Best Practices For Business Buyers: Searching, Buying A Small Business
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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!
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.
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.
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.