Buying Process & Things a Buyer Should Know
We at Plymouth Financial Group are advocates, focused on of finding a business that you like and feel comfortable managing. You, like every other prospective buyer, have a vision of being your own boss and calling your own shots. An old saying in the real estate industry is … “The three most important things a buyer should look for are location, location & location.” While location is important to a business buyer, be aware that track record and management round out the three components of a successful business. Many buyers spend years looking for the perfect business and never find it. The reality is if you are serious about becoming your own boss, you will most likely have to look outside of the industries that you know.
Advantages of Buying an Existing Business
- Actual results rather than pro-forma.
- Immediate cash flow.
- Trained employees in place.
- Established suppliers and credit.
- Established customers and referral business.
- Existing licenses and permits.
- Training by the seller.
The Process Of Buying A Business
- Evaluate the basic information on alternative businesses that sound interesting to you.
- Visit the business (if possible) without announcing yourself as a buyer (incognito) to get a “feel” for the business.
- Meet with the Seller, asking from general to probing questions on anything and everything, except actual price negotiations.
- Do your preliminary evaluation, based on the information provided by the seller and Plymouth.
- Make an offer, assuming that all of the information you have been provided is correct, but include contingencies, which allow you to confirm such information. Plymouth will show you how to write an offer to protect you as the buyer.
- Once a sales price is agreed upon, make a closer investigation of the business, confirming to your satisfaction the validity of your offer, known as Due Diligence.
- If outside funding is required work with lenders.
- Have documents prepared for the closing. You may agree with the seller to share the cost of a closing attorney.
- Close the purchase, and begin your first day as the owner of your own business. The seller will assist in an orderly transition because most of his money is coming from your success.
Top 10 Tips For Buying The Right Business
- Buy a business you like. Although profitability is important, you will risk making a terrible mistake if you do not buy a business that you like. Often, people who buy hastily without considering personal satisfaction later sell their businesses at a loss. Will you be proud to own the business? If you are not sure, do not buy that type of business.
- Be flexible. Plymouth advises its clients to be open to all sorts of businesses. If you lock into only one type of business, it will take you much longer to find a business to buy. Examine the following categories: retail; service; manufacturing; distribution; transportation. First, decide if there are any categories that you do not want to be in, then focus on the remaining categories.
- Do not expect much financial information. Do not expect “traditional” financial information from the owner of a privately owned business. The only accounting required of a privately owned business is filing tax returns, which are prepared to report the lowest possible tax liability.
- Consider chemistry. This may seem like an unusual recommendation, but Plymouth tells its clients to forget about buying a business if they do not like the current owner. The buying process is a long and somewhat complicated one — it is imperative that the buyer and seller work through it together.
- Get your financing in place. Owners with multiple offers will often take a lower offer if they know the seller has the ability to complete the transaction. Having your financing ready to go is one of the best bargaining tools a buyer can have.
- Have a cash reserve. You should keep a stash on hand for emergencies and business improvements.
- Make an offer before you have seen all of the financial and other business records of the business. It is simply not possible to know everything about a business before you make the initial offer. The offer does not commit you to the business, but it does let the seller know you are serious.
- Stay calm. Buying a business can be like dating. You’ve got so many ideas and emotions going – do you like the business, does the owner like you, is this feasible, what does my family think, etc. – that you’re bound to get a little flustered. Keep your wits about you; you will need them. Remain calm, and negotiate your offer with quiet reflection and reasoned discussions. As you go through negotiations, always use this simple formula: Cash Flow Available minus Annual Payments to Owner = $$$ for you and your family. If at any time during the negotiations this formula does not result in enough money for you and your family, stop.
- Investigate the business. Once the owner has accepted your offer, the real work begins. Verify cash flow and identify any hidden problems. If you see red flags in either of these areas, change or terminate your offer. There should be stipulations in your offer that allow for this.
- Close quickly. Once the deal is made, try to close as quickly as possible. You do not want the owner to have second thoughts or news of the sale to leak out to employees, suppliers and clients.
If you are serious about buying a business, please fill out our Buyer Request form, and check our Current Listings.