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:
- Set a goal to buy a business this year. Break down what you need to do and use the SMART goal approach to increase the chances of success.
- Decide what type of business you want to buy. What industry is it in? What size is the business? Are you looking for a distressed business or one that is doing well? How much income does the business need to generate? How much can you afford to spend on a business? What skills will you bring to the business and what skills do the people in it need to have? Give these, and similar, questions your thought so you will know the right business for you when it becomes available.
- Get to know business brokers. Many business brokers will send an
email to their buyer database when a new business comes on the market. Be sure you are getting those emails. Meet with the business broker so they know you are serious and will remember you when a business that meets your criteria comes on the market.
- Look at businesses that are for sale. This will give you experience in evaluating a business and owners. When the right one comes along, you will have other businesses to compare it to. You will also show the business broker that you are serious about finding a business.
- Learn how to value a business. Most buyers of smaller businesses make offers based on the asking price. Asking prices may be too high or too low. Owners may be willing to take much less, particularly when you can show them that their business is over-priced. Generally, profitable businesses are sold for much more than just the asset value. Learn about the income and market approaches to business valuation.
- Talk to lenders so you know how to get a loan to buy a business. Lenders will have types of businesses they like or don’t like. Most of our business sales are financed with SBA 7A loans. Generally, the lenders are what we call “cash flow” lenders. The cash flow of the business, not the collateral, justifies the price, and will provide enough money to pay back the loan and provide an owner income. Using a collateral based lender can be problematic because, as written above, most profitable businesses sell for more than their asset value. Where is the rest of the collateral coming from? Your assets.
- Find a good lawyer and accountant to advise you. Be sure the lawyer is experienced at business law and business sale transactions. An accountant can be more useful if they have experience in the industry you want to buy a business in.
If you only do these 7 things now, it will put you well ahead of most buyers looking for a business to buy. It will also make you more prepared to move promptly when you do find the right business to buy.