Buying a small to mid-sized California business can be a complicated process. Once you go through the actual sales process, you actually have to run the business you just bought! While being an Entrepreneur has its perks, it can also be challenging so before you decide to buy a business, you need to make sure you are ready for the challenge and that you have a thorough understanding of the company you plan to own.
I have been a part of many deals throughout my time in this industry and I can't tell you how often business buyers miss information about the company they plan to buy because they aren't prepared with a list of questions to ask. Each transaction is different so ask additional questions specific to your own situation but here is a list of 10 questions to get you started.
Ask yourself these questions before starting the process of buying a business. Once you find a business you are interested in, I've given you another set of questions to keep in mind as you do your due diligence.
Personal Questions to Ask Yourself before Buying a Business:
Is it the right time?
While being an Entrepreneur may be something you've always wanted to pursue, before you buy a business you need to be honest with yourself. Evaluate your current circumstances and decide if it is the right time for you to take this leap. As I said, the process can be challenging and demanding so keep your personal commitments in mind as you think this through.
Do I have the support of my spouse or significant other?
When you become a small business owner your schedule and your finances may change. Make sure your significant other understands this and they are willing to support you if things don't go as planned.
How much working capital do I have access to?
Having access to working capital is important to ensure you can keep the business running if you should incur unexpected expenses or changes in revenue. I've seen people buy and run small businesses successfully without much working capital but it's always good to have a safety net and to be honest with yourself about the risks you're taking.
What do I want the business to do for me?
I suggest you decide early on what you want out of the business you plan to buy. Some people buy businesses as a career move and plan to work at them daily. Others buy businesses for a stream of residual income. Decide what you want up front so you can look for a business that can accommodate you.
Questions to Ask About the Business:
Why is the owner selling?
Asking why the owner is selling is important for a number of reasons. For one, it may help you uncover problems with the company if the owner is selling because of declining sales or other problems. It is also important because if the owner is in a hurry to get out you can use that information in your favor during price negotiations.
How did the owner arrive at the asking price?
Ask the owner what methods they've used to arrive at the asking price. This can help you evaluate whether the business is fairly priced.
How much is the owner taking in salary?
Many people don't think to ask this and it is very important. If the owner is taking a salary of $50,000 and you're accustom to living off of $100,000 per year you need to decide if you are willing to make the adjustment to your income or if the business can afford to pay you more.
What can I do to grow or improve the business?
Even if the company you want to buy is doing well, it can always do better. Before you buy a business that is for sale you need to have an honest conversation with yourself as what skills and experience you can bring to the table that would grow or improve the business after you own it.
Is the seller willing to sign a non-compete?
Regardless of what the circumstances are for the sale, I suggest you get the owner to sign a non-compete if appropriate. You don't want the owner to sell you his or her business only to open up shop down the street as your competitor.
What is my exit strategy?
Your exit strategy is probably the last thing you're thinking about at this point but I encourage you to consider it early on. If you think about your exit strategy you can buy and grow a small business that will provide you with the opportunities you want today and in the future when you are ready for your next venture.
About The Author: Peter Siegel, MBA is the Founder & Director (ProBuy & ProSell Programs) at BizBen.com. He is also a Business Purchase Financing Expert and Advisor. He works with potential business buyers, business sellers, brokers, agents, investors, & advisors. Reach him direct at 925-785-3118 to discuss strategies regarding buying, selling, (or financing a puchase of) small to mid-sized businesses.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Joe Sandbank, Esq: Legal Services For Buyers, Sellers, Brokers - Throughout California
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process. Please phone 916-672-8018 for more info.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services - California
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.
|Janet Carrera: Escrow & Bulk Sale Services - San Francisco 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.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services - California
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.
|Shalonda Chappel-Pilgram: 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.
|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.
|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.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Should I Buy A Business That is Losing Money? Feedback From Top Advisors
Are businesses worth taking a look at when they are losing money? Multiple Advisors & Business Brokers weigh in on this topic and say yes! (but be careful) on a BizBen Discussion. Some great feedback on this topic will make potential business buyers (and money losing sellers) want to read this info!
|What Factors Are Considered In Valuing A Small Business? Advisors Weigh In
Valuing a small business is not guess work. It's not what some other businesses of the same type may have or may not have been sold for, it's not even what a business owner "feels" they want or deserve. It is a formula based on many factors. Peter Siegel, MBA from BizBen & others discuss this topic.
|Is There Such A Thing As Paying Too Little When Buying A Small Business?
We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.
|Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Business?
Some buyers search for an absentee business to own, wanting to collect profits generated by a successful enterprise without having to stand at the sales counter or cash register, without having to cook, operate equipment or talk to customers. Here's some insight about finding such a business.
|Why Deals Fall Out: Unrealistic High Asking Prices Are Usually The Reason
The unfortunate truth is that approximately 50% of all small business sales transactions fall out. While failed transactions can happen for a many reasons, Peter Siegel, MBA (BizBen Director & Business Purchase Financing Expert) discusses the main reason deals fall through; steep asking prices.
|How Do I Navigate Through The Negotiation Process When Buying A Business?
Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.
|Absentee Run Small Businesses - Is That Really A Possibility For Buyers?
Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!
|What Is The Typical Business Broker Fee For Sellers And Buyers? Who Pays It?
Was just asked the question from a business owner what the "typical commission" amount is for a broker or agent and if upfront fees are common? Thought this might be a great Discussion topic on BizBen for both business owner/sellers and potentially for business buyers (buyer representation).
|See All News, Tips And Events|