This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
Buying Your Own Business:
Important Issues To Understand
by Tom West
Buying your own business
can be a complicated procedure. Throughout the buying process, it's
important to keep an open mind while searching for a business that
will fit your needs, talents, skills and lifestyle. A business broker
has many different types of businesses for you to consider; however,
you need to remember that there is no such thing as that "perfect"
business. Another vital thing to keep in mind is that at some point
you must be able to make the "leap of faith" that separates
you from being a "looker" to a "doer." This
isn't easy, but it must happen if you are ever going to be in business
for yourself. The following discussion of other key issues may help
in the process:
Importance of Information: Understand that
in looking at small businesses, you will have to dig out a lot of
information. Small business owners are not known for their record-keeping.
You want to make sure you don't overlook a "gem" of a
business because you don't or won't take the time it takes to dig
out the information you need to make an informed decision. Try to
get a understanding of the real earning power of the business. Once
you have found a business that interests you, learn as much as you
can about that particular industry.
Negotiating the Deal: Understand, going
into the deal, that your friendly banker will tell you his bank
is interested in making small business loans; however, his "story"
may change when it comes time to put his words into action. The
vast majority of small business transactions are financed by the
seller. If your credit is good, supply a copy of your credit report
with the offer. The seller may be impressed enough to accept a lower-than-desired
Since you can't expect the seller to cut both
the down payment and the full price, decide which is more important
to you. If you are attempting to buy the business with as little
cash as possible, don't try to substantially lower the full price.
On the other hand, if cash is not a problem (this is very seldom
the case), you can attempt to reduce the full price significantly.
Make sure you can afford the debt structure...don't obligate yourself
to making payments to the seller that will not allow you to build
the business and still provide a living for you and your family.
Furthermore, don't try to push the seller to the
wall. You want to have a good relationship with him or her. They
will be teaching you the business and acting as a consultant, at
least for a while. It's all right to negotiate on areas that are
important to you, but don't negotiate over a detail that really
isn't key. Many sales fall apart because either the buyer or the
seller becomes stubborn, usually over some minor detail, and refuses
Due Diligence: The responsibility
of investigating the business belongs to the buyer. Don't depend
on anyone else to do the work for you. You are the one who will
be working in the business and must ultimately take responsibility
for the decision. There is not much point in undertaking due diligence
until and unless you and the seller have reached at least a tentative
agreement on price and terms. Also, there usually isn't reason to
bring in your outside advisors, if you are using them, until you
reach the due diligence stage. This is another part of the leap
of faith necessary to achieve business ownership. Outside professionals
normally won't tell you that you should buy the business, nor should
you expect them to. They aren't going to go out on a limb and tell
you that you should buy a particular business; in fact, if pressed
for an answer, they will give you what they consider to the safest
one: no. You will want to get your own answers--an important step
for anyone serious about entering the world of independent business.
About the Author
||Mr. Tom West is the editor/publisher of The Business Broker, a monthly newsletter for the business brokerage field. He has written or co-written numerous books including the The Business Reference and Pricing Guide and The Resource Handbook for Business Brokers. He is a founder, past president, and former executive director of the International Business Brokers Association (IBBA). He is a frequent lecturer and seminar leader on all aspects of buying, selling, or appraising a business. Mr. West is probably the most knowledgeable individual in the country today concerning the issues of buying or selling small to mid-sized businesses.
If you're considering buying, selling, or determining the value
of a business, please take a look at some of the excellent books,
reports, and software we have at Business Book Press to help you
achieve success. For example:
The Business Reference and Pricing Guide is the bible of the business brokerage world. If you're a shrewd business buyer or seller, you will want this book to learn what just what the business broker knows. It will pay you big dividends throughout every aspect of the purchase and sale process. Learn more about it...
BizPricer Business Valuation Software is an accurate and inexpensive resource for prospective business buyers and sellers (and business brokers) who want to know the fair market value of a business. No financial expertise or specialized knowledge is needed. Save hundreds to thousands of dollars over hiring an appraiser to provide you with a similar result. Learn more about it...
Preparing A Business for Sale provides business owners with an understanding of the process they need to know to sell their business for the most money. Contains hundreds of little known tips, ideas and strategies to maximize the selling price of a business. Learn more about it...
Strategies for Successfully Buying or Selling a Business is our bestselling book. It has been recommended by Kiplingers Personal Finance Magazine, the BottomLine Personal Newsletter, and has been awarded the Best Business Book of the Year Award from the North American Bookdealers Exchange (NABE). Learn more about it...
Anatomy of a Business Purchase Offer provides you with all of the practical hands-on knowledge you need to make a successful purchase offer to buy a business. The author uses an actual Purchase Offer form to show you exactly what needs to be written and why! He details all of his recommendations in a line-by-line format for each and every aspect of the purchase offer. Learn more about it...
The Business Buyer's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully buy a business.
The Business Seller's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully sell a business.