Anyone who wants to know how to buy a California business for sale should understand how the market for small and mid-sized California businesses has been rapidly changing.
There are at least six "to do" practices that apply to the current market. The smart California business buyer should become familiar with them. These are a partial list of what is covered in the successful BizBen ProBuy Program for business buyers.
1. Require seller financing. When money was more readily available for small business borrowing, and business buyers had sufficient collateral in their home equity, many if not most sellers could expect to be "cashed out." That picture has changed dramatically. The entrepreneur wanting to sell today will probably be required to carry back part of the purchase price.
2. Consider an earnout. A pricing gap occurs when a business with a profitable history is now experiencing a slump in sales and earnings. The seller wants to be paid on the basis of the glorious past; the buyer thinks the price should reflect present performance. The solution might be an agreement by which the buyer's payments to the seller, hence the final price paid, will be adjusted up or down depending on the performance of the business for an agreed-on period after close of escrow.
3. Figure in the cost of the business "makeover". Part of the challenge in knowing how to buy a business is to evaluate the changes needed so a company can be adapted for the current business and social climate. When placing a value on a business, it's important to consider the makeover cost and perhaps adjust the offering price accordingly.
Among the company features to be considered are its website - providing information, promotion, ordering, customer relations and related functions, social media campaign, customer relations protocol, system of green practices, and employee/contract-labor composition of the work force.
4. Determine what is renegotiable. If the premises lease is near its end, if the pricing and terms of supplier arrangements are no longer advantageous for the business being considered, it may be time for significant changes in key relationships.
The supply/demand balance for rented retail and commercial space in many markets has changed to favor tenants. Similarly, suppliers of products and services to the business still may be operating on price schedules from 2008. Entrepreneurs who know how to buy a business are aware of the cost savings that might be implemented by renegotiating with vendors.
5. Insist on real inventory value. Paying a seller full cost-basis prices for inventory of merchandise and supplies was common practice in business transfers. No longer.
Now that business owners have to operate with a "clean and mean" mentality, the buyer needs to question the inventory values claimed by the seller.
Buyers should purchase only items that have use and value for the business. If the seller wants money for old stock discovered under an inch of dust, it should be purchased at a fraction of original cost, or taken on consignment; paid for only if and when sold.
6. Buy into industries with a future. As part of the how to buy a business tool-kit, the smart buyer becomes educated about the kinds of businesses that are expected to thrive for the next generation or so.
It's obvious that buyers should be interested in enterprises involved in the green economy and avoid offerings on businesses that have outlived their usefulness. But it usually requires some education to learn what the business landscape will look like in the next ten years and beyond. Because styles and market patterns change quickly, that education is more important now than in the past.
An old saying maintains that as times change, the people who come out on top are the ones who know how to change to fit the times. That's a good lesson for those who want to be successful when buying a business today and in the future.
About The Author: Peter Siegel, MBA is the Founder and daily Administrator of BizBen.com and is the Director of the successful BizBen ProBuy Program (90% success rate) for serious business buyers. He has written three eBooks on the process of buying, selling, and financing a California business purchase. If you need assistance in your search to buy a California business and would like a free consultation or more info about the BizBen ProBuy Program phone Peter direct at 866-270-6278.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Jeff Sacher, Business Broker - North Bay Restaurant, Retail Specialist
Jeff is a leader in business brokering in the North Bay. Since joining Santa Rosa Business And Commercial in 1999 he has assisted Buyers and Sellers in over 200 business sales and acquisitions. Jeff provides other services for his clients as well. Reach Jeff and his team at 707-888-4972.
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