There are many sources for finding businesses. Regardless of the source, be aware of the fact that a number of these businesses may be sold because they could be experiencing financial problems that might not be that apparent during the initial stages. Other businesses may be offered at prices that are not in line with the market. Be prepared!
There are a number of different sources for finding businesses:
Advertisements, The Newspapers, Internet - Finding a business for sale in almost any field is usually not very hard. All you need to do is look in the classified ad section in most local and regional newspapers, and you will find plenty for sale. Even newspapers such as the Wall Street Journal and the New York Times are other excellent sources. Other online resources include bizbuysell.com, businessesforsale.com, and, businessbroker.net, just to name a few.
Business Brokers - Often, when you respond to a business ad offered for sale, it may be offered by a business intermediary or business broker, rather than the actual owner. Business brokers, who usually represent the sellers of a business, receive a commission equal to about 10 percent of the sales price.
They are very good sources to contact in your search for a business. Of course, in representing the seller, they will be seeking to maximize the sale price. The seller may also tend to ask a bit more if the broker will be collecting 10 percent. You may also seek the advice of a business broker if you find your own seller. The business broker can then be your representative. Unlike accountants and real estate agents, most astute business brokers have a very good sense of what small businesses are selling for since selling businesses is their profession.
Your arrangement with the business broker could be on an hourly or a flat fee basis. If the broker is a member of the International Business Brokers Association (IBBA), he is required to abide by certain ethical standards established by the IBBA, and if he is a Certified Business Intermediary (CBI), Certified Business Appraiser (CBA), or Certified Business Counselor (CBC), this adds even more credit ability to your choice.
Local Chambers of Commerce - Talk to the people at your local Chamber of Commerce. They usually know a great deal about the local business community and may be able to give you free leads of firms that are for sale, perhaps before they are formally advertised.
Accountants, Attorneys and Bankers - These professionals can be the best sources of leads to good businesses even before they are on the market. Many business owners tend to confide in their accountants and lawyers about things they would not even tell their priest or psychiatrist. Often, these professionals are aware of the decision to sell the business long before it is put on the market. If you have friends or associates that are CPA's, lawyers or bankers, talk to them and advise them of your business interests. Typically, they will have a vested interest in finding a friendly buyer like you for a retiring client's business, since they will usually lose that client if the business is sold to a stranger.
Investors - Often, you will see advertisements for investors or venture capitalists seeking absentee ownership in a particular industry. Some of these investors look for an operations person and purchase the business together as a team, whereby, one provides the money, while the other provides the operational expertise.
The Direct Approach - Often, if you see a small business that you think you might like to buy, the simplest approach will be to talk to the owner and see if they have an interest in selling. The owner may not have had serious thoughts about selling the business before, but the appearance of an interested buyer is not only somewhat flattering, but may be the push they needed to sell out. Many businesses are bought and sold this way every day.
WHY IS THE BUSINESS FOR SALE? It is not unusual to enter a potential buy/sell situation with a great deal of warranted suspicion. Sellers have a number of different reasons for selling their businesses including retirement, illness, burnout, divorce, separation, a better offer, changes in family life, a new job offer, non-profitability, college tuition, or other economic conditions that may require or even encourage the sale. The real reason may or may not be what is purported and is often very difficult, and sometimes impossible to determine. Although you are entitled to display a certain degree of suspicion about the sellers real reason for selling the business, spend more time verifying and researching its past, present and future performances.
WHAT KIND OF REPUTATION DOES THE BUSINESS HAVE? The reputation and integrity of the company's customers, vendors and product lines is an integral part of company goodwill. It is an important characteristic of the enterprise and often is the driving factor in arriving at the price of the business, therefore it may become the most significant asset being purchased. If the present owner has an excellent business reputation, you should determine whether that goodwill is based on personal relationships built up between the owner and customers (that will not be easy to transfer to you). This is particularly important if the business relies heavily on a few key customers or suppliers with whom the owner has enjoyed a very favorable business arrangement. Those arrangements could evaporate when you attempt to take over and you could wind up paying for a handful of air.
HOW PROFITABLE IS THE BUSINESS ? Unless you have some very good reasons to believe you can run the business more profitable than the current owner, stay away from a money-losing business or one that does not produce a satisfactory profit. It is absolutely important to determine what the business has actually earned during the last few years. Even if the owner has audited financial statements, (which is very unlikely for a small business) you must perform your own due diligence. Your responsibility, hopefully with the help of a financial advisor, accountant or experienced business broker, will be to un-paint the carefully painted picture, finding out everything about the business. In most cases, the business owner will be very accommodating to the buyer describing all the perks and profits he is taking out of the business. Verify, verify, verify.
Back to Special Reports on Buying a Business.