This is a major decision and investment. With so much at stake, it is crucial that you prepare yourself properly and educate yourself for this journey and take the necessary steps to be certain that you make all of the right decisions along the way.
According to industry statistics, nine out of ten people who begin the search to buy a business, never complete a transaction. Perhaps the biggest reason for this dismal statistic is that most people simply do not realize how much is involved.
Part of the challenge is that most are first time buyers. Faced with having to make one crucial decision after another, they become overwhelmed and frustrated and soon they abort the project.
Your approach must be different.
As Thomas Edison once said: “There is always a way to do it better… find it!”
This Will Take Time – Just Don’t Take Forever
You can easily turn this entire buying process into an endless search. The average buyer spends 18 months looking and then gives up. However, there’s no reason why you shouldn’t be able to complete the process in six months. If you’re working full-time, you will have to be disciplined in your search efforts. If buying a business is a goal you’ve set for this year, then block off at least ten hours per week to devote to this project.
Starting Off Right
It is estimated that 70% of all searches by buyers are now conducted via the Internet. A short time looking at business-for-sale websites and you’ll soon realize that the number of available businesses is incredible. In fact, there are hundreds of thousands of them out there. It would be very easy to turn this into a never-ending search instead of a buying process.
Instead of looking at endless business-for-sale listings trying to figure out which, if any, are right, you must first identify what type of business is right for you and then focus your search accordingly.
Take a good look at yourself. What are your strengths, weaknesses, likes and dislikes? Don’t try to be something you’re not. Most people simply don’t know what’s right for them and that’s fine. If this is your predicament, sometimes it’s best to start by ruling out all of the businesses you don’t want.
Next, consider your finances and focus solely upon those that make sense from an investment perspective. With these two criteria alone, you’ll be able to whittle down the choices.
Educate Yourself About This Process
Unless you have a wealth of experience buying businesses, it is critical that you acquire the necessary knowledge and information to make this decision. You are going to face an onslaught of decisions throughout this process. Having the knowledge will likely make the entire difference between buying the right business and the wrong one.
Don’t fool yourself into thinking that your attorney or CPA can make these decisions for you, although it is extremely important to find quality professionals that specialize in business transactions of the size and type you are considering. It is incumbent upon you to take the time to learn what is involved and how to successfully navigate your way to your dream. Think of it this way: if you’re going to invest your savings to buy a business; shouldn’t you first invest the time to learn how to buy the right one?
It’s been proven over and over again that well-informed, properly prepared buyers acquire good businesses; the rest get sold lemons!
This is one decision you must get right the first time!
Organize Your Finances
You will definitely be required to produce a personal financial statement at some point. Get the details together right away. List all of your assets and liabilities and outline your net worth. Check your credit rating and rectify any erroneous information.
Make Sure Your Family Is On Board
If you have a spouse/partner, be certain that you discuss this project together. It’s no use going down the road with this if your spouse is not on board. You both have to see the dream. Business ownership is a time-consuming commitment. The hours are long. You need their support. Keep them informed. Answer their questions. Get their input. Remember, even though this may be your business, they’re in it too.
Determine Your Investment Level
Determine with absolute certainty how much of your own cash you are prepared to invest. Forget any relatives who may have promised that they’ll “back you.” When the time comes to lay down the money, chances are they won’t be around.
Don’t bother looking at businesses that are unaffordable. Over 80% of small business purchases involve seller financing. Generally, this is 30% to 50% of the purchase price. If you have $100,000 to invest, don’t look at businesses that will sell for $2,000,000. It’s OK to dream, but be realistic.
Intermediaries – Do You Need One?
I am a firm believer in using a business broker to help you throughout the process. Keep in mind that the seller nearly always pays brokers and so their role from an advice point of view may be limited or even tainted. However, a good broker can, and will:
- provide you with access to a vast database of businesses for sale
- walk you through the valuation process
- provide you with comparable business valuations
- keep the deal moving along when obstacles are encountered
- be the bearer of bad news to the seller when necessary
- ensure all pertinent documents are assembled for the closing
Your Six Steps to Success
- Commit to a deadline for buying a business (not just “looking” for one).
- Set aside time every day to work on this project.
- Organize your finances.
- Work on determining what type of business will thrive from your strengths and not suffer from your weaknesses.
- Seek professional advice from a qualified accountant and attorney.
- Unless you have a wealth of experience buying businesses, then educate yourself about this process. Learn as much as you can. When it comes to investing in your future, you can never know too much!
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