Steps to follow when looking to buy a business

Recently, I wrote about the benefits of buying an existing business rather than starting a new one.  Once a buyer has decided to do this, the question then becomes “What business should I buy?”

I can’t answer the above question because the only person who can solve it is the buyer.  However, I can suggest a number of steps a buyer should take to help ensure that they will be happy with their decision.  For starters, buyers need to take an honest inventory of their skills, knowledge and interests.  Do they enjoy interacting with the public or are they more content behind a desk?  Are they comfortable with managing people and making decisions?  What technical skills or talents do they have that they can incorporate into the business?

At this point, buyers shouldn’t be too concerned if they are unable to identify exactly what type of business they’re looking for.  Normally, most buyers know what they’re not interested in, but really don’t know what would be attractive to them. 

This cataloguing also includes a solid understanding of their financial situation.  Buyers need to know how much money they are prepared to invest and how much they expect to make.  Typically, these two amounts are directly related to one another.

Secondly, buyers will need to start their search to find the availability of businesses that match their profile.  Scheduling an appointment with a business broker will give buyers a good sense of what is available.

The next step is often the hardest for many buyers, making an offer.  A well-written offer to purchase will contain all the language necessary to successfully transfer a business while offering a number of conditions that will give the buyer (and the seller) the required safeguards. 

When it comes to negotiating, buyers (and sellers) must make sure they focus on the issues that are important to them rather than details that are not critical.  In Fisher and Ury’s “Getting To Yes,” they dedicated a number of chapters on this issue stressing that successful negotiations focus on interests, not positions. 

Once an offer has been accepted, the next step is for the buyer to begin their due diligence.  There is no point in beginning this until the buyer and the seller reach an agreement on price, down payment and terms.  This is the point in time where a buyer’s accountant comes in and verifies the seller’s cash flow. 

Beware that many outside advisors will seldom tell a buyer they should buy a business, and they shouldn’t be expected to.  If pressed for an answer, they’ll often give the buyer what they consider the safest one, “No.” In fact, I rarely met a buyer’s accountant who thought his client didn’t pay too much for a business.  Conversely, I’ve hardly met a seller’s accountant who felt their client sold their business for enough money?

The last step in the process is to bring in a lawyer to complete the necessary paperwork to ensure a smooth transition.  This includes lien and title searches, promissory notes, bills of sale, etc. enabling the ownership of the business to change hands. 

A business broker is a professional that buyers should turn to for assistance when deciding to buy.  They can show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchase process.  With plenty of businesses to choose from in today’s market, it is more important than ever for buyers to make sure that their efforts remain focused on choosing the right business for them.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 

William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.