The Process of Buying a Business
What is the process of buying a business? Buying a business is a process that takes time. It can sometimes take years to find the right opportunity. Although this blog is about selling a business, if a seller understands the buyer process, it will make it easier for the seller during a transaction. Hence my Golden Rule – Put your feet in the shoes of the other party.
Unfortunately, many buyers want to look at all available options, thinking they’ll recognize what they’re looking for when they see it. That approach is actually a waste valuable time and energy and can lead to frustration and an end to the search. Or the potential buyer may miss out on great opportunities because they weren’t found early enough or they weren’t ready to move forward with a purchase.
There are some key steps to follow in the business search process:
Start with a self-assessment – Ask yourself why you want to buy a business. What types of work activities do you like and what kind of lifestyle do you want to pursue? It’s important to understand that there may be more work and longer hours for an owner in some industries. Be sure to include your family in the assessment.
Establish financial expectations – Determine how much money you need and want to earn. Make sure your expectations are in line with the types of businesses you are targeting and the return they can produce.
Put together a personal financial statement – Outline your assets and liabilities. Identify what you can use for your initial investment. The personal financial statement serves as proof of your financial wherewithal, so be prepared to share this document with a seller’s intermediary.
Update your résumé – Sellers want to be sure that their business will continue to be a success. They’re looking for someone with the experience necessary to continue their legacy and take care of the staff. Ultimately, you’re selling yourself to the current owner(s), the lender and the professionals representing them.
Outline your acquisition criteria – Define the parameters of your search. Ideally, it should include your targeted industries, geographic area, and transaction size. Your acquisition criteria will help you demonstrate your commitment to finding the right business for you.
Search multiple sources and enlist help – Let your professional advisors (e.g. attorney, accountant, financial planner) know you are looking for a business. Most importantly, contact business intermediaries who represent businesses within your targeted market. They will notify you of available companies that meet your criteria and qualifications.
Most business brokers or intermediaries work for the seller and are paid by the seller. That means you can enjoy the luxury of their services at no cost. The intermediary is looking out for the seller’s best interests, so you should have experienced counsel to represent you in any transaction.
When interested in a business, you want the business intermediary to be selling you to the seller. Prove to them that you are a qualified, motivated buyer by preparing for your search.
Your motivation, lifestyle, expectations, financial statement and résumé will help you develop your acquisition criteria. Identifying and communicating your acquisition criteria, qualifications and experience will save time and frustration and will place you far ahead of less focused buyers.
If you have a question about selling or buying your business, give Andrew a call today at (916) 570 2674.
This article is reprinted as a courtesy of the International Business Brokers Association® (IBBA.) IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.
This is a very fascinating article, as it looks at the process of buying a business from the point of view of the seller. It explains the several steps that a buyer should take when in the process of potentially searching to buy business, and the different types of people that should and will be involved in the buying/selling process. This article is a good resource to read for both the buyer and seller, as the buyer will learn the steps needed to find the right business and also the seller will be able to understand how the buyers will search for their business and be able to advertise and market their business accordingly. I would recommend researching into a business you are interested in as much as possible, to gain knowledge of the business’s health and work out whether the business is right for you.