How to Buy an Existing Private Business in California
Learn how to buy a private business in California. Buying an existing private business in California is not an easy task. You need to properly plan the acquisition and follow key steps in valuing and buying a business.
Does it start with answering what Is your passion, hobby, or motivation? Yes, this is the first assessment that you need to do before you embark on making a deal.
According to Wikipedia, an IRS Revenue Ruling includes how a law is to be interpreted and then applied to factual situations. That is, to keep the law consistent for all taxpayers, so taxpayers know or most likely will know how the IRS laws would be applied to their specific situation, these public administrative or revenue rulings are put into the public domain.
IRS Revenue Ruling 59/60 concerns how a business should be valued when a set of facts are to be presented before the IRS and part of this ruling states that the value of a business must be considered when there is a motivated buyer and a motivated seller that wish to do a deal for the sale of a business.
How to buy a private business?
The word ‘motivated’ is such a critical word as it applies equally to a seller and a buyer. If the seller is motivated and the buyer is not, the deal will not get done. Equally, if the buyer is motivated and the seller is not, the deal will not get done.
With the ready availability of websites and social media, it is much easier to market a business for sale. This ease of marketing, you would think, would make it easier for more buyers and sellers to connect and do more deals. Based on my experience this is not the case. Because of this ease of marketing, buyers are able to see a range of businesses for sale. They see so many and think they have plenty of choices however, once they start getting into the steps of buying a private business, they realize it is much more complicated than they thought and give up or what I see really happening, is that they find the right business but do not know how to present themselves correctly to the seller and close the deal.
For the last 6 months, I have been working with a buyer to buy a private business I have for sale. He had been looking to buy a business for 18 months and then came across my listing. After asking lots of good questions, signing a Non-Disclosure Agreement, and providing a Personal Financial Statement he was qualified to get a loan of just over $1.4 million. This took him about 5 months to get done as he was cautious with each step he took plus a family emergency came up which took about a month to resolve.
Six months after his first inquiry about buying the business a written offer was presented to the sellers for a very low price as he wanted to see how much the sellers would reduce their price. Unfortunately for him, the sellers a week earlier had received another offer from a qualified buyer and chose to work with that buyer rather than even respond to his offer.
Read More: Search our database of businesses for sale.
Buying a business not only requires being organized by having a good credit score, a good credit report, a strong resume that shows your management experience, and a strong personal financial statement that shows you know how to handle money, but most important of all, the motivation to work through the purchase of a business when you find the one that matches most of your criteria. There is no such thing as the perfect business and so if that’s your standard, be prepared to be disappointed.
When you are ready with the above, then it’s time to find a business that meets your needs.
Many times the ideal business is not on the market.
If you have seriously been looking for the right business to buy but have come up short, you’ll agree that not only can it be frustrating and time-consuming but it can also be expensive. Getting an accountant or attorney to give you advice on what you should or should not do can add up. Perhaps you are reluctant to get that professional help and so this is another deterrent to find a business that works for you.
Some of the best businesses sold are not listed for sale. This is because the owner of a business may not have seriously considered selling until I contact them. It just happens that I speak to the owner at the right time and knowing I represent a motivated buyer and have experience in closing the sale of a business, provides a level of comfort to the owner of a business to sell and move to the next phase of their life. As a business owner, they will have heard from other business owners their challenges of selling their business and my approach could save them time, money, and much emotional stress.
Read more: Why sell a business?
Steps to find the right business for sale.
- The first step is for us to meet and make sure we feel comfortable working together. During this first meeting, I will get to know you and what is important to you including the industry, sector, size, and location, etc of the business you would like to buy. I would also like your work experience and education. However, most important is for me to understand your financial situation so I target the size of the business including your downpayment and your comfort servicing debt if you need to get an SBA loan.
- Most business buyers need a loan to buy a business. This is the purpose of the SBA loans. If you don’t know any SBA lenders, I can introduce you to them so you can determine your borrowing ability and understand your loan repayment terms and conditions.
- The next step is for me to do a search of businesses that fit your criteria so we can narrow these down to the right list of potentials businesses and then put in motion a direct mail and telemarketing plan to uncover serious sellers.
- For a seller to be serious they must be willing to provide the financial statements of their business so a business valuation can be done.
- If the valuation works for you and the seller, the next step is to visit the business, meet the owner and go over key questions.
- If everything is still working for you and the seller, I write up an offer that you sign and present to the owner for negotiation.
- With negotiations complete, the next steps are due diligence, getting formal finance approval and working through the escrow process, and closing the sale.
The right buyer I can help is qualified, knows what they want, ready to act when I show them the business that fits their needs and you guessed it, motivated.
How do you pay for this service? We charge a small retainer and success fee.