The basic PROCESS of Buying a Business:

The basic PROCESS of Buying a Business:

 

1.  The location of the business has to be acceptable -- in regards to where the buyer lives and in regards to the perception of the buyer of the area the business is located.

 

2.  If 1. is OK, then the buyer is looking at particular types of businesses and will not accept any businesses that do not fall in to those particular types.

 

3.  If 1 and 2 are OK, then the buyer has in mind a certain amount of money that the business needs to make on a monthly- annual basis.  There needs to be sufficient income out of the business to -- Pay the Loan payment -- Pay the buyer for his needed living expenses -- and give a return on investment of the cash money invested to get the Loan.

 

4.  If 1, 2 and 3 are OK, then the price has to be right and fair.  It is always too high, so go back to 1.  haha -- just kidding, but it does happen quite a bit.

 

95% of all people who are looking to buy a business will never buy a business from anyone!  That is pretty much a fact, the percentages range from 90% to 99% depending on who writes the article.  I have been selling businesses since 1984, I can attest to that. 

 

There are a whole bunch of reasons why 95% of the people who get through 1, 2 and 3 do not buy a business.  Mostly lack of confidence and worry about competition kill a lot of them.  Financing is also a big killer due to the buyer having to risk everything and the spouse will not agree to that.  Another big one is false assumptions about the business in some manner.  Those false assumptions are usually based on opinions without research and by looking at the worst-case scenario of the situation and taking that as the norm.  Most everyone spends their time looking for problems and they fail to see the opportunities.

 

Oh well, we can only try to help those who will try to help themselves….

 

I try to treat everyone as if they are the 5% who are going to buy a business, can't tell who is or who is not.

 

 

I try to treat everyone as if they are the 5% who are going to buy a business, can't tell who is or who is not.

 

For BUYERS -- You need a Business Appraisal -- go to BusinessAppraisal

For BUYERS -- You need a Business Appraisal -- go to BusinessAppraisal.com or write Tom Atkins at BusinessAmerica1@aol.com -- You need a Business Plan -- Go to BusinessPlans.com

TEN STEPS IN RESEARCHING & PURCHASING A BUSINESS

STEP 1. Look at an opportunity and keep an open mind toward the opportunity. Don’t immediately discount the Business based only on looking at something on paper. Listen first for the reason of why it is for sale and what opportunities are being presented.

STEP 2. Look for Potential for growth. Look at the Market for this Business Product or Service, is it saturated? Is there room for growth? Is there an opportunity to take advantage of the competition? Research needs to be done on these questions and not guessing, because without reserach, the assessment about the Business could be wrong. Potential is the most important thing to assess, if there is little or no potential, then the Business may not be interesting enough for further consideration.

STEP 3. After a general review of the performance of the Business, Sales, Cash flow to the Owner after Business expenses, a visit will need to be made with the Business location and Owner. A yes or no decision cannot be made unless the time and effort is made to meet the Owner and see the entire Business operation. Of course the need of determining if this Business is a fit, is also an important factor and the location and type of Business is important to any prospective purchaser.

STEP 4. After meeting the Owner of the Business and seeing the entire operation, a more detailed review of the financial operations of the Business needs to be made. A review of the historic performance of the Sales and Expenses will show growth or decline and questions need to be presented that will help to explain what happened.

STEP 5. A projected Income and Expense statement needs to be constructed showing actual and expected expenses of running the Business not as the current Owner is running it, but the way a new Owner would run it. This should be done monthly for the first year of operation, there are ways to get help in this process, Business America will refer you to various help methods. The monthly/annual profit result will be the Net Cash Flow to Owner that will be used to justify the price of purchase and fund the Financing and provide a Salary to a new Owner for running the Business. Business America will refer you to Financing sources.

STEP 6. The cost of Financing the purchase (Debt Retirement) must be determined and subtracted from the Net Cash Flow to Owner with the balance of cash flow being used as owner’s discretionary personal expenses and salary.

STEP 7. Based on satisfactory results of Steps 1-6, an offer to purchase must be formulated and presented in an Agreement format. Business America has an Agreement for Purchase and Sale of Business Assets on a computer, that can be printed out and used to present and negotiate an offer to acceptance. This format is professional and gives safety in making an offer and proving it out in a “Due Diligence” process that will return any “Good Faith Deposit” in the event that it does not check out to full satisfaction. There is a guarantee that any part of the Deposit that has been placed with the Broker will not be lost in the event that the Business doe not check out, in fact the Deposit is kept in uncashed form until the Agreement is signed by both the Purchaser and the Seller, then the Deposit is put into an escrow account with PNC Bank. The Negotiation process is handled by Business America and usually takes place back and forth until there is agreement -- or if a stalemate, the prospective purchaser will move on to something else.

STEP 8. When agreement has been reached, the prove-out process begins with Financial and Business Due Diligence, ther is usually a 10-day time period for this to be completed to full satisfaction or the prospective purchaser may cancel the Agreement. The next contingency is usually the Lease for the premises which must be negotiated with the Property Owner and the last contingency is the completion of the Financing in order to be able to pay what is needed to purchase the Business.

STEP 9. After all contingencies have been completed and accepted, the Closing is scheduled in date, time and place. Business America can do the Closing if it is desired by the Purchaser and Seller. The Purchaser makes various plans and reviews a list of tasks that need to be done in preparation for taking over the Ownership of the Business.

STEP 10. The Business is inspected prior to the Closing and based upon satisfactory inspection, the Closing is conducted and the New Owner takes physical possession of the Business.

Here's the bad news if you're planning to buy a business: According to industry statistics, over 90% of the people who begin t

Here's the bad news if you're planning to buy a business: According to industry statistics, over 90% of the people who begin the search to buy a business fail to ever complete a purchase. Even worse, the average person looks at business for sale listings for 18 months and still, they never buy one!  What a monumental waste of time! .

 

Why so many failures? There were several common reasons given by those who failed to realize their dream of business ownership:

 

1.        Most were first time buyers and they admitted to having totally underestimated just how much was involved with each stage of the buying process. They felt overwhelmed and ill equipped to handle all of the new situations and major decisions they encountered.  Meeting with a knowledgeable Broker can help work though this process.

2.        Many people do not want to have to risk their House in order to finance the Business and in many cases the spouse will not sign the loan.

3.        First Time Buyers are looking for Owner-Financed businesses so they don’t have to risk their Real Estate, most good businesses are offered for mostly a cash buyout and the retiring owners do not want to worry about collecting payments.  If the business is a good one, it can be financed.  If the business is not that good and the owner is willing to finance, first time buyers do not want it.

4.        Buyers are looking for perfect fit – Good Business, A Type of Business that they like, the right location for operation and convenience to where they live, making the right amount of money after all actual business expenses – and – then, they want it to be a bargain! 

5.        Finding a “Good Business at a Bargain” will almost never happen, good businesses are not available at a bargain, because there is always a buyer who will pay a fair price (in terms of the numbers working) -- not “fair in the eyes of the buyer and their advisors”.  Fair is like beauty – it is in the eyes of the beholder.  Many times both parties say they just want to agree on a price that is fair, but they can be miles apart in what they consider to be fair. The determining factor is how do the numbers work?  Is there enough cash flow to pay the loan and pay the owner a decent base wage?  If so, then the numbers would seem to work.  If the base wage is not enough to cover what the buyer needs, then the business is simply not good enough for them at this time.

6.        Advisors giving bad advice.  Some advisors give the kind of advice that seems to be best for the buyer, but it is not practical and the seller will not agree, so the deal is killed.  Some advisors give “opinion” advice not based upon the real facts and the buyer is then discouraged about taking the risk.

7.        Not seeing the opportunity and potential.  Many people spend all their time worrying about the problems that are brought up by themselves and their advisors, they fail to see the opportunity and get bogged down in detail of trying to sort out all the problems.  Every business has a set of problems and a buyer has to have the confidence that these problems can be handled and then move on to the opportunity.

8.        Worry about “Competition”.  This is a concern, but there will always be competition for most any business and the job of any business owner is to do the things necessary to get and keep market share.  If there is not competition, then the business has a very small market and might not be good. If that is not the case, then there will be competition in the future so the owner again will have to market and provide good service to keep market share.  To “Pass on this one” because of competition reasons is an excuse for not having the confidence to compete in the market place and will apply to most every situation that comes up.

9.        Business is not making enough money to cover our needs, keep looking.

10.  We just can’t take the Risk….  Some people, after all considerations, come to that conclusion. That is fine, owning and operating a business is not for everyone.

 

Well, now you can see why over 90% of people who want to buy a business will probably never buy one.  Are you the exception?

 

(153,102,51);">BEWARE -- THE DEAL KILLERS

BRACE YOURSELF!

Your enthusiasm for buying a business will be severely dented and sometimes destroyed by anyone you ask what they think about you buying a business.

WHY?

Because almost everyone feels they must give you the most negative and “Worst Case Scenarios” they can, so you will be well warned of all the possible problems rather then the opportunities.

PROFESSIONAL PEOPLE

You need to seek the services of various professional people -- Attorneys -- Accountants -- CPA’s -- Financial advisors and insurance experts. This is normal for anyone who is giving serious consideration to buying a business, just be sure that these professional people are used for what they are in the business of...

Attorneys -- Legal ADVICE...

Accountants/CPA’s -- Tax and Numbers ADVICE...

Financial Advisors -- How to get Business financed...

Insurance Agents -- Cost and Coverage of the Business...

Try to refrain from asking these people as to whether you should buy the business in question -- their only safe answer to avoid future liability is NO! -- Too Risky. They will advise you to continue to look for something better, safer, more income, less risk, more potential, less competition, more tested, not so old -- well, you get the picture. This is actually sound advice, but you will end up never doing anything because the perfect business does not exist.

NONE of these people are experts in business value or business appraisal unless they are accredited in that field, that normally is not their business.

FRIENDS, RELATIVES, BUSINESS ASSOCIATES

Most people really don’t want you to get ahead of them! They will try to discourage you, but will do it cleverly under the guise of trying to be helpful to you. There is a subtle fine line here, surely you want to assess the pitfalls of going into any business, but sometimes people don’t give opinions and information that is factual, it is only their opinion and may or may not be correct.

INVESTIGATE & RESEARCH!

This is the way to find out the real facts and get yourself prepared to make a decision. This can’t be done without spending some time with the current business owner and perhaps talking with other business owners (not in the same area of competition). Remember the importance of confidentiality and remember the other business owners in your area of interest will not welcome you as a competitor, so they may only give you the tough side of the story. It is okay to hear the problems of any business as long as you don’t lose sight of the opportunities of the business as well.

COMPETITION

If any business is a money maker -- there will be competition. If you are worried about competition then you may not be ready to take on a business of your own. Any good business person finds a way to deal with competition and get more market share. If there is little or no competition, then the business is either very hard to operate (needs special skills or knowledge) or there is a very small market for it. You may have the ability to learn a special skill or be informed on the special knowledge (Training by the Seller), so don’t shy away from these type of opportunities. If there is a very small market, you will probably not see the potential in the business and go on to something else.

GOOD LUCK IN YOUR BUSINESS ENDEAVOR

Call Tom Atkins at (412) 833-1910 or E-Mail: BATomAtkins@aol.com