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.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence
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 Service - 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.
|Shalonda Chappel: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Elizabeth McGovern: Escrow Services - San Francisco 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 & Bulk Sale Services - CA
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.
|William F. Ziprick, Attorney: Legal Services For Buyers And Sellers
Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of successful closings. Office: 909-255-8353, Cell: 509-951-7230.
|Helen Yoo, New Century Escrow - Escrow Services In 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.
|Jim Saxton, Liquor License Broker & Consultant - SF Bay Area
20 years experience of local governmental requirements, such as Police Departments, Zoning / Planning Departments, and ABC District Offices, my company Liquor Licenses of SF Bay Area is very qualified to resolve all of your concerns during the liquor license transfer process. Call 925-787-0770.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses
Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 925-785-3118 shares his views.
|Business Purchase Financing Expert Peter Siegel - Tips On Proving Cash Flow
What are the actual "provable" adjusted net earnings (cash flow) of a small to mid-sized business being purchased? Buyers need to look carefully at all financial info for the "real" adjusted net income/cash flow. Peter Siegel, MBA (BizBen ProBuy & ProSell Lead Facilitator) at 925-785-3118 explains.
|Thinking About Selling A Small Business? Know These 8 Factors That Matter
The likelihood of selling a business is often determined by external factors in the marketplace. Here are eight influences on how easy, or difficult it might be when selling a small California business. Peter Siegel at 925-785-3118 (BizBen ProSell Program) explains these factors for owner/sellers.
|Business Purchase Financing Help - Expert Tips For Faster SBA Loan Approvals
Business purchase financing advisor Peter Siegel, MBA shares his views on SBA loan financing. He explains the nuances of the SBA loan process when considering business purchase financing or getting pre-qualified. Reach Peter Siegel, MBA direct at 925-785-3118 regarding SBA & Non SBA Loan Financing.
|Buying A Business: Why Is It Important To Look At Its Tax Filings?
Business tax filings are very important factor in determining the credibility of business financials. Just seeing those financials, you can't determine whether those values are overstated or not. Some business owners provide made up financials to buyers - so, that's where tax fillings come in.
|8 Tough Questions You Most Likely Will Be Asked When Selling Your Business
When selling your small business, you'll be bombarded with questions - from the brilliant to the ridiculous. You need to be prepared. Here are some of the key questions you can expect to be asked. Tim Cunha (SF Bay Area Business Broker at 650-600-3751) reviews many of these possible questions.
|6 Simple Things To Increase Business Value Before Offering It For Sale
How do you value a small business before putting it on the market? Tim Cunha, JD offers 6 items all business owners should consider. Other advisors and business brokers also weigh in on this very important topic especially when over 70% of small businesses never end up selling (due to pricing).
|BizBen Podcast & Webinar: Business Purchase Financing And SBA Loan Options
Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 25 years advising on all types of financing for business buyers in this BizBen Podcast & Webinar - SBA loans, Non-SBA Financing, Alternative Financing Sources.