As more people join the ranks of the unemployed, the desire to own a business that they have more control over becomes very appealing.
The hunt for a business can be daunting and, to assist you, I have compiled these tips.
Tip One:
It may seem an odd tip, but really is an important one. Make sure you are ready to purchase a business. But you say; "Why would I be looking for a business, if I'm not prepared to buy?"
Yes does seem a no brainer. But from my experience, working with hundreds of buyers, some are really ready to buy and others appear to enjoy the process.
Realize that there is no "perfect" business. When you find one that meets most of your standards, make an offer. Be sure to include in the offer to purchase contract that you are granted a due diligence period to examine the books and records of the business. And if the business is not generating the revenue that you were told, you have the right to back out of the contract and your deposit money is returned.
Tip two:
Do some research on the type of business you would enjoy running. When you acquire a business, you are purchasing a job. So it is important to find out what is involved in running a business in that industry. Restaurants, bars and convenience stores involve long hours. Will the business require special skills or licenses that you have to qualify for, or a waiting period to take the test for that license?
Are you willing to invest the time and money to make the business successful? I once sold a business where part of the owner's job was to market. The business contacts were made visiting existing and acquiring new clients on weekends. The new owner purchased the business and became upset that the clients were not calling him. When asked if he was marketing to the clients, he stated that he wasn't going to work on weekends.
Tip Three:
Get as much information on the business up front. Request copies of at least three years tax returns and current profit and loss statements and, if you are not comfortable reviewing them, have your CPA look them over. If you don't have CPA, now is the time to hire one. You will need an accountant or CPA for the new business.
Tip Four:
Ask for an equipment list from the Seller. If you are purchasing the property, ask for a site plan and see if the owner has a recent appraisal of the real estate. If the business is leasing the property, ask for a copy of the lease. Check the terms as to what is covered, the length of the lease. Does it contain options to renew? You don't want to be forced to relocate the business in the near future because the lease expires. And find out what is prohibited by the landlord. You may think that a large new sign is what the business needs, but the landlord does not want it on the property.
Tip Five:
Check the local ordinances as what activities the business can and cannot engage in. Perhaps you want to buy a restaurant and what to add live music at night. The local laws may contain a noise ordinance that would prohibit having a band.
Tip Six:
Where do you find businesses for sale? You could check the newspaper classifieds, though the businesses for sale column is thinner than it used to be just five years ago, there are still businesses listed there.
Now businesses for sale tend to be listed on the internet, with websites like BizBuySell.com, BusinessNation.com, BusinessesforSale.com, Acquisitions-Unlimited.com and BusinessForSaleFlorida.biz.
Network with people who own businesses in the industry which you are considering. Getting to know other business owners is good idea. They will be a source of information.
Tip Seven:
Your best resource is a professional business broker. In many states a real estate license is required to sell businesses, but a business broker is trained to sell businesses, not homes. Many professional business brokers belong to trade associations, like the International Business Brokers Association and Business Brokers of Florida. These associations provide training in the field of business brokerage and mergers and acquisitions.
Business brokers are in contact with business owners and, because of this, know when the owner is considering selling his business, but does not want to advertise it on the open market.
When working with a broker, he or she will attempt to pre-qualify a buyer by asking a series of questions. These questions will include what kind of business are you looking for and, what type of business would you be interested in operating. Another question is how much money does the business need to generate after expenses (also known as cash flow to owner) for you to live comfortably. This leads to the broker's the next question.
"How much money would you like to invest in a business?" This is a polite way of asking; "How much money do you have?" The wrong answer is; "As much as it takes." Or; "It depends on the business." Unless you are Warren Buffet, it doesn't depend on the business. If you as rich as Warren Buffet or Bill Gates tell the broker up front, if not state that monetary limit.
The broker will be spending time searching for a business in your chosen industry, within your price range, and with the desired cash flow, but can only efficiently help you if he knows your down payment comfort level.
Brokers prepare business profiles on the businesses that they have listed and, theses profiles include the information listed in tips three, four and five. So you don't have to search for this information. Let me say, however, that there are cash businesses.
Business brokers have contacts that make the acquisition process smoother than attempting the process solo. These contacts include attorneys that specialize in business closings. Since these attorneys are involved in closings on a daily basis, they have the forms prepared and the staff can quickly prepare the necessary documents. This results in the procedure being done correctly and often with a cost savings.
Business brokers have contacts in the lending industry. I don't know how many times I have heard a buyer saying; "I'm going to get a loan to purchase the business." It is very rare that a conventional bank will loan money to purchase a business. And I have heard of only one that loaned on a distribution company. The Small Business Administration (SBA) guarantees loans and some businesses qualify. There are SBA mortgage brokers and the business broker works with these contacts to secure you a loan, if the business qualifies.
Business brokers have the necessary forms to prepare an Asset Purchase Agreement. These forms are created from experience and, oftentimes standardized by the associations to which the broker belongs. The Asset Purchase Agreement is the most important and it incorporates the due diligence issues and other contingencies that protect the buyer.
Owning your business allows you to gain more control of your destiny. Small businesses employ the vast majority of Americans, even more than the large corporations. A business becomes like a child that you grow. I wish you luck in finding that business that may not be perfect now, but through your ingenuity, hard work and brilliant ideas you can create the perfect business.
