Looking to buy? Here's what you need to know before you begin. With the right help and guidance, it's easy!
YOU'VE MADE THE DECISION TO BUY A BUSINESS
You are finally ready and have decided leave the corporate world and buy a business, and you've started to look. You have decided that you want a [fill in the blank] business but you just can't seem to find one. Either the broker doesn't respond, or can't provide you a basic financial snapshot about the business. Further, you are pestered to make an offer on the business when you don't feel you have enough information.
Nothing makes sense; you are tired and frustrated. Yet you keep responding to ads and calling brokers. Stop right there! Haven't you been told that insanity is doing the same thing, the same way, over and over again, expecting a different result?
I get e-mails, phone calls and talk to hundreds of people just like you every year. Most prospective buyers want a good business, yet when asked what that means, there is a long pause in the conversation.
The biggest problem I face in trying to help is that most prospective buyers don't know what constitutes a good business for them. It is like calling a travel agent to tell them you want to plan a trip, but you don't know where you want to go, how long you want to take, or how much you're willing to spend. If only buying a business were as simple as planning a vacation. Buying a business is a serious life choice, however, and you need tools to help you build that ideal business model. Without a model, you won't know what you're buying, and mistakes can be costly if not life-shattering.
Many prospective buyers also think that they will be able to find a good business for 10% down, have four weeks for due diligence, have a 30 day no obligation trial at the business, and six months free training from the seller. Unfortunately, it is a sellers' market today, with a scarcity of good, profitable, cash-flowing businesses from which to choose. Add to the mix an abundance of qualified buyers and willing small business lenders, and you'll have a closer picture of reality.
Take a step back for a moment. Most prospective buyers don't know what they are looking for, don't have a reasonable list of criteria, haven't done any research to financing options or market costs of business, or thought about the implications of business ownership to them or their family. To begin their quest, many prospective buyers read books about buying a business that were written too many years ago. Save your money, those books are about as useful as a corded telephone or a Betamax.
So why are you having so much trouble? It's simple really. Business brokers rarely take the time to educate their prospective buyers. They rarely spend time helping their prospective buyers to understand what they are actually looking for in a business. I find that strange, since my experience tells me that 95% of the people I talk to, who actually buy a business, do not buy the one they have called to inquire about. My best advice is to find a broker who will work with you to help you to build a reasonable list of criteria that fits.
Planning a transition as important as buying a business demands a lot of care and consideration, and ideally conversations with a broker knowledgeable in guiding buyers to making the right decision. I know that you do not want to make a mistake. If you simply put some time and effort into defining what you are looking for in a business, make sure it is a good fit for you, and do your due diligence, you have a better chance for a successful future.
I'm here to help: Contact Rick Eggleton at 1-888-222-0646
THE ADVANTAGES OF USING A BROKER
To find a business that is right for you, you need to find someone who will actually work with you to help.
The broker should be willing to meet with you to find out more about you. This initial meeting may take an hour or more and the result should be a customized yet generic profile of your ideal business. A broker should be able to ask you a series of questions about the characteristics of your ideal business.
It is vitally important that you answer these questions truthfully to the best of your ability. Your broker should be able to educate you in this process, letting you know if your criteria are reasonable or not. If not, the broker should give you reasonable alternatives. Please remember all brokers are not alike. Some will not give you the time of day; don't settle. With some research, you can find one you like and trust.
Business brokerage is changing and while the easiest thing for a broker to do is sell you one of his or his office's listings, some brokers will actually go out and search for a business that meets your criteria. That process can either be to search the existing businesses for sale by other brokers, or to find a business that is not for sale that would meet your criteria. If you want to expand your search for something not listed, do not be surprised if the broker asks you to pay a retainer. After all, the broker is contributing his time, resources and energy to find you the right business. Brokers are in business to make money; most are reluctant to search unlisted businesses to find the right one for you without compensation.
Make sure if you use a broker for a retained search he will credit the money you've paid him against his commission, if you buy something he finds for you. It gets interesting because retained searches are made more complex when the broker calls a potential seller and says, "I have a client looking for a business like yours" only to end up telling them that the client isn't willing to pay the commission on the deal.
Find a broker to help that you like and trust and who is committed to your goals. If you stick with them, you'll be more likely to find just the right thing to help you through this next phase of your life.
BUYERS' FREQUENTLY ASKED QUESTIONS (FAQ)
How long will it take to buy a business?
It depends on several factors including asking price, bookkeeping, contracts and history. It could take a month or more than a year.
Do I need an accountant or a CPA?
I always recommend finding professional advisors as an important step. Finding the right people is difficult but vital. Your advisors must be familiar with small business. They need to have a history of small business transactional experience.
What costs are involved in buying a business?
The seller normally pays the broker's fee. Escrow costs normally run $2,500 to $3,000 and are split between the buyer and seller. If there are other fees like franchise transfer and/or training fees the buyer typically pays those. An attorney to review the documents prepared by the broker will cost $1,000 to $2,000 and an accountant to do the financial due diligence will cost $1,000 to $4,000 typically, depending upon the size of the business and the level of detail required to perform the due diligence.
What about seller financing?
All those books written and published 10 or more years ago recommend it. But you will pay more and your monthly payments will be more than with a U. S. Small Business Administration (SBA) loan, so it could impact the amount of cash flow you need to operate the business.
How much cash down do I need?
As a rule of thumb, about one year's worth of seller's discretionary earnings (SDE), and you can finance the balance.
Have more questions? Contact Rick Eggleton at 1-888-222-0646