Though more than two dozen steps must be completed to successfully buy a business, five of the most basic steps are often ignored completely. These buyers often find these steps confusing and unfocused, all five steps show up early in the process and will spell the difference between business-buying success and failure. The five steps are: know your reasons, don’t go it alone, begin with criteria, search in the private marketplace, don’t be lazy.
Fable:
A business buyer asks a fortuneteller “What it will be like to own a business?” She answers, “The next five years will be hard – very hard.”
“Okay,” he says, I can handle five years, then what?”
“You’ll get used to it.”
1. Know your reasons
Actually owning a business frequently fills the new business owner with feelings of such uncertainty that the experience becomes unlike anything else the new owner has ever known. Strong positive images are needed to drive the new owner through the initial hard work and feelings of doubt.
Both seller and banker for example will want to know about the buyer’s motivation and resiliency. Will you the potential buyer give up when you hit a hard spot, or will you plough through? Seller and banker want to know how much they need to use their knowledge, network, and time to help you.
You must have a good reason to own a business, one that emanates from your gut and that drives your faith in yourself. If you have that, others will see it, appreciate it, and will want to help you succeed.
2. Don’t go it alone
Nobody knows enough all by themselves how to buy a business. Though people are ready to help you, they don’t like helping total “do-it-yourselfers.” Thus the first two people on your team should be an attorney and a CPA. A CPA helps with the numbers, provides some perspective and talks about taxes. Your attorney will know about forms, letters, and legal work to be done. He’ll understand, for example, how to do due diligence on the seller’s legal record.
Nobody can manage all aspects of a business. Recognize your areas of strength by next adding a business consultant or coach to help you identify those and strengthen your weaker areas. Trade associations and Chambers of Commerce are good places to start to find such an advisor
Another valuable member of your team will be a business buying mentor, someone who knows about how to best buy a business and can guide you through the many steps. Such a mentor will steady you to prevent “buyer fever,” essentially a crazed emotional state of mind that hurries you through the process and sometimes burns bridges. You need to stay cooler than that.
All these advisors will help you to adequately prepare, search, conduct due diligence, negotiate, and (ultimately) close the right deal. Mention these advisors as references and both seller and banker will now know you are a serious, careful, motivated buyer.
3. Begin with criteria
Criteria are different from goals. Goals are your issue. Criteria help others see how they can help you. Once introduced as a business buyer, you’ll be asked a simple question: “What kind of business do you want?” You’ll want to answer with such specifics as type, size, location, and industry. These details allow others to visualize the right business for you.
You won’t want to answer this way: “Oh, any kind. I’ll know it when I see it.” Too vague. Answers like “profitable” or “owner ready to retire” are too vague as well. Do not force someone to guess.
A truly serious buyer knows criteria about size, type, scale, and “tempo” of a good business. Imagine a conversation with someone who knows businesses, who loans money, or who may know someone that you should meet. Specific criteria allow this person to visualize your ideal business and match it up with people he knows who might be willing to sell.
4. Search in the private marketplace
The Internet, newspaper ads, and brokers are all easy places to look for good businesses. This is the public marketplace. But most good businesses are sold privately to people in the owner’s network of friends, advisors, suppliers, and customers. These deals are never located publicly.
According to the SBA, about one-fifth of all businesses change ownership every year. Most of these don’t “go public” with their situation. These businesses would be open to talking with a qualified buyer confidentially.
With your advisors, you can make a target list so that you can carry out a comprehensive, professional approach to shopping your target businesses. You will be using networking, publicity, and direct approaches. This system will get you out of the “business-buying business” and into the “business-owning business.”
5. Don’t be lazy
Clicking through online listings after work while you're also watching a ballgame isn't going to get the job done. Making a few phone calls and asking a few questions of a few brokers isn’t going to make your dream happen either.
Ask yourself, “Will I spend 10 to 15 hours a week committed to the search?” It's going to take that much and possibly more, weeks filled with a lot of looking, reading, analyzing, and conferring. You’ll need to do research, make phone calls, and meet people. Here’s your new motto: “If you can’t spend the time, don’t spend your dime.”
In conclusion
Money is indeed necessary to buy a business. But preparation and knowledge are even more important. My five basic steps will help get your business buying and business owning process launched in the right direction, guiding your search and your due diligence and everything else you need to bring the process to a happy conclusion. You will be working with all the advice and guidance you need to put together a deal that will be work for you.
About The Author
Bill Mueller is a business buy/sell advisor, helping people prepare themselves to find a deal and to make it happen, a deal serving both sides fairly. He can be reached at Strategies for Business Ownership at 617-444-8600 or
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