Your best guide for buying or selling a business isn’t words on paper – it’s the competent presence of a business broker. Although business brokers generally represent the seller, the buyer also reaps the benefits of expert guidance. A business broker provides vital services for both parties and acts as the “glue” for holding together the pieces of the business sale process. Here’s how a business broker will work with both the buyer and the seller:
The Business Broker and the Buyer
Business brokers prefer to talk to people in person, and the buyer is no exception. During a preliminary meeting in the business brokerage office, the broker will typically ask the prospective buyer questions such as these:
- Do you have the necessary funds to buy a business?
- Is the cash readily available?
- What is your time-frame for buying a business?
- What are your expectations about the purchase of a business?
After this fact-finding meeting, the broker can then show the buyer businesses that are both feasible and that fit the buyer’s requirements. Further steps the broker will lead the buyer through are as follows:
Since sellers are (rightly) concerned about confidentiality, the broker will ask the prospective buyer to sign a non-disclosure or confidentiality agreement.
The broker will provide the prospective buyer with information about one or more businesses, including pertinent financial data.
The broker will arrange for the buyer to see businesses of interest.
Once the buyer has indicated strong interest in a particular business, the broker can then supply additional information and schedule further on-site appointments.
When the buyer is ready, the business broker will be the best source for answering questions, addressing concerns, resolving loose ends, and offering business broker’s unique expertise in the business sale transaction.
The business Broker and the Seller:
When it comes time to sell, one of the best decisions a business owner can make is to continue managing his or her business efficiently (and profitably), while depending on the services of a business broker to orchestrate the steps of the sale. To make the seller’s job easier and more effective, the business broker will…
Determine the right buyer for a particular business. For locating and qualifying prospective buyers, a business broker uses computerised database to access comprehensive lists of local, national, and international buyers…. all to increase the chances of selling a business at peak value.
Advise the seller on pricing. The business broker is an expert in placing a realistic price on the business and incorporating intangibles; thus reducing the danger that every seller fears…under pricing the business. At the same time, the business broker can help the seller to understand that the selling price is dictated by the marketplace…not by a well-meaning accountant or friend who may have an unrealistic idea of what the business is worth.
Prepare a marketing strategy and offer advice about essential marketing tools, such as a business description memorandum; in fact, the broker will help the seller in all key aspects of presenting the business as effectively as possible. Later, the broker can also help in the structuring of a sale transaction.
Present offers and point out both strengths and weaknesses. The business broker will be a vital advisor during most stages of the negotiations, bringing to “the table” objectivity as well as negotiation skills developed through years of experience in the buying and selling of businesses.
Buying Your Own Business: Important Issues to Understand
Buying your own business can be a complicated procedure. Throughout the buying process, it’s important to keep an open mind while searching for a business that will fit your needs, talents, skills and lifestyle. A business broker has many different types of businesses for you to consider; however, you need to remember that there is no such thing as that “perfect” business. Another vital thing to keep in mind is that at some point you must be able to make the “leap of faith” that separates you from being a “looker” to a “doer,” This isn’t easy, but it must happen if you are ever going to be in business for yourself. The following discussion of other key issues may help in the process:
Importance of Information:
Understand that in looking at small businesses, you will have to dig out a lot of information. Small business owners are not known for their record-keeping. You want to make sue you don’t overlook a “gem” of a business because you don’t or won’t take the time it takes to dig out the information you need to make an informed decision. Try to get a understanding of the real earning power of the business. Once you have found a business that interests you, learn as much as you can about that particular industry.
Negotiating the Deal:
Understand, going into the deal, that your friendly banker will tell you his bank is interested in making small business loans; his “story” may changes when it comes to put his words into action.
Furthermore, don’t try to push the seller to the wall. You want to have a good relationship with him or her. They will be teaching you the business and acting as a consultant, at least for a while. It’s all right to negotiate on areas that are important to you, but don’t negotiate over a detail that really isn’t key. Many sales fall apart because either the buyer or the seller becomes stubborn, usually over some minor detail, and refuses to bend.
The responsibility of investigating the business belongs to the buyer. Don’t depend on anyone else to do the work for you. You are the one who will be working in the business and must ultimately take responsibility for the decision. There is not much point in undertaking due diligence until and unless you and the seller have reached at least a tentative agreement on price and terms. Also, there usually isn’t reason to bring un your outside advisors, if you are using them, until you reach the due diligence stage. This is another part of the leap of faith necessary to achieve business ownership. Outside professionals normally won’t tell you that you should buy the business, nor should you expect them to. They aren’t going to go out on a limb and tell you that you should buy a particular business; in fact, if pressed for an answer, they will give you what they consider to be the safest one: no. You will want to get your own answers – an important step for anyone serious about entering the world of independent business.
QUESTIONS BUYERS ASK
Buying a business is a major decision. It will not only affect you financially, but it is also, and perhaps more importantly, a lifestyle decision. How you live your life is shaped and influenced by what you do for a living. If you have decided that now may be an opportune time to consider going into business for yourself, working with a business broker can provide you with the professional assistance necessary for a smooth and successful transaction.
Why should I go to a business broker?
A professional business broker can be helpful in many ways. They can provide you with a selection of different and, in many cases, unique businesses, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about. Business brokers can offer you a wide variety of businesses to look at and consider.
Business brokers are also an excellent source of information about small business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.
Your local professional business broker is the best person to talk to about your business needs and requirements.
Why should I buy a business rather than start one?
An existing business has a track record. The failure rate in small business is largely in the start-up phase. The existing
business has demonstrated that there is a need for that product or service in a particular locale. 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 financing. Finding someone who will teach you the intricacies of running a business and who is also willing to finance the sale can make all the difference.
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.
- To do my own thing, control my own destiny.
- Don’t want to work for someone else.
- To better utilize my skills and abilities.
- To make money.
It is interesting to note that money is not at the top of the list, but comes in fourth.
How are businesses priced?
Generally, at the outset, a prospective seller will ask the business broker what he or she thinks the business will sell for. The business broker 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 business broker is familiar with market considerations and, by reviewing the financial records of the business, can make a recommendation of what he or she feels is what the market will dictate. A range is normally set with a low and high price.
What should I look for?
Obviously, you want to consider only those businesses that you can afford with the cash you have available. In addition the business you buy must be able to supply you with enough income – after making payments on it – to pay your bills. However, you should look at a business with an eye toward what you can do with it – how you can improve it and make it more productive and profitable. There is an old adage advising that you shouldn’t buy a business unless you feel you can do better than the present owner. Everyone has seen examples of a business that needs improvement in order to thrive, and a new owner comes in and does just that. Conversely, there are also cases where a new owner takes over a very successful business and not soon after, it either closes or is sold. It all depends on you!
What does it take to be successful?
Certainly, you need adequate capital to buy the business and to make the improvements you want, along with maintaining some reserves in case things start off slowly. You need to be willing to work hard in many cases, to put in long hours. Unfortunately, many of today’s buyers are not willing to do what it takes to be successful in owning a business. A business owner has to, as they say, be the janitor, errand boy, employee, bookkeeper and “chief bottle washer”! Too many people think they can buy a business and then just sit behind a desk and work on their business plans. Owners of small businesses must be “doers”.
What happens when I find a business I want to buy?
When you find a business, the 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 the broker to prepare an offer based on the price and terms you feel are appropriate. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you. 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 you offered. 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 going on to consider other businesses.
If you and the seller agree on the price and terms, the next step is for you to do your “due diligence.” The burden is on you – the buyer – no one else. You may choose to bring in other outside advisors or to do it on your own – the choice is yours. Once you have checked and approved those areas of concern, the closing documents can be prepared, and your purchase of the business can be successfully closed. You will now join in many others who, like you, have chosen to become self-employed!
Do I need an attorney?
It may be advisable to have an attorney review the legal documents. It is important, however, that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling business sales, you may be paying for the attorney’s education. Most business brokers have lists of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. Business brokers are not qualified to give legal advice. However, keep in mind the fact that many attorneys are not qualified to give business advice. Your attorney will be, and should be, looking after your interest; however, you need to remember that the seller’s interests must also be considered. If the attorney goes too far in trying to protect your interests, the seller’s attorney will instruct his or her client not to proceed. The transaction must be fair to all parties. The attorney works for you, and you must have a say in how everything is done.
If you know someone who has owned their own business for a period of time, he or she may also be a valuable resource in answering your questions about how small business really works.
You have to make the final decision. That “leap of faith” between looking and actually being in business for yourself is a step that only you can make!