Dwight’s Buyers Advice

Download Non Disclosure Agreement

In my opinion less than 20% of all business buyers who set out to buy a business actually do! A compelling statistic for the unwary buyer. It is hard work with many obstacles. If, however, you follow these steps you will greatly increase your chances of buying a business!

1. What business should I Buy?
What do I aim for? Good question! Looking for a business is somewhat like looking for a spouse. Beauty is in the eyes of the beholder. Sometimes you may know what you don’t want before you know what you may like. This is a challenging area for many buyers. This requires some introspection and self-examination of your motives, wants, desires and lifestyle needs. You need clarity here. Without it, certain opportunities will present themselves and you won’t recognize some of the features and benefits of the business including the opportunities.
 

Before you start calling and meeting business brokers, make sure you know what types, sizes and locations of businesses you are looking to buy. If you seem uncertain about this, brokers will not spend a lot of time with you. There are many more buyers than sellers on the market and brokers like to work with buyers who are serious, motivated, and have some certainty. You most likely won’t buy a business quickly. Buying a business is not a sprint, it is a marathon. So keep in touch with your brokers. Sellers love Buyers who are decisive.

2. Get Prepared!
Get ready to act. Prepare a resume. Sellers like to know about you. Run your own credit report. Go to www.myfico.com and buy one. Clear up your credit report if mistakes are present. You won’t get charged with an inquiry if you run a report on yourself. Also, prepare a PFS, or Personal Financial Statement. If you are going to ask a Seller to finance the business they will want to evaluate the financial risk. Read books on buying a business and familiarize with the protocol and procedures of buying a business. Sellers love Buyers who are prepared.

3. Down Payment - Show me the Money!
No, not literally, but I strongly advise Buyers to get their source of money for the down payment identified and ready. Sellers love Buyers who have big down payments. Down payments can range from 25% to 100% of the selling price. Your down payment can come from many different sources:
      1. Cash on hand in savings
      2. Pulling equity out of your home
      3. From your retirement funds.
Selling assets like second homes or raising cash from dormant assets is also recommended. So apply for your home equity loan now before you find a business, but don’t pay excessive fees to do it.

4. Get Pre Qualified For Financing - Establish banking relationships.
Sellers love Buyers who are organized and prepared. Getting pre-qualified for financing by lenders if very important because many businesses want all cash for their business. With SBA financing you only have to put down 20%-30% and you can get financing for the rest of the purchase. You will need to submit basic financial info to these lenders and in most cases, depending on the size and type of businesses you are looking to purchase, they can tell you if you would be able to get a loan from their company. I can recommend a lender that will increase your odds of crossing the finish line. Not all lenders are alike.

5. Best Place To Look To Find A Business To Buy
Go out and spend time with Business Brokers. There are also numerous websites that are helpful to preview the inventory of available businesses in your area. The Sunday newspaper is also a good source of information in the business opportunity section of the classifieds.

6. Confidentiality Agreements Are Important.
Sellers love Buyers who are respectful of the confidentiality of the business sale. To view or get any detailed information on any businesses for sale you will probably need to sign a confidentiality agreement. Respect this part of the process and keep the sale of all businesses confidential. There are legal implications if you are found to be the one who leaked the word that the business was for sale! Most employees don’t know the business is for sale!

7. Form Your Professional Team.
Buying a business is uncharted territory for most buyers. So many buyers elect to use accounting, financial and/or legal advisors for help. Keep in mind, many of these well-meaning advisors will never endorse or recommend you buy a particular business due in part to the potential professional liability. So it should be your final decision. I generally recommend buyers not spend a lot of money up front with advisors. Most are fee-for-service and clients can run up large bills even though they have never even submitted an offer yet.

8. Make An Offer If You Like A Business.
Sellers love Buyers who can make a decision. I think too many buyers are timid when buying a business and not willing to "pull the trigger" and sign a purchase agreement to start the process of buying a business. Paralysis by analysis. You have heard about this. I normally draft purchase agreements with ample contingencies that protect the Buyer. These will have to be satisfied before the deal closes escrow. I prefer some of these contingencies like the financial due diligence to be satisfied before opening escrow-unless the deal is fast tracked and buyer and seller are trying to close escrow quickly.

9. Be tenacious!
Sellers love Buyers who have a "never give up" attitude. Buying or selling a business can be an emotional roller coaster. It requires a determination and persistence that many Buyers and Sellers don’t have. That is why most people aren’t business owners. It is a big responsibility.
 
“Good” businesses that are for sale will attract Buyers who may be more experienced or have a head start on the process of buying a business. Be prepared to move quickly but don’t take short cuts. It is better to honor the deadlines in the contract and keep the deal moving. Stay focused on the goal. The deal isn't done till it is done!

If you need help with these and other important questions about buying a business, contact Dwight NOW!