What happens when I find a business I want to buy?
When you find a business, the intermediary or 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 an intermediary or business broker to assist you in the preparation of an offer based on the price and terms you feel are appropriate. This offer will generally be supported by the actual books and records that have been supplied to you thus far. 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. 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 moving on to other businesses.
What should I look for when searching for a business?
What does it take to be successful?
How are businesses priced?
Generally, at the outset, a prospective seller will ask the intermediary or business broker what he or she thinks the business will sell for. The intermediary 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 intermediary is familiar with market conditions and, by reviewing the financial records of the business, can make a recommendation of what he or she feels the market will dictate. A value 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 at least partially 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 (loan payments) 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 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 more money than I can working for someone else
And recently – with the impact of corporate consolidations, stock price issues, and layoffs, a major factor is:
5. I don’t want to work for a big organization anymore — one that has no allegiance or loyalty to me. I’m ready to control my own destiny.
An existing business has a track record. The failure rate in most businesses is largely in their start-up phase. The existing business has demonstrated that there is a need for that product or service in a particular locale, region, or nationally. 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 some level of financing. Finding someone who will teach you the intricacies of running a ‘successful’ business and who is also willing to assist in financing the sale can make all the difference.