Lessons from business buyers
Buying a business, for a variety of reasons is never easy. Last week I received a call from a SCORE counsellor because I too am a volunteer as a Resource Counsellor. SCORE is national non-profit made up of volunteers that come from retired corporate executives that assists business owners with different needs. This counsellor was assisting a lady trying to buy a business.
They had taken all the right steps. Looked at businesses for sale in her local community. Tried to find a business inside her core competency which is book-keeping. Talked to landlords and the business owners that wished to sell their business. Despite looking at four opportunities, they were unable to find a business that worked.
One of the best comments the counsellor made was his advice to the business buyer he was helping. At different times she said to him that this wasn’t the perfect business but she asked his advice as to whether he would buy it. His response to her was “go with your gut” which is important. When buying a business you have the opportunity to perform a due diligence of the business by looking at financial records, talk to the landlord and be satisfied that the representations of the seller are true and correct. If the answers aren’t making sense or “you are unable to go with your gut” then you have your answer which is to look for another opportunity.
If you are looking to buy a business, here are five suggestions to help you be successful.
Know what’s important to you. Sounds very simple and almost sounds condescending. Based on my experience, too many buyers look for a business they have little chance of buying. The following will reduce the pool of businesses a typical buyer is able to buy.
If the buyer needs finance such as an SBA loan, at a minimum the bank will want to see the amount of the buyer’s downpayment, credit score, credit history and most important of all, management experience.
Most buyers don’t want to travel more than 30 minutes to get to their business. Very few buyers are willing to take the risk to relocate to a new city, get settled and while doing all this, learn to own and operate a business.
The price of the business is important to a buyer as there is a limit to how much they can afford to buy.
Retail, wholesale, manufacturing, professional services, medical are some of the many types of industry options available but most buyers only wish to work in one or two. Narrowing down that criteria when combined with finance, location and price means there are not too many options for a buyer to choose from.
<h3><li>Develop a repeatable procedure</li></h3>
We all know that the first time we do anything is the hardest. I believe many business buyers think it won’t be too hard and so don’t develop a template they can use so they follow the same steps each time. One of the beauties of buying a franchise is that you can follow the same process and procedure each time you look at a franchise opportunity. Apply this same logic when you are trying to buy a business. Make an Excel file of the steps you take, the items important to you and put them in some sort of order so the next time you can follow those same steps or if you find a better way, update your template in case you need to use it next time.
<h3><li>Put your feet in the shoes of the seller</li></h3>
One of the first things a buyer will be asked to do if they have an interest in the business is sign a non-disclosure agreement or confidentiality agreement. The reasons are obvious in that the seller doesn’t want information that they are considering selling the business given to employees, landlord, customers, lenders, suppliers and more.
However, once a buyer makes initial contact with the seller who offers some interest to work with them and see if they can do a deal, too many buyers focus exclusively on what they want and do not hear or understand what’s important to the seller. Most sellers if they are marketing their business for sale want to sell. Very few sellers are that desperate they will concede everything to the buyer. I am currently assisting a seller with the sale of a medical practice they wish to sell. There is good buyer inquiry but one buyer keeps coming back with an interest to buy the practice but doesn’t hear the simple requests the seller is making. I expect the seller to not accept any of the buyers offers because the seller is simply not being heard.
<h3><li>Do you see yourself fitting in?</li></h3>
Each business has its own culture or way of doing things. After all, it’s made up of people. It also has the owner who has a personality, style and a way of doing things. Most business owners will want to make changes; it’s only human. As part of the buying process ask five things.
- Do you see yourself fitting in with the way the business currently runs?
- How many things will you change?
- How quickly do those changes need to be made?
- Where do you want the company to be in the future?
- Most important of all, does the business you are buying have the ability to get where you want it to be?
<h3><li>Time kills deals</li></h3>
The most important lesson I have learned from business buyers is that those organized and focus on the above four points have a much higher chance of success. A successful buyer knows what they want, have a clear and defined process including advisors to guide and provide specific areas of expertise be they accounting, tax or legal services, understand they will not get everything they want from the seller and also understand that if they want to get a deal done, time will work against them. It does not mean they rush and make fast decisions. It means being clear and quickly working through their processes so they can move forward in a timely and professional way. This approach brings goodwill to the transaction and allows the buyer to obtain a better deal.
One last tip. If you find you are continually looking for new business opportunities because you can’t find the ‘perfect business to buy’ then you are right. There is no such thing as the perfect business to buy. Each business comes with risks, rewards and opportunities. If you find that you keep looking and are unable to buy then take a break and decide if business ownership is really right for you. About 2% of the US population are small business owners. That means about 98% aren’t. Not everyone is destined to own and operate their own business.
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.