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Top Tips And Best Practices For Business Buyers: Searching, Buying

Comments & Replies: 11     Views: 2758     Posted By: Peter Siegel MBA  Peter Siegel MBA: BizBen Founder, ProBuy/ProSell Program Director

Topics: Buying A Business     Tags: buyer representation, buying a business, financing, non SBA loans, SBA loans

Contributor: Business Broker, SF Bay Area

Here are my top five criteria for a Buyer looking to buy a business.

(1) Would you work full time running the business or expect it to be part-time or absentee.

(2) What is your expertise, skill set, or interests.

(3) How far from home are you willing to commute.

(4) How much money do you need the business to make in order to replace your current job.

(5) How much money (not borrowed) do you have available to invest to purchase a business.

In my experience finding businesses that are part-time or absentee is extremely difficult. It is important to look for businesses that you either have some expertise, skills or interest in. Otherwise you will waste a lot of time trying to figure out what the business is about and invariably not buy it.

If the business is far from home, you will not spend adequate time with the business hence invariably you will get cold feet before you buy it. If the business doesn t make enough money to replace your job (or what you can make as a salaried person) you will never buy the business. Then you need to have a reality check of the amount of money you have available to invest and the amount of money you expect the business to make and figure out if that is realistic.

I recommend to buyers that they visualize what it would be like running the business, e.g. what you will do every day, who you will be interacting with, what kind of issues will you be handling, what the hours are like, what the environment is like, and what the commute will be like.

Also think about how you would feel when you are telling your friends, acquaintances, and relatives what exactly you will be doing. If all that excites you then most probably you will do well in that business. If it doesn t and you are only excited about the money, then that is not a good business for you.

It seems like you haven t found the ONE yet. Finding the right business is no easy task. Take the time to do your analysis and use your gut instincts to make a decision. Go with your own pace. This will save you from future disappointments.

Contributor: Transactional Attorney

As an attorney who has also personally grown, sold, and purchased businesses, one of the first things I tell my clients is that sometimes the best deal you will ever make is the one you don't make.

Depending on your requirements and location it's very possible that you could be a serious business buyer with the right strategies and expectations and simply not find the "right" business within a year. If you're looking for a specific type of business and are in an area where there just aren't that many of those businesses within the radius you can realistically consider, it could easily take longer than a year.

In my experience as someone who has grown, built, and sold businesses both personally and in working with my clients, the most important strategy is not to settle on a business that isn't right for you. A year is an arbitrary period of time, and there's no magic rule that you're always going to find a great business that meets your criteria within a year.

Without knowing why you have rejected the businesses you've looked at over the past year I can offer some general advice:

1. You're generally better off buying a great business at a somewhat higher price/multiple than a mediocre business at a great price. If you're rejecting great businesses that have solid cash flow because you feel they're priced too high, you may want to reconsider your price parameters. Even at a relatively high multiple it's going to be hard to find another investment that can pay you as well as a great business with a strong track record and proven, consistent cash flow.

2. If you have spent significant time on due diligence with multiple businesses over the past year and are finding reasons to kill the deal only after extensive review, you may want to rethink how you're selecting businesses and going through the pre-diligence process. Asking the right questions before getting too far a long can save you a lot of time and allow you to look at many more businesses over the course of a year.

3. On the other hand, if you have not wanted to get into due diligence on a particular business (or more than one), it's a good time to ask yourself why not. There's no right or wrong answer, but if the reasons are personal to you rather than based on the numbers, operations, reputation, etc. of the business then you may want to reevaluate why you're looking to buy a business in the first place.

4. Be open minded: There's no harm in exploring a few industries you might not have considered from the start. When I purchased one of the businesses I've owned I had no intention of getting into that industry at the start. But when I looked at the people, operations, and numbers behind the business I immediately knew it was a winner. If you're locked into very specific areas it's at least worth considering a few other options. You never know what you'll find.

Finally, whether you're working with a buyer's broker, an attorney with business purchase experience, or an accountant/financial advisor, it's good to have someone who can give you honest, unbiased feedback on your goals, search criteria, and the businesses you do find.

Contributor: Business Appraisals, Valuations Advisor

Some Business Brokers want to spend as little time with you as possible thus trying to get you to buy quickly. Their advice is to change your expectations to match their willingness to work with you.

I was a Business Broker for over 23 years before I slowed down and now just do Business Appraisals. During those 23 years I had a number of businesses that took more than two years to sell and one took four years. I found that many buyers had been looking to purchase for over two or more years also. You have to find a business that you like and feel comfortable with investing your hard earned savings into. Don t compromise on your standards, so what if it takes a few years or more.

As far strategy goes find advisors to help you, accountants, business owners and business consultants. BizBen has a list of people that might help you.

A year could be a long time to go without making an offer on a business if you are looking efficiently and know what your criteria is for a good fit. I would start with a list of characteristics that are important to you as a buyer. There are two ways to go about looking for a business. You can do it yourself buy looking up various listings on the internet and working with the listing broker, or you can employ an agent to represent you who will take an active role in looking for a business for you.

This exclusive agent arrangement may work for a buyer who does not have the time to search all the many listing that are available. In an exclusive arrangement, the buyer s agent will represent the buyer exclusively ( unless it is his/her own listing). This might be a more efficient way of finding a good business to buy.

But in the end, make a good decision and don t feel pressured. One of my best clients (and smartest) has only 5 restaurants I sold him his first one 25 years ago and his last one about 10 years ago and he is looking every day!!

Contributor: Business Broker - Preschool Specialist

Every business broker has as an obligation to his {or her} profession to help you to think about your possibilities. All brokers are more than willing to nudge you along the pathway to purchase, to help you see that the opportunity they have for sale is the one for you.

But there could be more than a grain of truth in what these brokers are telling you. Does that mean that every business a broker presents is for you? Of course not, knowing what you are looking for is the most important strategy.

That means; the type of business, the price range, the location, the potential for a given business in a given location, the financials, etc. To illustrate what I mean about there being more than a little truth, or least a bit of wisdom in a broker saying that you may not be serious; I have shown opportunities to potential buyers that I knew would be great opportunities for them, but the location just was't posh enough, the way the business was being operated was a factor { which shouldn't be a real consideration, because you are buying a business to put your own stamp on it}, the parking wasn't perfect, the access wasn't perfect. etc., etc., etc.

Were these people just not serious? That might be too strong of a statement to make, but you can be your own worst obstacle if you put too many barriers in front of yourself.

How far would Bill Gates have gotten in his little business if he had said to himself; " Start a business in my garage, that's beneath me, what will people think of me, they will never take me seriously, I have to have the proper surroundings to be successful." Don't allow yourself to become the "Bill Gates" that could have been, but never made it because he never tried to take the first step. It doesn't mean to become impulsive or cavalier about it, put don't be like the deer frozen in the proverbial headlights either!

Contributor: Business Broker - Lliquor Stores, Markets, Hotels, N CA

The question is: Does the Broker understand your needs and similarly do you understand what you really want and what you can compromise on and have you prioritized your business criteria. For instance, how would you prioritize the following issues: the type of business or types of businesses of interest, what net profit is needed, which geographic region, business hours, knowledge base of business, absentee ownership or owner operated, amount of down payment and financing by SBA or Seller. The most important thing that a Buyer should guarantee himself/herself is the bottom-line profitability (monthly net profit after all expenses and payroll) and discard all value based on all future growth potential. If a buyer is unable to maintain good inventory due to lack of profits, the business will surely fail.

I would say hands down selecting an intermediary that you get to know and that understands where you've been, where you are, and where you want to go can save you a ton of time. There are some buy side firms that specialize in only Buyer representation, so I would recommend starting there, or potentially latching on to a firm that has a Broker or Agent that you gel and get along with if you only have approached or care to approach Brokers that have existing inventory they are selling.

You'll ultimately spend 50-100 hours with the person who will help you buy a decent sized Company, so you better enjoy their sense of humor, demeanor, etc....b/c it's a long, strange journey many times to get to the finish line. A Broker that can give you the time to get to know exactly what you are looking for, what your general geography & industry criteria are should be able to direct you to what's on the market now that best suits your needs.

What we've done for clients that have struck out with all existing opportunities on the market is we have charged the Buyer a marketing fee and then conducted custom marketing campaigns that are bankrolled by that party with "right of first refusal" on any leads that pop up belonging to that Buyer.

That's not necessarily for everyone, but a motivated Buyer that has made the final decision to buy something or else, $5,000.00 on some fresh non-public pocket acquisitions is a drop in the bucket and money well spent to secure their dream Company to purchase.

I have dozens of clients who are very serious about buying a business. Their problem is that every deal they look at closely does not stand up to scrutiny. The information provided to the buyer prospect is not a true representation of the business, because in fact the business information presented is fabricated to look better than it is. By that I mean some expenses are misrepresented.

The error that the some buyers are making is looking at the wrong types of businesses. Most prospective buyers are looking for a business that is making a targeted amount of profit, which after closer inspection proves not to be the case. They state that the type of business is not important, just the profit level. This is a faulty approach, because the only reason they were interested in any specific business is because they thought it met the profit criteria when in fact it did not. This leads to failure after failure in finding a business to buy.

A better strategy is to figure out what industry is most suited to you as a buyer. Then find poorly performing businesses in the market, that you believe you have the talent to turn around. These are available very reasonable and with good marketing and management will make the required profit.

Another strategy that has worked well for buyers who have found businesses making the targeted profit is to again pick a targeted industry. Then contact every possible company that meets the buying criteria, that is not on the market. This is not a quick process but a very slow process that does work. If you doubt it, look at how experienced business brokers find their listing. They promote to specific targeted SIC Codes and get listing. What works for the goose can work for the gander.

That s a tough one. Many business brokers become impatient with buyers who are absolutely ready and serious about buying a business but very particular about what they want and willing to wait until it comes available. And it is possible that a broker who is tired of working with a prospective buyer has the correct impression that the client is so particular, with unrealistic expectations, that no business will be suitable that the buyer is wasting his or her time and wasting the broker s time. You have to decide which description applies to you and whether you think the brokers assessments are correct. If you conclude that the brokers are right--that your requirements are unrealistic based on the realities of the market as explained by the broker--choose whether to expand your criteria or abandon your search for a business.

The first step to be taken by any business buyer, before contacting business brokers or responding to business for sale offerings, is to conduct an honest self-evaluation. That means determining what kind of business you would like and would be able to manage, what geographic area works, and of course what you can afford and are willing to pay. Ask yourself this question: If I find a business that meets my requirements in those areas, will I be willing to move forward in an attempt to secure a deal that is, make an offer to purchase? Not everyone who claims they want to buy a business is willing to commit to a purchase when the opportunity is present.

Tell business intermediaries exactly what you want and ask if there are likely to be business offerings that meet those requirements. And if the broker is willing to spend some qualifying time with you, ask what businesses he or she recommends. If nothing mentioned is of interest, explain what you want and why the business offerings proposed do not match up with your criteria.The broker or brokers with whom you have an honest understanding about what you want and what is available, are more likely to match you with the right business than someone with whom you can t communicate.

  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.

Brad Steinberg, Business Broker: Laundromat Specialist

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.

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.

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.

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.

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.

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