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Common Buyer Questions

Why Should I Buy A Business Rather Than Start One?

An existing business has a track record. The failure rate in small business is largely in the start-up phase. The existing business has demonstrated that there is a need for that product or service in a particular locale. Financial records are available along with other information on the business. Most sellers will stay and train a new owner and most will also supply financing. Finding someone who will teach you the intricacies of running a business and who is also willing to finance the sale can make all the difference.

What Is The Real Reason People Go Into Business For Themselves?

There have been many surveys taken in an attempt to answer this question. Most surveys reveal the same responses, in almost the same identical order of priority. Here are the results of a typical survey, listed in order of importance:

To do my own thing, control my own destiny.
Don't want to work for someone else.
To better utilize my skills and abilities.
To make money.

*It is interesting to note that money is not at the top of the list, but comes in fourth.

How Are Businesses Priced?

Generally, at the outset, a prospective seller will ask the business broker what he or she thinks the business will sell for. The business broker usually explains that a review of the financial information will be necessary before a price or a range of prices can be suggested for the business.

Most sellers have some idea about what they feel their business should sell for - and this is certainly taken into consideration. However, the business broker is familiar with market considerations and, by reviewing the financial records of the business, can make a recommendation of what he or she feels is what the market will dictate. A range is normally set with a low and high price. The more cash demanded by the seller, the lower the selling price; the smaller the cash requirements of the seller, the higher the price.

Since most business sales are seller-financed, the down payment and terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price of the business. Too many buyers make the mistake of being overly-concerned about the full price when the terms of the sale can make the difference between success and failure.

An oft-quoted anecdote may better illustrate this point: If you could buy a business that would provide you with more net profit than you thought possible even after subtracting the debt service to the seller, and you could purchase this business with a very small down payment, would you really care what the full price of the business was?

What Should I Look For?

Obviously, you want to consider only those businesses that you would feel comfortable owning and operating. "Pride of Ownership" is an important ingredient for success. You also want to consider only those businesses that you can afford with the cash you have available. In addition the business you buy must be able to supply you with enough income - after making payments on it - to pay your bills.

However, you should look at a business with an eye toward what you can do with it - how you can improve it and make it more productive and profitable. There is an old adage advising that you shouldn't buy a business unless you feel you can do better than the present owner. Everyone has seen examples of a business that needs improvement in order to thrive, and a new owner comes in and does just that. Conversely, there are also cases where a new owner takes over a very successful business and not soon after, it either closes or is sold. It all depends on you!

What Does It Take To Be Successful?

Certainly, you need adequate capital to buy the business and to make the improvements you want, along with maintaining some reserves in case things start off slowly. You need to be willing to work hard and, in many cases, to put in long hours. Unfortunately, many of today's buyers are not willing to do what it takes to be successful in owning a business. A business owner has to, as they say, be the janitor, errand boy, employee, bookkeeper and "chief bottle washer!" Too many people think they can buy a business and then just sit behind a desk and work on their business plans. Owners of small businesses must be "doers."

What Happens When I Find A Business I Want To Buy?

When you find a business, the business broker will be able to answer many of your questions immediately or will research them for you. Once you get your preliminary questions answered, the typical next step is for the broker to prepare an offer based on the price and terms you feel are appropriate. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered.

There isn't much point in continuing if you and the seller can't get together on price and terms. The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer. You, obviously, have the decision of accepting the counter proposal from the seller or rejecting it and going on to consider other businesses.

If you and the seller agree on the price and terms, the next step is for you to do your "due diligence." The burden is on you - the buyer - no one else. You may choose to bring in other outside advisors or to do it on your own - the choice is yours. Once you have checked and approved those areas of concern, the closing documents can be prepared, and your purchase of the business can be successfully closed. You will now join many others who, like you, have chosen to become self-employed!

Why Should I Go To A Business Broker?

A professional business broker can be helpful in many ways. They can provide you with a selection of different and, in many cases, unique businesses, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about. Business brokers can offer you a wide variety of businesses to look at and consider.

Business brokers are also an excellent source of information about small business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.

Your local professional business broker is the best person to talk to about your business needs and requirements.

Do I Need An Attorney?

It may be advisable to have an attorney review the legal documents. It is important, however, that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling business sales, you may be paying for the attorney's education. Most business brokers have lists of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. Business brokers are not qualified to give legal advice.

However, keep in mind the fact that many attorneys are not qualified to give business advice. Your attorney will be, and should be, looking after your interests; however, you need to remember that the seller's interests must also be considered. If the attorney goes too far in trying to protect your interests, the seller's attorney will instruct his or her client not to proceed. The transaction must be fair for all parties. The attorney works for you, and you must have a say in how everything is done.

If you know someone who has owned their own business for a period of time, he or she may also be a valuable resource in answering your questions about how small business really works.

You have to make the final decision that "leap of faith" between looking and actually being in business for yourself is a decision that only you can make!

Dispelling a Buyer Myth

Most prospective business buyers really don't know from the outset the exact type of business they want to buy. Experienced business brokers and intermediaries know that many business buyers end up with what is sometimes a far cry from what first captured their imagination.

Take, for example, the old story of the buyer who saw (and probably smelled) a doughnut shop in his business dreams. This was the business he was sure he wanted to own and operate - until he discovered that someone, most likely him, had to get up at 3 a.m. to make the day's baked goods. It is important that, before making the dream a reality, those prospective buyers understand just what the business is and how it fits their personalities - what they want to do and what they don't want to do! Obviously, if getting a good night's sleep is important, owning a doughnut shop is not a good idea.

In searching for a right business, here are some of the crucial questions a prospective business buyer might ask himself or herself:

Does the business look exciting and interesting to me?
Do I feel that I can improve the business?
Would the business offer me pride of ownership?
Would I feel comfortable operating the business?

Professional business brokers can offer many different businesses for a prospective buyer to consider. Prospective business buyers can discuss their needs and wishes with a professional business broker who can then show them opportunities that they might never discover on their own.

Dispelling Buyer Myths:

What Do They Really Want and Why?

Myth Number One

It's a faulty assumption that prospective business buyers know from the outset the exact kind of business they want to buy. Experienced business brokers and intermediaries have learned that most business buyers end up with what is sometimes a far cry from what first captured their imagination.

Take, for example, the old story of the buyer who saw (and probably smelled) a doughnut shop in his dreams. This was the business he was sure he wanted to buy--until he found out that someone, most likely him, had to get up at 2 a.m. to make the doughnuts a reality. It is important that, before falling in love with a business dream, prospective buyers understand the realities and think hard about their own personalities--what they like and hate to do. Obviously, if one likes a good night's sleep, the doughnut shop is not a good business to go into.

In discovering the right business for the right personality, here are some of the crucial questions a prospective business buyer might ask himself or herself:

Does the business look exciting and interesting to me?
Do I feel that I can improve the business?
Would the business offer me "pride of ownership"?
Would I feel comfortable operating the business?

Myth Number Two

Another wrong theory about buyers is that money is the key motivator in their seeking to own their own business. In fact, if money is a buyer's main reason for desiring to own a business, a "wrong-move" alarm should go off before things go any further. Most studies indicate that money is somewhere below the midway point of the list of reasons people are interested in a self-owned business. Those who go into business for themselves and/or buy a business want to run their own "show," be their own boss and build something for themselves. Money is the by-product (hopefully) of having the opportunity to achieve business success on their own terms.

A recent newsletter from a franchise consulting company contains comments from people who have just purchased franchises. These people provide resounding proof that money is not a major motivator. With franchises, they point out, money can't be an issue, because a new franchise has no income, only the promise of it.

If money doesn't provide the driving force behind buying a business--what does? The following survey shows the real reasons for wanting to be a part of the independent business scene:

Pride in service or product
Control
Freedom
Flexibility
Self-reliance
Customer contact
Income
Employee contact
Recognition
Privacy
Security
Status

No matter what the reason for buying a business and regardless of the type of business desired, savvy prospective buyers seek help from a business intermediary throughout the buying process. Although business brokers generally represent the seller, the buyer also reaps the benefits of expert guidance. The business broker will show the buyer businesses that fit the profile of the buyer's "dream," but the broker will also introduce the buyer to new territory--and new possibilities.

And what about the buyer who dreamed of doughnuts? He is purportedly now content, testing the wares in the mattress section of his franchise furniture store.

Early Possession

There are times when the buyer and seller think it would be a great idea if the buyer began operation of the business prior to the closing of the sale. Why? Here are some typical reasons:

The buyer needs the income.
The seller has really "had it."
The time it takes to close a deal has been excessively long.
The seller is in poor health and can't operate the business (or something similar.)
The buyer feels the business is deteriorating and wants to get in before it all goes.

So, analyzing the reasons above for early possession, does the end justify the means? The answer is a resounding NO. Sellers (who often are as enthusiastic about early possession as the buyer) should remember that the sale hasn't closed yet and the buyer may still have second thoughts. Early possession can create a real obstacle to a closing, whether it's real estate, a business, or almost any other commodity. It makes good business sense to let the early possession "idea" remain just that: an idea and nothing more.

For Business Buyers and Sellers:

A Guide

Your best guide for buying or selling a business isn't words on paper--it's the competent presence of a business broker. Although business brokers generally represent the seller, the buyer also reaps the benefits of expert guidance. A business broker provides vital services for both parties and acts as the "glue" for holding together the pieces of the business sale process. Here's how a business broker will work with both the buyer and the seller:

The Business Broker and the Buyer

Business brokers prefer to talk to people in person, and the buyer is no exception. During a preliminary meeting in the business brokerage office, the broker will typically ask the prospective buyer questions such as these:

Do you have the necessary funds to buy a business?
Is the cash readily available?
What is your time-frame for buying a business?
What are your expectations about the purchase of a business?

After this fact-finding meeting, the broker can then show the buyer businesses that are both feasible and that fit the buyer's requirements. Further steps the broker will lead the buyer through are as follows:

Since sellers are (rightly) concerned about confidentiality, the broker will ask the prospective buyer to sign a non-disclosure or confidentiality agreement.
The broker will provide the prospective buyer with preliminary information about one or more businesses, including pertinent financial data.
The broker will arrange for the buyer to see businesses of interest.
Once the buyer has indicated strong interest in a particular business, the broker can then supply additional information and schedule further on-site appointments.
When the buyer is ready, the business broker will be the best source for answering questions, addressing concerns, resolving loose ends, and offering a business broker's unique expertise in the business sale transaction.

The Business Broker and the Seller

When it comes time to sell, one of the best decisions a business owner can make is to continue managing his or her business efficiently (and profitably), while depending on the services of a business broker to orchestrate the steps of the sale. To make the seller's job easier and more effective, the business broker will...

...Determine the right buyer for a particular business.

For locating and qualifying prospective buyers, a business broker uses computerized databases to access comprehensive lists of local, national, and international buyers--all to increase the chances of selling a business at peak value.

...Advise the seller on pricing.

The business broker is an expert in placing a realistic price on the business and incorporating intangibles; thus reducing the danger that every seller fears--under-pricing the business. At the same time, the business broker can help the seller to understand that the selling price is dictated by the marketplace--not by a well-meaning accountant or friend who may have an unrealistic idea of what the business is worth.

...Prepare a marketing strategy

and offer advice about essential marketing tools, such as a business description memorandum; in fact, the broker will help the seller in all key aspects of presenting the business as effectively as possible. Later, the broker can also help in the structuring of the sale transaction.

...Present offers and point out both strengths and weaknesses.

The business broker will be a vital advisor during most stages of the negotiation, bringing to "the table" objectivity as well as negotiation skills developed through years of experience in the buying and selling of businesses

Looking At The Numbers

What Should You Look For When Considering a Business to Purchase? Unfortunately, too many prospective buyers want to know the asking price first and then how much money can they make. These are the wrong questions to ask initially. You need to know how much cash the seller requires as a down payment. There is no point in looking at a business no matter how good the numbers are if the seller wants three times as much cash as you are willing to invest.

Remember the actual amount of money a business earns is usually much more than just the bottom line. A smart approach is to get more information on the business, and even make a visit, before ruling it out or getting too involved in the numbers. It's all part of the learning process.

BUY OR SELL YOUR SOUTH FLORIDA BUSINESS