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Buying A Business? Here's How To Do It Right!
By Richard Parker, President of The Business
For Sale Buyer Resource Center™ and author of
the most widely used reference resource and
strategy guide for buying a business for sale –
How To Buy A Good Business At A Great Price©
There's a reason why buying a business is
referred to as a “buying process.” There are a
substantial number of steps involved and much to
consider, especially for anyone who has never
bought one before.
This is a major decision and investment. With
so much at stake, it is crucial that you prepare
yourself properly and educate yourself for this
journey and take the necessary steps to be
certain that you make all of the right decisions
along the way.
According to industry statistics, nine out of
ten people who begin the search to buy a
business, never complete a transaction. Perhaps
the biggest reason for this dismal statistic is
that most people simply do not realize how much
is involved.
Part of the challenge is that most are first
time buyers. Faced with having to make one
crucial decision after another, they become
overwhelmed and frustrated and soon they abort
the project.
Your approach must be different.
As Thomas Edison once said: “There is always
a way to do it better… find it!”
This Will Take Time - Just Don't Take
Forever
You can easily turn this entire buying
process into an endless search. The average
buyer spends 18 months looking and then gives
up. However, there's no reason why you shouldn't
be able to complete the process in six months.
If you're working full-time, you will have to be
disciplined in your search efforts. If buying a
business is a goal you've set for this year,
then block off at least ten hours per week to
devote to this project.
Starting Off Right
It is estimated that 70% of all searches by
buyers are now conducted via the Internet. A
short time looking at business-for-sale websites
and you'll soon realize that the number of
available businesses is incredible. In fact,
there are hundreds of thousands of them out
there. It would be very easy to turn this into a
never-ending search instead of a buying process.
Instead of looking at endless
business-for-sale listings trying to figure out
which, if any, are right, you must first
identify what type of business is right for you
and then focus your search accordingly.
Take a good look at yourself. What are your
strengths, weaknesses, likes and dislikes? Don't
try to be something you're not. Most people
simply don't know what's right for them and
that's fine. If this is your predicament,
sometimes it's best to start by ruling out all
of the businesses you don't want.
Next, consider your finances and focus solely
upon those that make sense from an investment
perspective. With these two criteria alone,
you'll be able to whittle down the choices.
Educate Yourself About This Process
Unless you have a wealth of experience buying
businesses, it is critical that you acquire the
necessary knowledge and information to make this
decision. You are going to face an onslaught of
decisions throughout this process. Having the
knowledge will likely make the entire difference
between buying the right business and the wrong
one.
Don't fool yourself into thinking that your
attorney or CPA can make these decisions for
you, although it is extremely important to find
quality professionals that specialize in
business transactions of the size and type you
are considering. It is incumbent upon you to
take the time to learn what is involved and how
to successfully navigate your way to your dream.
Think of it this way: if you're going to invest
your savings to buy a business; shouldn't you
first invest the time to learn how to buy the
right one?
It's been proven over and over again that
well-informed, properly prepared buyers acquire
good businesses; the rest get sold lemons!
This is one decision you must get right the
first time!
Organize Your Finances
You will definitely be required to produce a
personal financial statement at some point. Get
the details together right away. List all of
your assets and liabilities and outline your net
worth. Check your credit rating and rectify any
erroneous information. You can obtain a free
copy at www.freecreditreport.com .
Make Sure Your Family Is On Board
If you have a spouse/partner, be certain that
you discuss this project together. It's no use
going down the road with this if your spouse is
not on board. You both have to see the dream.
Business ownership is a time-consuming
commitment. The hours are long. You need their
support. Keep them informed. Answer their
questions. Get their input. Remember, even
though this may be your business, they're in it
too.
Determine Your Investment Level
Determine with absolute certainty how much of
your own cash you are prepared to invest. Forget
any relatives who may have promised that they'll
“back you.” When the time comes to lay down the
money, chances are they won't be around.
Don't bother looking at businesses that are
unaffordable. Over 80% of small business
purchases involve seller financing. Generally,
this is 30% to 50% of the purchase price. If you
have $100,000 to invest, don't look at
businesses that will sell for $2,000,000. It's
OK to dream, but be realistic.
Also, take the time to sit down with an SBA
specialist to research all avenues for your
financing. They provide all types of loans for
entrepreneurs financing a business purchase. See
www.sba.gov for further information.
Intermediaries - Do You Need One?
I am a firm believer in using a business
broker to help you throughout the process. Keep
in mind that the seller nearly always pays
brokers and so their role from an advice point
of view may be limited or even tainted. However,
a good broker can, and will:
- provide you with access to a vast
database of businesses for sale
- walk you through the valuation process
- provide you with comparable business
valuations
- keep the deal moving along when
obstacles are encountered
- be the bearer of bad news to the seller
when necessary
- ensure all pertinent documents are
assembled for the closing
Your Six Steps to Success
Commit to a deadline for buying a business
(not just “looking” for one).
- Set aside time every day to work on this
project.
- Organize your finances.
- Work on determining what type of
business will thrive from your strengths and
not suffer from your weaknesses.
- Seek professional advice from a
qualified accountant and attorney.
- Unless you have a wealth of experience
buying businesses, then educate yourself
about this process. Learn as much as you
can. When it comes to investing in your
future, you can never know too much!
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