BayState Business Brokers Blog

Buying a business? What a business broker should have told you.

Buying a business is different from buying anything else. Understanding how business brokers think and operate can help you to be a better buyer. Here are some truths that we operate from:

• At least 90% of the prospective buyers who contact us won't buy a business-from us or anyone else.

• On the average, a business has to be introduced to about 30 buyers to sell it.

• Having enough money to buy a business does not set you apart. Many buyers have the money to buy a business.
• It takes a lot of time to work with a buyer to sell a business. So we try very hard to be sure the buyers we work with are serious.

• Business brokers believe that a good business, priced reasonably, with a good seller will sell. Understanding what a "good" business is could be a topic for a whole blog, but at the very least, it means a business in a desirable industry, at a reasonable price, with available financing, with real numbers that demonstrate that the business will generate an adequate income to a buyer.

What all of this means is that it is important to our success to figure out, as quickly as possible, which buyers are in the 10% group that are actually likely to buy a business and which are in the 90% group that won't. Otherwise, we will waste a lot of our time working with tire kickers. Here are the things we look for to figure out which group you belong in:

"You show me yours and I'll show you mine" You are asking to see a lot of highly confidential financial information about a business. If you won't give us similar information about yourself, you won't be shown information about the seller's business. If you own a business, that, by itself, does not tell us anything about your financial situation.

It takes reasonable, and flexible, people to get a deal done. If your attitude is "it's my way or the highway", we are likely to let you hit the road. What do we look for? Do you give us information about yourself easily? Do you make a federal case out of the language in our confidentiality agreement? How do you treat us? We are not interested in introducing our seller to difficult, unpleasant people who are not likely to buy a business.

How can you stand out from the crowd? Take actions to show us you are serious. Come into our office and meet with us. Visit businesses you are interested in. Give us a phone call to remind us that you are still looking for a business to buy. This may not be what buyers normally do, but buying a business is not like buying anything else.

If you are serious about buying a business, you need to communicate. Respond to communication from us. If you look at a business, let us know what your interest is. Think about the broker's point of view: if we have to chase you to communicate, how likely is it that you have the drive to complete the purchase of a business?

Unless you have all of the purchase price in cash, you will need a loan to buy a business. Whether the lender is a bank or the seller, they will want to see business experience that relates to the business you want to buy. We do this screening right up front so we don't waste anyone's time working with an unqualified buyer.

Your personal situation reflects how motivated you really are. There is not much you can do about these issues, but we look at them. Do you have a corporate job that pays $150,000 a year? We question whether you are going to leave it, particularly in this economy, to take the risk of owning a business. On the other hand, if you are unemployed, come right in.

Finally, keep these things in mind, because they are extremely important:

Be honest. If you have a skeleton in the closet that could affect your buying a business, let us know about it. We want to sell businesses and may have a solution to your problem.

Maintain Confidentiality. This is the top concern for most sellers. If you ever violate confidentiality, that will be the end of our showing you any businesses. Don't tell your friends and relatives, who do not have a need to know, that you are looking at a particular business.

As a buyer, I hope these insights help you understand how brokers think so that you can be more successful in working with a broker to find the business you are seeking. We look forward to working with you, so contact us to schedule a meeting with one of our professional brokers.

What your accountant can do to help you buy a business.

In the process of buying, and owning, a business, a good accountant can help you significantly. Here are some specific ways in which an accountant should help you buy a business.

Analyzing financial statements. An accountant can compare the target company's financial ratios to industry averages. This can put the target's financial statements into perspective and show you how well the company is doing. An accountant can also show you the trends in the financial statements over time to give you a perspective on the direction the business is going financially.

Be sure to look not only at the income statement, but also the balance sheet and the cash flow statement. Many small businesses won't have a cash flow statement, but your accountant should be able to prepare it from the other statements. Ultimately, a good business should generate cash and the cash flow statement will show you if it is, how much, and how the cash is being generated.

Business valuation: An accountant may be able to prepare a valuation for you or help you analyze a business valuation prepared by another appraiser. Just because someone is an accountant doesn't mean they are qualified to prepare business valuations. Check their credentials.

Due Diligence. When you get the business under agreement, your accountant should help with the due diligence by checking the documents that verify the financial information. An expert in the particular type of business you are buying, such as a former business owner, can be very helpful in doing the due diligence. They can streamline the process by knowing what to look for and they should be able to spot problems more quickly.

Tax advice. Part of the sale process is deciding on the asset allocation. This affects your future taxes and how quickly you can write off the purchase. A tax accountant can recommend an asset allocation and advise you on how a proposed allocation will affect you.

Financing and Business Plans. An accountant can help you prepare the business plan which you need for loan applications to buy the business.

Your accountant is a key business advisor. Choosing the right one is important. But, remember, you should be making the decisions.

For additional help in finding or buying a small business, contact us -- 617-562-5700 or info@mabusinessbrokers.com.