Buying a business is a serious financial and personal commitment.
Buying a business will be a financially rewarding and personally satisfying experience or a nightmare depending upon how the transaction is handled. The better informed you are the more likely you are to succeed. Industry research shows that less than five percent of buyers that attempt to purchase a business successfully do so within a year. This is a high-risk proposition and the sobering reality is that 30% to 50% of the buyers who do purchase a business fail within three years of the closing. It is estimated that over 80% of the millionaires in the United States own their own business and owning your own business can be the “American dream”. Understand however that business ownership requires hard work and consumes long hours, you must be prepared to commit to a major lifestyle change. The purchase of a business is not a do-it-yourself project, without a complete understanding of the process and risk involved. It is much wiser to consult with a buy side broker for assistance.
Our promise to buyers
We will always treat you with respect; we will not insult your intelligence with nonsense or waste your time. We believe the more you know about the process the better and more lucrative the outcome will be. Unfortunately you will be told things that sound good, but often are just not true. Be careful. Statically up to one half of the folks that buy a business of the size you are considering fail within 5 years of closing. Given current market conditions you must be patient as realistic sellers are far and few between.
We promise we will not…….
…….“Exaggerate” seller’s discretionary earnings to inflate businesses value and then be unable to reasonably justify the asking price, or encourage and exploit the sellers’ unrealistic expectations of value and ignorance of financing realities.
……. Misrepresent, mislead, or omit the disclosure of information necessary for you to make an informed decision or insult your intelligence by trying to sell you the “American dream” or pushing “potential”.
……. Run you through a “tour” of businesses that do not fit your needs, compromising the businesses confidentiality and wasting your valuable time, in order to impress sellers with “activity”.
……. Ignore the after closing consequence of the transaction on the buyer and/or the business just to get a commission check. We strive to keep a balance, structuring the sale to protect the future of business and assure each side of the transaction acted in good faith.
……. Disappear upon receipt of our commission check; we are here to assist after the closing. We care about the future of your business. We enjoy a substantial amount of repeat business and believe our continued involvement helps.
Prepare to Acquire a Business
We believe the more knowledgeable and prepared you are the better. The following steps will help you better understand how to make the process of purchasing of a small business a successful and profitable experience.
Do a personal evaluation.
The purchase of a business is not unlike a career change, and many of the same issues are important to consider. We recommend you read and work through one of the many well-written books available that deal with the self-evaluation process. In short, you should:
- Evaluate your experiences, educational background, professional experience, and skills.
- Identify what have you have found satisfying, and what you have found frustrating in prior employment.
- Assess your personal and professional strengths and understand your weaknesses.
- Consider hobbies or other areas of special interests you enjoy. Examine your motivation for owning a business.
Are your expectations realistic? Are you committed to putting in the necessary hours? Will you enjoy managing employees? Discuss all of this with your spouse, family, and friends, pay attention to their input and be certain you have their support. Set goals and objectives and write them down.
Understand the financial reality.
Determine the annual income you require to maintain your life style. Just as important realistically assess what you could earn if you were to become employed rather than purchasing a business. You should not buy a business that cannot provide this income after debt service and capital expenditures the first year. Do not put yourself in a situation where if everything goes as planned and you are able to increase the business 30% you can make it.
You can expect to invest between 1 1/2 and 2 1/2 times the annual take-home income you require. You need to have these funds liquid and readily available for a down payment and your working capital. If you need to arrange borrowing on equity to put funds together, do it now. This financing is unrelated to the business you buy; sellers will not consider you qualified if you do not have your equity capital ready and available.
Prepare a complete comprehensive personal financial statement.
Know your financial capability, consider the need to fund working capital, and establish the maximum capital investment you are comfortable with, this will determine the size of business you will be qualified to acquire.
Know the market and understand why protecting confidentiality is in your best interest.
Research your local business environment, be open to new possibilities, but make an effort to bring into focus business categories that feel comfortable to you. Talk to anyone you know in business, gather information. on.
We understand the frustration that you experience when first considering buying a business. You can help minimize this by understanding the general market conditions. In almost 30 years, we have never seen a “buyers” market. There are never enough quality businesses available for the demand. There are simply too many buyers searching for too few quality opportunities. The more prepared, educated, and persistent you are the more likely it is you can successfully find the right opportunity.
Understand that maintaining confidentiality in the sale process is in your best interest. A breach of confidentiality will have a negative impact on every business. It is frustrating to assist buyers who say “I’ll consider anything send me a list”. Invest a little time in understanding the type of opportunity you would consider and be qualified to purchase.
We have some great suggestions if you are having difficulty focusing your efforts; feel free to give us a call.
Get yourself prepared. Put together a resume and personal financial statement the seller, landlord, lenders, and other parties to the transaction will require this. Have your investment funds liquid and readily available. Assemble your advisory team, an accountant, attorney, insurance agent, and banker; be certain they are experienced and knowledgeable in similar sized business transaction. While it is important to listen to your advisors, remember a business owner must make their own decisions. Investigate and understand the various forms of legal entities, (C corp., S corp., LLC, partnership, and proprietorship.
Prepare an outline and be able to articulate your primary acquisition criteria, business categories/industries of interest, specific type of businesses not under consideration, location preferences, necessary earnings, and long and short term objectives.