Why 80% Of All California Business Buyers Never End Up Buying A Business

First the dreaded statistic: 80% of all buyers looking to buy a small to mid-sized business in California never end up doing so!  A shocking statistic to most buyers of small businesses. Below are some helpful hints to make you a successful buyer of a California small business.

Many of the helpful hints I chat about in my new eBook Buying A California Business - The Ultimate Guide For Savvy Business Buyers! - and in the ProBuy And ProSell Programs I developed for both California business buyers and sellers.  If you follow all of these tips you will be a successful buyer of a small to mid-sized California business.

WHAT MOST BUSINESS BUYERS DON'T KNOW - BUT SHOULD ABOUT THE BUYING PROCESS

1. Most buyers of California small to mid-sized businesses don't realize that 70% or more of business brokers and agents don't cooperate on their listings - meaning they don't share their information with other brokers and agents either intentionally or unintenionally by not advertising or promoting their listing(s) to other California business brokers, agents, and intermediaries.

2. Most buyers call only a few brokers or agents thinking/hoping the broker will "find" or "search" for them and find the ideal business to purchase. Most business brokers and agents are so busy trying to sell their own set of listings that they rarely have the spare time to do non-paid searches for a buyer who may not end up buying a business.

3. 60% of all California businesses for sale are not advertised or marketed - they are "pocket listings", "unadvertised listings" - these are listings that business brokers and agents don't have listed but know about because of their daily dealings with small business owners in California who want to sell but will not give a contract or written listing to a broker or an agent. They will sell if the broker or agent brings them a "serious buyer". What this means to you as a serious business buyer is that you have to get the word out to as many California business brokers and agents as possible to widen your "comprehensive search process".

4. In all business brokers directories only the main broker is listed - in most instances there are more (sometimes up to 10-100+ agents) that aren't listed but have great "pocket" or "unadvertised listings" that others in the office don't know about - you need to reach all these agents directly because of #3 listed above.

STEPS ALL SERIOUS BUSINESS BUYERS SHOULD DO TO BE SUCCESSFUL:

1.  If you know what types or locations of businesses you are searching for you need to post and keep posted at all times a Business Wanted To Buy Announcement or utilizing the BizBen Business Buyer ProBuy Program and get the word out to as many California business brokers, agents, intermediaries, and owners as possible - you need to be highly visable - this step provides that!

2. You need to scan the new and refreshed business listings for sale  (Save all interesting listings to your BizBen My Admin section when you are logged into your FREE BizBen Account) posted everyday at BizBen. On average over 400 new and refreshed postings / listings are posted and in many instances offers and letters of intent come quick on the more popular new listings - don't miss out on these - check the new listings daily on BizBen (but don't forget to search on all older posted listings too and Save them to your BizBen My Admin section).

3. Sign up for a FREE BizBen User Account to receive new listings by Instant Email Alerts and Daily Email Reports of all new and refreshed postings / listings posted that match your search and buying criteria. Make sure you put @bizben.com in your "Safe List" in your email program/software so these Email Alerts / Reports don't end up in your spam filter - you do not want to miss out on any great new listings posted and sent to you.

4. Contact as many of the brokers and agents listed in the California Business Broker Directory with your request (let these brokers and agents know you saw their info in BizBen) - what types, locations, prices, adjusted net income - what you want in your ideal business you are searching for. Make sure you get them a Buyer Profile, and a Non-Disclosure on any of their listings they may be selling (fax these back with their NDA/Confidentiality Agreements). Stay in touch will all of these brokers and agents on a consistant basis - see step #1 above - post a Business Wanted Announcement - the buyers who are more active and visable tend to be the ones who get the better businesses that are sold!

If you follow the above steps - and I mean all of them you will be successful in buying the best California small to mid-sized business that match your personal needs and search criteria!

Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business

Contributor:

Peter Siegel MBA, BizBen Founder, ProBuy, ProSell, ProIntermediary Programs

Areas Served: All Of California

Phone:  925-785-3118 Cell, 925-785-3118 Text

Founder Of BizBen.com (since 1994). I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I consult daily with buyers, sellers, and brokers daily about buying and selling California small to mid-sized businesses. Call 925-785-3118.

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Contributor: Chuck Post: Laundry Specialist, Consultant, Due-Diligence

Yes, as one who is primarily a Buyers Broker and Industry Consultant I can add that the biggest issue is actually the Broker offering unrealistic expectations to the Seller. Too often the Brokers, anxious to get the listing, do a poor job of valuing the business. When it is tested in the market place the Seller is not ready to accept the offers at the levels presented. Of course Sellers will want as much as possible and brokers may loose the listing if they give a lower valuation. But, I'll let Peter address that in another writing.

The Brokers role clearly includes the valuation. Considering that the Due Diligence will be conducted by the Buyer and will focus on both the history and the forward capabilities of the business, the Seller needs to be made aware of what the business will be worth to a qualified Buyer.

When we represent a Buyer, we have the full inventory available. We find that Selling Agents will cooperate with us once they realize that our Buyer and we are legitimate and know our business. In some cases the commissions need to be worked out and could cost the Buyer some extra dollars, but well worth it to them to have the added security of someone representing them too and a clearer picture of the businesses capabilities.

Contributor: Timothy Cunha JD: Business Broker, SF Bay Area

There are several reasons for 80% of prospective buyers not actually purchasing a business. Here are a few in my opinion.

1. They think they know more than they know and don't seek out or listen to the advice of a business broker, accountant, lawyer, business coach.
2. They have unrealistic expectations about "absentee ownership."
3. They aren't realistic about the time and attention they will typically need to devote to a business to attain or sustain success.
4. They expect someone else to do the work for them. No one can search for a business that's right for the buyer as well as the buyer himself.
5. They over-estimate their ability to finance a business purchase; they have poor or mediocre credit and/or limited assets.
6. They don't get prequalified for business purchase financing.
7. They allow their "feelings" to cloud their "reason".
8. They suffer from "paralysis by analysis," not seeing the forest or the trees, but concentrating on the twigs and leaves, until the seller becomes fed up and goes with another buyer.
9. They have unrealistic and unreasonable expectations about how much debt, how much free transition time, how much retention of liability, and how much guarantee of future success the seller will contribute to the deal.

Contributor: Joe Ranieri, Business Broker: LA, Orange County Areas

Great points, Peter. #2, about brokers acting as buyers agents is one of the main differences between business brokers and either residential/commercial brokers, because of the fact that so many business brokers don't cooperate with other brokers. I've received calls from business owners looking to expand their business, and are looking for another location, and are curious if I know of anything available. I can search for these business owners, but unless it's listed in the computer with a broker who will cooperate or if I have something in my own inventory, then there is not much I can do. If I get numerous requests for a certain type of business, then possibly I will shift my marketing campaign and find one to list and sell.

Contributor: Christina Lazuric: Business Broker - Orange County

Those are some good points, that many buyers don't realize regarding broker to broker co-operation.

I disagree that with the comment that sellers have to remain active in their listing to get the broker to pay attention. If the seller has been 100% co-operative in the listing and has provided the broker with cleaned up books, is responsive, helpful and it's been priced well, then the broker has what they need to sell it.

I would also add that a reason I see many buyers don't end finding a business is because they have unrealistic expectations. This is mostly due to a lack of experience in running a small business. Many buyer come out of large corporations that have enormous budgets and many departments. Small businesses have 1 exhausted seller running around trying to do as much as possible. That disconnection can sometimes make a buyer judgmental about everything from how the business is being run to the book and records.

Buyers remember when you own the business these are things that you can change for the better when you own the business. You should be buying a business for YOU can do with it and many fixes are possible with capital and patience.

Contributor: Business Broker: LA County Area

Peter: I would add a couple other items that many buyers and business owners don't know about our business.

1) Sadly, the vast majority of brokers do very little to actively and actually market your business for sale. In our internet universe, it's become almost standard practice for many brokers to post their business listings on a small handful of websites, then just sit back and do little else.

2) Brokers work harder on the business owner's behalf when we know someone is watching. Most of us will hate to admit it but it's a simple reality. Owner's who've listed their business with a broker will get better service, exposure and ultimately better results, when they remain actively involved in the marketing and sales process.

3) Before hiring a broker to represent you and your business, ask detailed questions about how they market your business, how they find buyers, and how they will present the information. Make sure you review and approve the flyers, executive summaries and marketing pieces that go out. Don't presume the broker is getting it right. We often don't.

4) Check up on your broker from time to time. Have a friend or colleague anonymously inquire about your business. See if your broker is returning calls promptly, giving accurate information, pointing up the benefits and advantages of your business. Determine if your broker is "selling it."

5) During the marketing process, make subtle but specific gestures that let your broker know you are watching their actions. It's just human nature to work harder for someone who is demanding results and highly involved. I find that far too many owners, buried in the running of their own business, wrongly do nothing after signing the listing and presume the broker is doing everything possible to get their business sold.