Buying a business is NOT like buying a house
Buying a business is not like buying a house though there are some similarities. There is a seller and a buyer. There is an asset generally with a listing price and the buyer and seller negotiate until they reach a deal; or not. Often the buyer requires finance and so that too is similar to buying a business. If you have bought a house before it provides a useful experience about the ups and downs of a major transaction but here is where there are some major differences.
When a house is for sale the owner of the house wants the world to know including the address of the house so they can get as many offers as possible. When a business is for sale, the owner does not want anyone to know unless they are qualified to buy the business. They especially do not want all the buyers to know as they do not want the buyer walking into the business and asking questions as the employees, landlord, suppliers and others may not know the business is for sale.
2. Signed Confidentiality Agreement
When a house is for sale, potential buyers are not required to sign a legal document saying they will not tell anyone the business is for sale except their professional advisors like a CPA or attorney. A signed Confidentiality Agreement also carries legal remedies available to the seller if the buyer does not follow what is in the Confidentiality Agreement.
3. Qualified Buyer
When selling a business, the seller wants to know the buyer is qualified to buy the business and these qualifications can be extensive. Qualifications can include industry experience, management experience, a minimum downpayment, a minimum credit score, a shiny credit report and sometimes a particular license to run a particular business. A business buyer also needs some of these but not all of them; and that’s the tough part for some business buyers as they do not meet all the criteria.
4. Tax, legal, accounting and more
When buying a home you rarely need the help of a tax advisor, attorney, CPA or other specialist. Granted, you may want the help of a pest inspector or home inspector but when buying a business you often need extensive help from skilled professionals that cost many thousands of dollars and they often have to explain complicated tax, legal and accounting concepts.
5. May never see the seller again
It is almost rare, in fact more likely never, that the seller and buyer will live in the house at the same time together. When a seller sells the business to the buyer it is likely they will work together for at least a 2 week period so the seller transitions their knowledge, management information and other details as described in the purchase agreement. It’s also common for the seller to be paid part of the purchase price as a sellers note and for this reason, the seller and the buyer may be meeting face to face or at least talking with each other.
6. Complicated transaction
Selling and buying a house can be a complicated process but it is very simple when compared to buying and selling a business.
The sale of a house needs a buyer, seller and lender and generally a real estate broker plus escrow company.
The sale of a business needs a buyer, seller and lender and often a business broker plus escrow company. However now it gets complicated as often it includes an accountant or CPA as well as an attorney; for each party. Now we add the landlord to make it interesting and as you can see, there are many moving parts.
7. Length of time to sell
The amount of time it takes to sell a house or a business depends on what’s happening in the economy. Selling a business also depends on what’s happening in that industry as markets shift and change sometimes slow and sometimes rapidly.
In a normal market it takes about 30 days for a seller to get an offer they are willing to accept and then about 20 to 30 days to close the sale.
In a normal market it takes about 6 months for a seller to get an offer they are willing to accept and then about 45 to 60 days to close the sale.
8. Chances of selling
Here is a big difference between selling a house and selling a business. It would be reasonable to say that a good house in a normal market will be sold.
However, a good business in a normal market only has about a 25% chance of selling.
There are many reasons but the housing market tends to go through a 10 year cycle. The business market goes through quicker cycles plus experiences different pressures including very strong competitive pressures. It’s not unusual for a business owner to try to sell their business especially in the Main Street business market and there is a lack of interest buying the business because the sales are declining or the product or service now has a smaller market.
For more immediate help with buying a business you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.