers. You will be required to sign a 2 page Confidentiality Agreement that reads like a sharks mouth full of teeth in order to protect the seller and broker.  It only applies to the businesses listed in the Confidentiality and only with First Choice Business Brokers. Also, there will be 2 pages from the NV Real Estate Division about “Duties Owed” by me to you and the seller and a “Consent To Act” so we can act on both sides of the deal with equal protection to all parties which is extremely common and makes up the majority of business broker activity. You are required to sign all 4 pages, no exceptions, no cross outs, no wording changes. Local buyers are required to come to the office for food industry listings. Out of state buyers can do the Confidentiality by fax or email. We have thousands of them on file.

4) Fax Machines and Computers: Every serious caller inquiring about a business needs to have a fax machine and/or computer for the transmittal of the Confidentiality and other business information. If you aren’t set up this way, go to your local office supply store and get a decent fax machine that will pick up an incoming fax call and separate the fax call automatically from a voice caller. Better yet, get a dedicated fax telephone line, a few bucks a month won’t break you. These machines become very important to you when reviewing businesses, other paperwork and after you own a business.  Plus paper is cheap.

Computer emailing of the Confidentiality and other business information can be accomplished how ever it is not as convenient as the fax. In addition, after you down load and print out the forms requiring a signature, you still have to fax them back to us or whoever. Please have the computer on its own line or cable. 

NOTE:  It is very inappropriate to be dealing with brokers and other business people and generate communication problems because, “my fax is out of ink or paper”, or “it’s not working properly” or “I haven’t hooked it up yet” or “my kid is using the phone line for his computer right now”. All these problems create a huge waste of time at the other end of the line.

5) Emails & Telephone Calls:  After reviewing the website ads or newspaper ads, after reading these pages and if you are a serious buyer, please call Ed directly at the office at 702-368-2500 or mobile 702-274-7320. Others can email Ed. You are best served by making an appointment to come into the office. Telephone, email and faxes are convenient but buyers who rely on this method seldom ever buy a business. My fully licensed and college graduated professional assistant, Michele Muscato, is also available to assist you as we do get incredibly busy and flooded with phone calls and emails. Please leave all of your contact numbers and speak slowly for quality message recordings.

6) Minimum Cash Requirements: Generally, you can start to look at the smallest of businesses if you have at least $50,000 liquid available to you for a purchase price or down payment with “some” Seller Carry. You’ll need another $10,000 - $12,000 in most cases for your lease security, first month’s rent, paid insurance policy, business license and sales tax deposit plus a host of small but inevitable closing and transfer costs. A good credit score helps with the Landlord who will be your biggest challenge with low priced businesses.

7) Home Equity Loans: By far the most popular and practical way to generate additional capital to purchase your business in the $50,000 to $500,000 price range. It easy and inexpensive and fast. You have more flexible terms, lower interest rates and flexible monthly payments plus you can write off the interest with your business. It’s just the opposite of the infamous SBA loan and infinitely better. All third party financing will put a lien on your home. 

8) Bank Financing: In Las Vegas (most cities as well), no matter the down payment amount or your high credit score you will not get a regular bank loan for your business. I repeat, no matter the down payment amount or your high credit score you will not get a regular bank loan for your business. So please don’t ask.  Banks do not understand businesses and are primarily afraid of these loans. Most banks will only defer you to their SBA department for that application. The big banks are the worst ones.

9) SBA Financing: The SBA is NOT that warm fuzzy banking place where lots of folks go to get money to start up or purchase businesses. 95% of all businesses and 50% of all business buyers do not qualify for SBA loans. The SBA wants all your real estate to attach their high interest rate, expensive application fees and financing points loan. I mean all of your real estate, not just your home.  If you don’t pay them, don’t worry, your kids will. They don’t take businesses that don’t show good profits on tax returns. Oppositely, most business people try to “0” out their tax returns as not to have to pay taxes. Many businesses have “less than perfect” P&L’s and other paper work. And so it goes, the SBA banks will always ask you to make the application because it makes the person at the front desk look good to the loan committee, he/she is generating business. All of this is another reason why #6 above is so popular.

10) Seller Carry Financing: Always a favorite among businesses buyers. This is when the seller becomes the bank and agrees to hold a certain portion of the purchase price as a loan usually payable from 1 to 3 years, sometimes a little longer and at a variety of interest rates regardless of the cost of money or prime rate. Most sellers do not want to take the place of the SBA so the amount they will carry will depend on a lot of logistical factors and usually carry 10% to 50% of the purchase price. Once in a awhile they will carry a little more. The repayment is usually principle and interest every month like a car loan.  Sometimes the seller will want extra collateral such as a lien on your home. This is especially true if there are no or few hard assets with the business as found in many service businesses. The seller is not wrong to ask for it. We encourage offers with terms as the listings usually suggest the desire for all cash sales but in reality this isn’t the case most of the time when they are sold.

11) Borrowing Funds From Backers & Friends: Famous last words! Many buyers call and explain they have a good friend or relative or some person who “comes our place regularly and knows me” who well lend the down payment or even sponsor the sale.  This is especially true with the food and tavern or club businesses. Don’t hold your breath, 99% of the time it will never happen, no matter who the person or relationship. The proof – ask the person to form a Nevada corporation or partnership with you, draw up the internal agreement as to responsibilities, paybacks etc., get your E.I.N number from the IRS, then open a 2 signature checking account and have the person deposit $25,000 or $50,000 in the account as a loan, in writing, to that entity. Explain to them that they will see all the listings too and help with the decisions. If they won’t do all of that, you won’t get the money for your purchase no matter what they say. Look at all the heart ache I just saved you.

12) Partnerships, Corporations, LLC’s: This is always a good idea. It is often recommended that your business should be in one of the these entities. You can buy the business in your own “name or assignee” and get the corporation (the most popular entity) prior to closing and we will have the title company close the deal in the name of the entity. There are many tax and liability advantages to these different entities. Please check with your professional advisor as to what is best for you. You do want to use Nevada for the state of origin. Also, you will need an Employment Identification Number from the IRS along with choosing one the different designation types of what kind of corporation or LLC you should have. Then you need to open a bank account with a true sealed copy of the charter for said entity, I suggest you pay for 2 extra sealed copies when you order it. All of this process is worth it in my opinion.

13) Listing Information: Generally speaking, after signing the Confidentiality (#3 above), you will be given a one page information page with the basic essential information about the listings of interest. These information pages will have enough information for you to make determinations, after viewing these businesses, as to your level of interest. Once you have narrowed down your selection, additional information is usually available for your review although sometimes it is not complete pending updates or supplements from the seller. This information is supplied to us by the seller and in no way are we responsible for its content and accuracy as we do not do any analytical research as to the accuracy or validity of the information. Sellers generally use best efforts to be as accurate as possible and you are protected under the “Due Diligence” contingency in the Asset Purchase Agreement with time provided to study the seller’s books and records.

14) Showings & Expectations: Upon signing the Confidentiality (#3 above) and receiving the business information listing sheets, you can go directly to these businesses, without us, and observe most of them as a “customer” thereby not revealing that you are a buyer. If the business is a pizza parlor, go there and buy a pie and have lunch. Some businesses must only be shown after closing and those appointments will be so arranged. Generally you will never see a business that strikes you like buying your home, “Honey, this is it!”. If you see a business that basically fulfills your fundamental ideas or desires, then you are way ahead of the game. Get your check book and come see me at the office to write up the offer.  Please note that in no way are you or an associate ever to speak to anyone or any employee at the business about the business unless your agent made specific arrangements for such a meeting. To violate this is a violation of your Confidentiality (#3 above) and can possibly lead to serious trouble or problems and even liability on your part. This bad behavior can cause serious complications and monetary damages to that business.

15) Business Locations: Location! Location! Location! This is the real estate mantra heard again and again. How does this apply to, “is it a good business location?” Please do not view the businesses you review with the same location values by which you bought your home. In business locations, the good location is the location where that particular business makes money or has the potential to make money. Trust me when I tell you, “You are not going to live there.” Prissy neighborhoods often don’t support many types of businesses very well.

16) Leases, Expirations & Landlords: Invariably, you will have to sign a lease for the premises when you purchase your business. Most of the bigger property owner leases in Las Vegas are the 25 – 50 page leases from hell.  However, if you pay the rent on time, only the first couple of lease pages apply. If you don’t pay the rent then the rest of the lease applies. We assist you in applying for an assignment for your lease, your sale is subject to you obtaining this assignment. Sometimes there is a new lease offered as the old lease expired or is about to expire. We also help you obtain additional time period options if there are only a few years remaining on the lease. Most of the time there are a variety of qualifying requirements requested by the landlord such as credit report, personal balance sheet, resume and possibly a very brief business plan. Generally, whatever the landlord wants, the landlord gets. Older less desirable or industrial properties have easier qualifications. More prime properties might require more financial strength or a cosigner. In most cases don’t expect to renegotiate the basic lease or rent terms, the landlord will probably tell you to drop dead. There is seldom a situation where the landlord will “throw you out” so they can re-rent the space to someone else. That’s because there is always more space being built here than can be filled with tenants.  There is no rent control here at all, supply and demand and free enterprise rule here, that’s one of the reasons you came here, remember??

17) Real Estate Included?: “Can I buy the real estate?” Don’t even ask. These landlords seldom sell the location to one of the tenants and the prices are usually way out of reach of the business buyer. Why spend $200,000 for the business and $1,200,000 for the real estate? Some businesses are more likely to come with the real estate such as a motel, some industrial businesses or maybe a gas station – maybe. 

18) Profit & Loss Statements: Everyone wants to see the paperwork. Very few businesses have the kind of P&L’s that you or your accountant would truly behold. With the exception of much higher priced businesses, the average P&L is done in house on Quick Books® or by a bookkeeper or sometimes an accountant who simply takes the business owner’s figures and translates them to a P&L. Since most sellers want to “zero” out their final IRS tax return, the P&L’s are full of deductions and seller’s discretionary spending items (add backs) so that the actual true profit is not indicated at the bottom of the P&L. Many buyers find that alarming, please don’t as you will no doubt handle your P&Ls the same way unless you enjoy spending lots of money on taxes. We generally offer a work sheet that gives a more accurate look at the seller’s financial benefits. The true final proof is during the due diligence period when you examine all the books and records yourself. Very simply done with you pen, pad and calculator. If you bring these P&L’s to your accountant, short of matching the gross sales income with that number on a tax return, the accountant can’t offer too much more information than you already know.

19) Equipment Lists: As a normal part of all business sales, an up to date schedule of equipment is attached to the contract and made part of the contract. This schedule passes through the transaction, through the escrow closing and survives the closing. The contract calls for all the equipment to be in good working order at time of closing. No other representations are made. Leased equipment will also be on this schedule.

20) Equipment Leases: Often one or more pieces of equipment is leased rather than purchased or owned outright. These leases are anywhere from 24 months to 72 months in length and when you buy the business, the lease has usually been paid down by some amount. When purchasing the business, most buyers will opt to take over the lease as it is a component of the sale price but lowers the cash component by virtue of the assumption amount. Sometimes the seller will payoff the lease at time of closing. With small leases, most of the time, the buyer simply continues to pay the lease, the leasing company just wants a check every month. Very large equipment leases will often require an application of lease assumption along with an approval and this is generally not difficult to obtain. Some leases require a 10% buy out at the end of the lease, others have a $1 end of lease buy out. This information is stated in the lease documents and the buyer needs to obtain a copy during the due diligence period or before.

21) Tax Returns: Everyone wants to see the more recent tax returns and everyone wants to show these returns to their accountant. Understand that tax returns are for taxing purposes and not for defining or establishing the true profit of a business. There are so many deductions and other taxing write offs that short of verifying the gross sales, there is little bottom line profit verification on a tax return. The profit and loss is a better instrument for helping to determine true profit and the due diligence period is the true acid test for profit verification. When the accountant gets the tax return, he probably can’t find any more profit than you can and he usually has a bunch of questions that only the seller or sometimes the seller’s accountant can answer. However, if there is a “rat in the woodpile” being run through the tax return, most of the time the accountant will pick it up.  This is a very remote and unusual situation when it occurs.  Usually the last three years of tax returns are sufficient.

22) Making the Offer: This is easier than you might think. After reviewing the business, looking at some paperwork and possibly chatting with the owner it’s time to make an offer if you feel the business will fulfill your goals. Bring your check book to the office and write up an “Offer and Acceptance Agreement” (contract). Our Agreements have clauses and contingencies already printed that help protect the buyer. The contract can have other specific terms and conditions as well. Please don’t ask to have the seller answer all of your contingency issues prior to completing the contract, that is what the contract is suppose to do. You can offer full price (many do) or offer a price less than full price. It is not always wise to make an offer against a price that is obviously already very low for the value being sold.  Often the seller gets offended and often that low bidding buyer looses out to another buyer who also recognizes the bargain value at the listed low price. You don’t want to hear all of the buyer’s tearful stories about, “I was just trying to get a better deal.” You will need to give an earnest money check at time of signing the offer contract. 

23) Earnest Money Deposits: Your earnest money deposit will need to be between 5% and 10% of the purchase price. Please don’t ask, “Will $1,000 hold it?” The answer is, “NO.” The check will be made out to a title company of our choice. We use title companies that are familiar with business sales. Generally, most title companies are not familiar with business “bulk sales” closings as this is a specialty area of expertise. You and the seller will sign an instruction page form allowing us to hold the check until the contract is all signed. At that time, the check will be turned over to the title company and deposited. Be sure the check is funded, bounced checks must be reported to the seller and the title companies do not hold checks, they deposit them immediately.

24) Due Diligence: Due Diligence is conducted by the buyer after the contracts are signed by all parties to the sale. The buyer has the right to review all books and records for the past periods of time that might be important to verifying the net income, accounts and other important financial information. Most contract due diligence periods are from 3 to 7 days after the seller has put together all of the information. In most cases it really takes only a day or two, part time, to figure out what is going on in a small business, more time may be required as a function of the size of the business. If an accountant is involved, often a few extra days are added for scheduling and accountant availability reasons. Accountants are used only about 10% of the time as it is very easy for you to do the math with your pad, pen and calculator.  Remember, it is only money in and money out. The true income analysis can only be done in due diligence as the P&L’s and tax returns seldom reflect the true income and financial benefits to the seller. Many times, as with food operations, you might put on an apron and work there in order to get a real feel as to what is going on. Please do not get caught up in what is known as “analysis paralysis” with every little detail or bottle of soda the owner bought for himself and didn’t enter it into Quick Books. If you do find a glaring error or problem during the due diligence period, you can cancel the deal and get a refund of your earnest money deposit or you can change your offer on the business. 

25) Accountants: As mentioned in #23 above, accountants are only used in about 10% of transactions and usually reserved for the larger ones. The reasons include the fact that it is not hard to review a simple set of check book and charge items against a handful of monthly bills and see the financial picture very easily. Accountants aren’t much help in the smaller business evaluation where he or she is not the accountant for the seller. Your accountant really has no clue as to what the seller is doing as the seller takes care micromanaging the operation in order to give the best return or income. With the small business, the accountant probably can’t tell you much more than you already know after your own due diligence. They usually perform a better advisory position if the business is a larger size and has been under the care of an accountant during the seller’s ownership. Regardless, your accountant will NEVER tell you, “It is a good business, go for it!” or “It looks OK to me, go ahead and buy it”. For liability reasons, they will not say it is OK to buy the business or give you any kind of permission to move forward with the sale. Don’t expect that as part of your due diligence.

26) Lawyers: In most cases, unless it is a really big sale, lawyers are used even less than accountants. Buying a business is not much more difficult than buying a car, plus all the final legal work and lien searches etc. are done buy a title company. It has been our observation that most lawyers never owned a business, bought a business, sold a business or ever even managed a business. Quite frankly, it is a part of law that is seldom practiced with most attorneys. Because of this, many buyers will say that attorneys cause more problems than they cure. Another common misjudgment is that because the attorney does a lot of real estate work, he or she will be good at businesses – very wrong! As with accountants, an attorney will NEVER tell you it is OK to move forward with the purchase of the business because it looks like a good opportunity. That way you can’t sue your attorney!

27) Liquor License, Beer & Wine: Food establishments, liquor store and convenience or grocery stores require licenses to sell liquor, beer and wine. There are 2 basic licenses, the liquor license which allows all alcoholic beverages and the beer and wine license which permits the sale of beer and wine only.  Packaged goods are another subject. Restaurants can often have the new owner operate under the seller’s license for a period of time while obtaining the new license. Beer and wine requires a new license with no previous owner license privileges. They all take some time to obtain based on the city or county location. Unlike most other states, the license in Nevada goes with the location and not the owner. You will close on the business and apply for the license after you own the business. These businesses are never sold “subject to” your obtaining these types of licenses. The liquor license is the more difficult license to obtain and there is some back ground investigation.

28) Gaming, Slot Taverns: Gaming is very popular with certain eligible Nevada businesses. Essentially some laundromats, liquor stores, convenience stores, restaurants and taverns have slot machine licenses for a limited number of machines. Some of these licenses are “grandfathered in” such as Laundromats. Convenience stores typically have 7 machines, qualifying restaurants can have a “supper club” license for 5 machines and taverns and bars usually have a “tavern” license for up to 15 machines. The 15 slot taverns are not a common listing, they are very much in demand and sell very high as a function of net income.  Gaming is very strict in Nevada and a back ground investigation will be completed prior to issuing the license. This back ground check generally takes about 5 to 8 months with no short cuts. Often convenience stores and taverns will be sold “subject to” the license and take 5 to 8 months to close.  The other businesses where slots are a minor part of the income are generally not sold “subject to” obtaining the license. You need to be confident that you will qualify for the license and use a professional to obtain your license. Any deliberate attempts to “get something by” the Nevada Gaming Commission that results in the license being denied can cause the buyer to loose their large earnest money deposit.

29) National Franchises & Costs: Many buyers like the idea of buying a national franchise, they enjoy the idea of the brand name, franchise training, constant supply of marketing materials, corporate support and cooperation with fellow franchisees. All national franchisors will charge some form of royalty and advertising costs. This can range from 5% to 12% of the gross sales and payable monthly by automatic withdrawal from the business checking account. In addition, the buyer will pay the one time franchise transfer fees, other franchise fees involved with the particular franchisor and cost of transportation, housing and meals at training done at corporate headquarters for 1 to 3 weeks. Yes, you or your manager must go. You will learn a great deal at these training schools.  Generally, the franchisor won’t allow you to close until you complete franchise training and you must attend soon after the contract due diligence is completed.

30) Gas Stations & Convenience Stores: This is a popular business topic in Las Vegas. Convenience stores (C-Stores) generally are big gas stations, they have slot machines and sell, beer, wine, cigarettes and other food and sundry items. There appears to be a large interested buyer population who are delusional by the prospects of owning such a business here. They are uncommon listings and usually very expensive. The sale may or may not include the real estate. If the real estate is not included, the rent is very high as you are paying a capitalization rate on a large investment. Although there are some good ones, the real problem is that Clark County is C-Store gas station overbuilt by about 400% as a function to the population. The highest gas station foreclosure rate in the United States is right here in Las Vegas. No major oil company has any plans to expand their operations here unless it is a new location on the frontier of the growth.  Even the SBA won’t touch them unless the sale includes the real estate plus a 35% - 40% down payment and the buyer must be experienced at operating a gas station.  California buyers who are typically used to a gas station doing 250,000 gallons per month in California are shocked when they come to Vegas and find that most of these operations here are lucky if they do 100,000 gallons per month. And to top it all off, you have a few local major players who will be on the opposite corner from you and sell their beer at cost or below cost and sell their gas at cost long enough to ruin your newly purchased operation. Do you still want a gas station here?? Most buyers won’t pay up for the few good ones.

31) Topless & Nude Clubs: These are another popular variety of businesses, this group can be expanded to include out call services, internet and phone sex businesses. We are very experienced in this line of business sales. These listings are far and few between. Gone are the days where an operator can simply go lease the space and run down and get a cabaret or nude club license. Spare me from the buyer who goes to a local club, has a few too many drinks and too many lap dances and tells some almost naked girl that he is going to buy a club like this and make her the manager. These operations are tightly controlled and monitored in Las Vegas. These clubs sell for very high multiples of income, actually much higher than similar clubs found in other major cities in the United States. You will pay up to be in Las Vegas and the sellers are not easy.

32) Las Vegas Strip Locations: Another popular high end business location request is to be on Las Vegas Blvd – the “Strip” or inside of a casino hotel. These businesses, usually retail  operations or restaurants, are far and few between as well. The prices are very high, the rent even higher and the casino hotels are nice enough to invite you to share a piece of your gross sales with them.  Generally speaking, if your food or retail business is not right on the Strip or in a casino hotel, then you want to be located away from the Strip in some other good location, not right next to the Strip or near it. The reason is that it is generally very difficult to compete with the Strip and being next to it will not draw the people away from it. 

33) Funding The Closing Of The Sale:  Let’s talk about the money! All closings must be paid for with guaranteed funds. Bank Cashier’s Checks are a very common way to pay the sale proceeds. Bank wiring of funds is the other very popular method of moving the closing funds to the title company. You cannot use a personal check for any payment if the payment is made to the title company for any purpose. You need to secure these funding methods for the balance of funds required for closing well before the closing of escrow.  If you are selling stocks or mutual funds, there is a 3 or 5 day settlement period required before the funds are available to you. Have the stock broker company wire the funds to your account, then you wire the funds or draw a Cashier’s Check on that account and made out to the title company. Your stock broker checks mailed to you are not suitable or guaranteed for closing purposes.  Always do your funds wiring at least a week ahead of time. Contrary to popular belief, wiring of funds can take up to five days with Homeland Security and the Federal Reserve double checking on large transfer amounts along with the usual modern electronic glitches and bank mistakes such as incorrect account information taken at time of wiring.

Hopefully you have benefited from this information. It is important to review it prior to calling the office for Ed Smith as these points of view answer the most common questions that we hear from potential business buyers.