Buying a business is different than buying a used car. If you act as though it’s the same thing and treat the owner of the business like a used car salesman, you will suffer. That can result in the owner deciding not to sell to you, giving you a worse deal, or not being as helpful to you as he could be after you do buy the business. Here are some important things to keep in mind when you meet with the owner.
BayState Business Brokers Blog
The first thing that you need to know is that you have a lot of competition in your search for a business to buy. If the extent of your search for a business to buy is looking at Internet ads, it’s likely that when you find the right business, you won’t be successful buying it. That’s because other buyers will be more prepared to take the steps needed to buy that business. The first piece of advice I would give you is to be prepared to take action when you find the right business to buy. How can you be prepared? Here are my suggestions:
Unlike businesses which rise and fall when fashion or technology changes, car repair continues to offer stability and opportunity for the business buyer. If you are looking for a business to buy, here are 7 good reasons to buy an auto repair shop.
Last night I had the pleasure of hearing Ed Pendarvis speak at the monthly meeting of the New England Business Brokers Association. Ed Pendarvis started Sunbelt Business Brokers, a chain of franchised business brokerage offices. After selling it, he started Business Buyers University to help buyers learn how to buy a business. It offers online courses that buyers can take to learn more about how to buy a business.
Kirsty Dunphey wrote a blog asking the question, Is Your Business a Business or Just a Well-Paying Job? In it, she gives several examples of people who make a very good income out of their business, but whose business income is dependent on them personally providing the service the business offers. She raises the questions:
You’ve probably heard this before from your spouse or partner. This is not a blog about your marriage or relationship. It’s about buying or selling a business.
This first thing to do is move quickly. In most of the businesses we sell, the seller will receive multiple offers. Get your offer to buy the business in before the others and get the business under agreement. The best buyers can do this because they are experienced and know when they have found a business they want to buy. Experienced business buyers know how much they are willing to pay and make an offer that has a good chance of being accepted. How do you become this type of business buyer? By learning about the process, looking at businesses for sale, and meeting with owners. Moving quickly is probably the most important attribute of successful business buyers.
Think about the other large purchases that a person is likely to make in their lifetime – buying a car or home. No one would make a decision by only reading a brochure or looking at an advertisement. Buyers understand that they need to test drive a car to see what it feels like before making a decision about buying that car. You need to walk through a house and really look at the yard and neighborhood to know whether you want to live there. You need to do the same with a business
A business is much more than a financial statement. By going out and talking to the owner and seeing the business you get a better understanding of what that business is all about. You're going to be replacing the owner and by talking to him you get a much better idea of what it takes to replacing his skills in that business. A business owner will be more open about his business with a buyer who takes the time to meet with him. You will learn a lot about the business by seeing it.
Another benefit of visiting a business and meeting with owners and interviewing them is that you get experience in doing it. When you find the right business, you'll have other businesses and owners to compare it to. You’ll also have a better idea of questions to ask and you can do a much better job of evaluating that business and that owner. You also show people, like business brokers, that you're a serious buyer because you're taking the time and effort to meet with business owners and look at businesses.
I'm not suggesting that you should go out and take a look at every business for which you sign a Confidentiality Agreement. I don’t want you to waste your time. What I am saying is that the Confidential Business Review should just be a screen for you to determine is this is a business that you might be interested in buying. If it is one that you might be interested in buying, take a look at the business, talk to the owner, and learn a lot more about it.
In most sales of businesses, the business broker represents the seller. This is particularly true when a buyer is dealing directly with a business broker that has the listing for the business for sale. This business broker’s primary responsibility is to look out for the interests of the business owner and business being sold. Even if you are working with a business broker who is co-brokering the sale with the listing broker, the business broker may still be representing the seller, not you. Who the business broker represents should be spelled out in the confidentiality agreement or non-disclosure agreement (NDA) that you normally sign before you are given confidential information about the business.
The financial statements of a business can be audited, reviewed, or compiled by the outside accountant. When looking at a financial statement, the first sentence in the accountant’s cover letter will normally state the level of the accountant’s service. An audited statement is the highest level and is required of all publicly owned companies. But, audited statements are the most expensive and most small businesses don’t have them prepared unless they are required to do so. Accountants do not do any checking of compiled statements. They merely take the clients information and put it into financial statement format. Reviewed statements are in-between. Accountants do some checking, but not as much as in an audited statement.