Questions Buyers Ask
Buying a business is a major decision.
It will not only affect you financially, but it is also,
and, perhaps more importantly, a lifestyle decision.
How you live your life is shaped and influenced by what you
do for a living. If
you have decided that now may be an opportune time to consider going
into business for yourself, working with a business broker can provide
you with the professional assistance necessary for a smooth and
successful transaction.
Why should I go to a business broker?
A professional business broker can be helpful in many ways.
They can provide you with a selection of different and, in
many cases, unique businesses, including many that you would not
be able to find on your own.
Approximately 90 percent of those who buy businesses end
up with something completely different from the business that they
first inquired about.
Business brokers can offer you a wide variety of businesses
to look at and consider.
Business brokers are also an excellent source of information about
small business and the business buying process.
They are familiar with the market and can advise you about
trends, pricing and what is happening locally.
Your business broker will handle all of the details of the
business sale and will do everything possible to guide you in the
right direction, including, if necessary, consulting other professionals
who may be able to assist you.
Your local professional business broker is the best person to talk
to about your business needs and requirements.
Why should I buy a business rather than start one?
An existing business has a track record.
The failure rate in small business is largely in the start-up
phase. The existing
business has demonstrated that there is a need for that product
or service in a particular locale.
Financial records are available along with other information
on the business. Most
sellers will stay and train a new owner and most will also supply
financing. These last
two are important considerations.
Finding someone who will teach you the intricacies of running
a business and who is also willing to finance the sale can make
all the difference.
What is the real reason people go into business for themselves?
There have been many surveys taken in an attempt to answer this
question. Most surveys
reveal the same responses, in almost the same identical order of
priority. Here are
the results of a typical survey, listed in order of importance:
1.
To do my own thing, control my own destiny.
2.
Don’t want to work for someone else.
3.
To better utilize my skills and abilities.
4.
To make money.
It is interesting to note that money is not at the top of the list,
but comes in fourth.
How are businesses priced?
Generally, at the outset, a prospective seller will ask the business
broker what he or she thinks the business will sell for.
The business broker usually explains that a review of the
financial information will be necessary before a price or a range
of prices can be suggested for the business.
Most sellers have some idea about what they feel their business
should sell for – and this is certainly taken into consideration.
However, the business broker is familiar with market considerations
and, by reviewing the financial records of the business, can make
a recommendation of what he or she feels is what the market will
dictate. A range is
normally set with a low and high price.
The more cash demanded by the seller, the lower the selling
price; the smaller the cash requirements of the seller, the higher
the price.
Since most business sales are seller-financed, the down payment
and terms of the sale are very important.
In many cases, how the sale of the business is structured
is more important than the actual selling price of the business.
Too many buyers make the mistake of being overly concerned
about the full price when the terms of the sale can make the difference
between success and failure.
An oft-quoted anecdote may better illustrate this point:
If you could buy a business that would provide you with more
net profit than you thought possible even after subtracting the
debt service to the seller, and you could purchase this business
with a very small down payment, would you really care what the full
price of the business was?
What should I look for?
Obviously, you want to consider only those businesses that you can
afford with the cash you have available.
In addition the business you buy must be able to supply you
with enough income – after making payments on it – to pay your bills.
However, you should look at a business with an eye toward
what you can do with it – how you can improve it and make it more
productive and profitable.
There is an old adage advising that you shouldn’t buy a business
unless you feel you can do better than the present owner.
Everyone has seen examples of a business that needs improvement
in order to thrive, and a new owner comes in and does just that.
Conversely, there are also cases where a new owner takes
over a very successful business and not soon after, it either closes
or is sold. It all
depends on you!
What does it take to be successful?
Certainly, you need adequate capital to buy the business and to
make the improvements you want, along with maintaining some reserves
in case things start off slowly.
You need to be willing to work hard and, in many cases, to
put in long hours.
Unfortunately, many of today’s buyers are not willing to do what
it takes to be successful in owning a business.
A business owner has to, as they say, be the janitor, errand
boy, employee, bookkeeper and “chief bottle washer”!
Too many people think they can buy a business and then just
sit behind a desk and work on their business plans.
Owners of small businesses must be “doers.”
What happens when I find a business I want to buy?
When you find a business, the business broker will be able to answer
many of your questions immediately or will research them for you.
Once you get your preliminary questions answered, the typical
next step is for the broker to prepare an offer based on the price
and terms you feel are appropriate.
This offer will generally be subject to your approval of
the actual books and records supporting the figures that have been
supplied to you. The
main purpose of the offer is to see if the seller is willing to
accept the price and terms you offered.
There isn’t much point in continuing if you and the seller
can’t get together on price and terms you offered.
The offer is then presented to the seller who can approve
it, reject it, or counter it with his or her own offer.
You, obviously, have the decision of accepting the counter
proposal from the seller or rejecting it and going on to consider
other businesses.
Do I need an attorney?
It may be advisable to have an attorney review the legal documents.
It is important, however, that the attorney you hire is familiar
with the business buying process and has the time available to handle
the paperwork on a timely basis.
If the attorney does not have experience in handling business
sales, you may be paying for the attorney’s education.
Most business brokers have lists of attorneys who are familiar
with the business buying process.
An experienced attorney can be of real assistance in making
sure that all of the details are handled properly.
Business brokers are not qualified to give legal advice.
However, keep in mind the fact that many attorneys are not
qualified to give business advice.
Your attorney will be, and should be, looking after your
interests; however, you need to remember that the seller’s interests
must also be considered.
If the attorney goes too far in trying to protect your interests,
the seller’s attorney will instruct his or her client not to proceed.
The transaction must be fair for all parties.
The attorney works for you, and you must have a say in how
everything is done.
If you know someone who has owned their own business for a period
of time, he or she may also be a valuable resource in answering
your questions about how small business really works.