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Buying A Small To Mid-Sized Business: A Checklist For Serious Buyers

After consulting (BizBen.com ProBuy Program) with business buyers for over 25 years I highly encourage them to have a "buying a business checklist", an important tool if they are serious about purchasing a company and not wasting a lot of time looking.

Only 20% of all potential business buyers actually end up purchasing a small business (bottomline: use the tips below to be part of the 80% who are successful)!

Successful buyers typically are prepared, have been professionally pre-qualified for business purchase financing, have a reliable team of professionals assisting them, post a comprehensive business wanted to buy posting that attracts the attention of not only serious sellers but also sellers who may be waiting on the sidelines looking for a "vetted" buyer, and buyers who can successfully negotiate a fair price and deal terms that take the transaction to a successful close.

The main items that should go into that checklist to buy a small business are:

1. Getting personally prepared: This includes putting together a buyer profile and personal financial statement, description of what you seeking - types of businesses wanted to buy and geographic areas interested in, and a resume summarizing your work experience in how it relates to businesses you may be interested in purchasing.

These documents demonstrate you are a "real" buyer, deserving of cooperation from owner/sellers, business brokers, and agents. This information is personal, of course, and should only be shown to sellers who have a business you might want, or brokers whom you believe are honest and professional. Willingness to be upfront about your interests and capabilities will immediately separate you from the majority of business buyers searching for businesses being sold (either through published postings or "gray market businesses that my be for sale".

Another preparation strategy is to apply for an SBA-backed loan pre-qualification (or other financing options - bridge financing, non-SBA commercial loans, retirement rollover financing, etc). Buyers who take this step will find out how much capital they will have to work with, and can gain a competitive advantage over buyers who look for a business first, and then look for business purchase financing options after the fact.

2. Organizing a team: The buyer who has a "transactional" lawyer and accountant or CPA (familiar with the process of buying and selling small businesses) listed on his or her buying a business checklist will be in a position to move quickly once an interesting small business is located for possible purchase. This means of course that these professionals are ready to be of service - the transactional attorney helping with language in the contracts and protecting you from problems, the accountant or CPA to help value a business and possible conduct due diligence (consultants can also assist with this along with due-diligence specialists).

While other buyers interested in a particular business are trying to find the professional help they'll need to proceed, the buyer who has taken care of that step will be able to move more quickly than competing buyers on deals.

3. Cast a wide net. The more small businesses you're aware of for sale, the better the chances of encountering just the right offering in a short period of time. This means working with more than one broker or agent (remember the 70% rule of brokers/agents that do not cooperate with each other fully on their listings), following up on for sale postings with a call, email, and text (yes all three), even posting a business wanted to buy request on our website yields really good results for motivated buyers trying to reach sellers and brokers with businesses they may want to sell "if the right buyers comes along".

4. Respect the sellers' request for confidentiality. And be ready to sign a non-disclosure agreement. Showing that you are honest and "above board" will earn the cooperation of sellers and brokers. And without that, it's nearly impossible to buy a business if you get a rep amongst those selling that you can't be trusted with information that shouldn't be shared.

5.  Try for a win-win in negotiations with an owner/seller whose business you'd like to buy. The purchaser who wants to beat a seller in the price and terms aspects of a deal, might find he's taken "round one" but then when extra help is needed--a bit longer to pay off the note or advice about some confusing aspect of running the company--the seller will be unwilling to accommodate. Remember 50% of all deals never are completed and one of the biggest reasons is the inability to be flexible with terms and conditions of a purchase.

6. Pay attention to the details when a transaction is in the escrow/bulk sale process. After all the work and excitement as you come to the end of the buying a small business checklist, it's a shame to lose a deal over some issue that might have been avoided had you noticed a developing problem and taken action right away. Make certain the escrow company is competent and is doing everything that was promised when you signed the escrow/bulk sale documents.

Buying a small business is not rocket science, but like anything else if you want to be successful you should pay attention to the details of the entire deal and surround yourself with a dedicated and professional team to assist you in your efforts.

Categories: BizBen Blog Contributor, Business Purchase Financing, Buying A Business, Due Diligence Issues, How To Buy A Business, Small Business Financing

Contributor:

Peter Siegel, MBA
Areas Served: Nationwide - All Areas
Phone:  925-785-3118 Cell, 925-785-3118 Text
Peter Siegel, MBA - Founder Of BizBen.com (over 25 years), I am the Lead Advisor for the ProSell, ProBuy, & ProIntermediary Programs. I advise/coach buyers, sellers, and brokers daily about buying & selling small to mid-sized businesses throughout the Nation. I can be reached direct at 925-785-3118.

Comments & Feedback From Pro Intermediaries & Pro Advisors On BizBen:

Posted By: Joe Ranieri, Business Broker: LA, Orange Counties, California    

One major mistake that I have seen over and over is when a buyer will negotiate directly with the seller instead of going through the broker. A buyer may ask for concessions to close the deal, and ask the seller, which may lead to the seller being offended and wanting to cancel the deal. The broker should communicate with the seller during negotiations, because they are an impartial member to the transaction, and are able to remove emotion from the deal. Sellers and buyers negotiating with each other is a major reason why For Sale By Owner transactions can be so problematic and not close.






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