f you see it through, you will have engaged in the most difficult transaction of your life!
Buying a business is a unique undertaking because the process isn’t clearly defined like buying a house or a car. Negotiations are emotional, personalities come into play, and value is in the eye of the beholder. Assuming you are ready, here are the steps you should take:
Make the emotional decision; buying a business will most likely be the biggest purchase you’ll ever make in your life and is the riskiest. Make sure you are ready to take the risk.
Make sure your family is committed; if you are married or in a relationship, ensure that your spouse is as committed to the business as you are. Owning a business is not always profitable, there are no paycheck guarantees and 40 hour work weeks don’t exist.
Determine what type of business you want to buy; the unfocused buyer never finds what they want.
Identify your skill set; know what you are good at and what aspects of the business you are going to require help with. For example, if you’ve never been involved in manufacturing, perhaps a manufacturing company isn’t the place for you.
Determine what you can afford to buy. If you have $50,000 to invest, it’s highly unlikely you are going to beable to buy a million dollar company.
Be realistic about your salary expectations; owning a business doesn’t mean that you are entitled to make $100,000 a year right off the bat. It takes time to get there.
Assemble a team of professionals. You’ll need a good business accountant, an attorney with commercial
experience and a banker who understands your personal financial state and the business you are going to acquire.
Identify the businesses you’re interested in and contact them; you can use an intermediary to do this, or you can contact the business directly via a letter or telephone call.
Meet with the seller. Make sure to listen more than talk, as if you’re interviewing a job candidate. Also, keep your questions focused and don’t overwhelm the seller with a thousand of them.
Negotiate with realistic expectations; ask yourself, if I was on the other side of the table, would I do this deal?
Do your due diligence:
-Always prove the cash flow; especially if it’s not all on the books.
-Know what you are getting; make sure the equipment functions, the inventory is saleable and the customers are real.
Close the deal. Make sure the deal is structured in a manner that provides you flexibility if something goes wrong and minimizes your level of future risk.
Be on the lookout for these types of sellers:
-Those that are under forty and over seventy; if they are under forty they are too young to be selling,
something is wrong; if they are over seventy, they probably aren’t really going to sell – too stuck.
-Those with vague reasons for selling; if they can’t easily communicate why they are getting out, be
prepared for surprises.
-The business appears too good to be true; nine times out of ten, that adage proves to be correct.
