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  Home > Discussions > Best Practices For Business Buyers: Searching, Buying A Small Business

Blog Post Best Practices For Business Buyers: Searching, Buying A Small Business

Initiated By: Peter Siegel, BBN Facilitator at 925-785-3118, 925-785-3118 (Cell) - Log In To Message/Email This Contributor

Comments & Replies: 11   Topics: business brokers, buyer representation, buying a business, financing, non SBA loans, SBA loans

Discussion Description: I was asked this question by a buyer: “I’ve been looking for a small business to buy for over a year. Many business brokers are telling me that if you don’t find a business (or at least make an offer on a business) within a year, you’re probably not really serious about buying a business.

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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!

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.

There are some basic but extremely important things that potential business buyers need to do in order to be taken seriously by brokers and sellers.

1. Educate yourself about the process of buying a business before starting. There are resources on BizBenNetwork, through SCORE, from Chambers of Commerce and community colleges, and on the Web.

2. Have your financing in place. Know what liquid funds you have ready to invest, what assets can be readily liquidated, and what lines of credit you have available. It also helps to have pre-approval letters from lenders.

3. Be prepared to share your qualifications your resume. The broker and seller want to be sure you have the capacity to actually buy the business.

4. Have your professional team assembled. At the minimum this should be your accountant and lawyer, and, preferably your insurance agent and banker. And, be prepared to provide this information to the broker and seller when you begin looking at the business. Not only will this be a great resource for you, it shows you are serious and professional.

5. Be flexible and willing to negotiate. Business is based upon mutual advantage and cooperation; if you aren't willing to compromise, you'll have a tough time getting a broker or seller to waste their time with you.

6. Be enthusiastic about the deal. If you don't show some positive energy, neither the broker nor the seller will take you seriously.

This Discussion's Contributors

Contact: Peter Siegel, MBA at 925-701-8064 X313, 925-785-3118 (Cell)   Log In To Message/Email This Contributor
Profile: I founded BizBen and BizBenNetwork to make the process of buying and selling small to mid-sized businesses more efficiently. I currently head up the Facilitator team at BizBenNetwork where we assist BBN Members with connecting with others to facilitate a deal. Thanks for using BizBenNetwork!
Key Words: BizBen, BizBenNetwork, facilitator, advisor, consultant, peter siegel, siegel, bbn
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Contact: Tim Cunha at 650-600-3751, 650-204-1802 (Cell)   Log In To Message/Email This Contributor
Profile: I am an experienced entrepreneur, attorney, & business professor. I & my EvergreenGold® team offer business owners sound advice & expertise to build business value & achieve profitable sales. Call me today for a FREE business evaluation & SWOT analysis for your business anywhere in the USA.
Key Words: tim cunha, cunha, EvergreenGold, california, sf bay area, business broker, brokerage, san francisco, palo alto, santa clara county, contra costa county, alameda county, marin county, sonoma county, san mateo county
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Contact: Jeff Back at 925-736-8200   Log In To Message/Email This Contributor
Profile: J. Back & Associates Restaurant Real Estate was founded in 1988 as the first bay area real estate company to specialize exclusively in restaurant real estate. I am the past President of Charley Browns restaurants and have been involved in the restaurant business for over 35 years.
Key Words: jeff back, j. back & associates - restaurant sales, restaurant, restaurant broker, fast food, hamburger, bar, quick service restaurant, pizza, gastro pub, pub, thai, mexican, hayward, alameda, san ramon, constra costa, san jose, santa clara, oakland, dublin, lafayette
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Contact: Willard Michlin at 805-428-2063   Log In To Message/Email This Contributor
Profile: Willard Michlin is a business broker for 23 years. As a CPA & Certified Fraud Examiner, he works with buyers to get a FREE market valuation as well as full industry & financial due diligence on businesses they are interested in buying. He also offers FREE do-it-yourself due diligence training.
Key Words: willard michlin, due-diligence, due diligence, michlin, kismet
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