First Time Buyers
Buyers Who Will Finance Their Purchase
Buyers Who Don't Know What Kind of Business They Want
Buyers Who Are Terrified and Uneducated About The Process
How To Buy a Business
The Business Buying Process:
Offer and Acceptance
Resolution of Contingencies
Due Diligence Details Completed
You Are Not Just Buying a Business.
You are buying an opportunity. You could just start a business but if you are looking to buy, you are looking for something that has a positive track record. You want answers to your questions about a particular potential business. Where is the business? How much is it? How much does it make? Why is the seller selling? These are the main questions a typical buyer would want to know. An average business broker might answer all these questions right away and then hang up the phone. A truly professional business broker would want to meet you first. Having a personal visit with the broker is almost always the best first step. It is not uncommon that the business that brought you first into the broker’s office, might not be the one that you end up buying. Meeting with the broker face to face can allow you to talk about what appeals to you about the business, if you can really afford the business, how flexible do you will need to be as far as location and type, to discuss how urgent is the need to buy and how cooperative and realistic are you going to be in the process. Meeting in person will also let the broker be able to explain all the advantages of owning your own business, both in general and the specifics to your preferred type.
Is It All About The Money?
An inexperienced broker thinks the main reason people want to buy a business is only money. Overwhelming, though, that is not usually the case. Most people buy businesses because they want a change of lifestyle. They want the satisfaction of being their own boss. A close second is having personal freedom. Making money is usually only third in the motivating factors and is related to number four, financial security.
Realistically, no matter how good the business is, owning and operating your own business is going to be hard work and you will need to make sacrifices. Just matching income from the new business to your old income is a serious mistake. Unless you can improve the business you are buying, then you shouldn’t consider buying it. Don’t buy a business just to maintain it. Buying a business makes you the boss. You will have to work long hours and, at least in the beginning, will probably make less money initially.
What Type of Buyer Are You?
Here are our top seven types of buyers (Which one are you?):
- The buyer who doesn’t really have realistic ideas about what they can afford. Some think they might be able to borrow from a family member only to find out the family member won’t agree.
- Depending on the person, the business and the industry, banks may just not loan to them.
- The buyer who can qualify for bank financing but thinks the bank is going to loan 100%.
- The buyer who is currently unemployed. Where is he/she going to get the money? We might actually be able to help you if this is you.)
- The buyer who will not make a single move without their attorney present.
- Some buyers call on every business and have for years and years but are not really interested in buying.
- The buyer who is getting ready to retire and wants to buy a business to supplement his income without him needing to be involved in the business.
- The willing, financially and skill-set qualified buyer.
What You Need To Know:
- Different business have different buying processes.
- How much money does it REALLY take to buy the business and operate it?
- What are the advantages and disadvantages of owning the business?
- Why do the sellers really want to sell?
- How do the sellers maintain their books? Are there hidden costs and hidden cash? The price will depend on what the books show, not what the seller says.
- How much is the attorney and the accountant going to be involved? Who is going to be involved in the decision making process?
- Are there extra licenses and training involved in operating the business?
- What is your urgency you as the buyer have to buy?
- How long has the business been in business?
- How long has the present owner owned the business?
A Beacon Business Broker will help you answer all these questions and more. A Beacon Business Broker can help you buy a business in the shortest amount of reasonable time, for the right amount of money with the least amount of stress as is possible.
The first question a buyer typically asks is how much does the business make? While it is a logical question, it may not be the best question. In our challenge section we stated you should not buy a business you do not think you can improve. The very first thing a buyer should do, after meeting with the Beacon Business Broker of course, is to visit several businesses you and the broker have discussed.
Eliminating a business solely on the numbers will most likely bring you to an incorrect decision. When you visit the business you should keep you eyes out for how could improve processes, marketing, etc. Getting the whole story on the numbers and the business may lead you to a real bargain, if the numbers are down. You will need to dig deeper than just numbers to see if it is a good deal for you or not. The broker should already be showing you businesses that meet your financial requirements if the buyer interview was done properly and–any offer you make should be contingent that the numbers are to your satisfaction. It is not uncommon that the books have been “recast” for the purpose of the sale. Many business owners run many legal deductions through their businesses that allow them to pay less tax, but you may or may not choose to have similar deductions. The tax documents may show the owner only making a certain amount, but when things such as depreciation, charitable donations and entertainment costs, just to name a few, are taken out, the business can show much more potential income. You need to have personally inspected the business and be satisfied you can run it and understand that any money you will make is in the future.
Proper Business Selection is key. You may have come to the broker because you were interested in their pharmacy listing, but you have a love of sailing and they have a marina business for sale. If you only allow them to share the info on the first business you may be eliminating your dream business without even realizing it. Maybe it is the right business but in the wrong part of town, can it be moved? Maybe you have been in the health food business and you vowed you would never go back into it but the store he has for sale is a really, really good deal. This scenario plays it out over and over again where the first business is not the one the buyer buys and in fact, they end up buying a business they hadn’t even originally considered. Facts and figures are important but you also need to feel good about the choice. The business may have some aspect the seller is unable or unwilling to change about the business that you as the buyer could do to add instant value to it. Don’t expect to meet the seller in the first visit. In fact, the broker is often protecting you and the deal by keeping you apart until it becomes absolutely necessary. He/she is often the buffer in what is a high stakes negotiation. The business broker is acting only as an intermediary and cannot give legal advice unless you have an agreement with Beacon Business Brokers that specifically allows them to legally represent you.
An offer, with the contingency of confirming the books, is really a way to see if the seller will take what the business is really worth. Expect to put a substantial down payment but you really have no risk ,during due diligence, of losing your deposit because our contracts say you can get out of the contract for any reason during that inspection period. The down payment tells the seller you are serious and motivates them to cooperate. Depending on the type and size of the business, many business owners won’t divulge their full finances until an offer is made, even if you sign a confidentiality agreement. They want to know you are very serious before they share their sensitive information with someone. After you have completed and reviewed the offer and it has been signed, the broker will walk you through the negotiating process for this particular business. The broker will work with you to clear up any contingencies that are included in the offer. Our job is to provide as much information to you as the buyer as is necessary. We want you to be able to have knowledge about the process and the business and our aim is to communicate often and with respect. The broker will usually have the seller come to the office to receive the offer. Sometimes the seller count offers and it may go back and forth until an agreement is made. Now the due diligence period has begun. It is important to get things done on time and in the proper order. One of the most important roles of a good broker is to keep due diligence on track. The last two steps are the closing and taking possession. Now the real fun begins. This is why it is so important to have someone in your corner, like a broker from Beacon Business Brokers in your corner. Make an appointment today for us to show your next new business.