Buyer Be Aware: What Every First Time Business Buyer Needs To Know

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buyer be awareOh, how we love to work with first-time business buyers. Many have thought long and hard about the next phase of their business life. They’ve carefully assessed their capital and made a decision to invest their hard-won assets in the business of their dreams.

They’re ready to take the plunge. Their hopes are high. And their vision is often super focused on the business, career and personal life they’re going to have if they can just find that perfect business opportunity.

And then we set them straight.

While we don’t like to burst anyone’s bubble, we do try to give new buyers a reality check before they get started.

There’s Hair on Every Deal
That’s a pretty blunt way of saying that no deal is perfect. Any small business has an issue or two – whether it’s employees, customers, service levels, marketing or a dozen other things. But that’s actually where the opportunity for a buyer comes into play. If you’re willing to be flexible, you might find a great deal that plays to your strengths.

Do you have exceptional team management skills? Then maybe you can help a business struggling with staff issues. Would it be easy for you to put some marketing, social media or advertising in place for a business that has none? If so, you might be able to grow the business faster than the current owner can. Big, easy wins like these are often possible.

Be Ready to Work Hard
Some business buyers approach us with “passive” business ownership in mind. They don’t want to be involved in day-to-day management. But we see very few “absentee-owned” businesses. Owning a self-serve car wash is a great example. Even though it doesn’t require an attendant, the business will always have needs – from equipment repairs and supply deliveries to maintenance and cash collections.

Also consider that the current owner may have been running the business for several years before you buy it. What takes her 20 hours a week may well take a new owner 40 or more hours a week.

Keep Your Options Open
While it’s a good idea to start with some idea of the type of business you’re looking to buy, it pays to stay flexible; you may be surprised. One family approached us convinced they wanted to buy a Sonic restaurant franchise. We showed them some other businesses, and they ended up buying a brake service business.

It had everything they were looking for – a good history, solid financials and a convenient location. They even had a family member who could run it for them. It turned out to be a great deal, and they’ve been successful with it for 10 years now.

Know Your Requirements
While flexibility is important, there are some aspects of the process where we don’t suggest compromising.

  • Get all the information you need and verify it.
  • Work to develop a feeling of trust and solid communication with the seller.
  • Know your finances. What kind of investment can you afford, and how much risk can you handle?
  • Follow your values. If there are certain aspects of business you don’t want to be involved with, be sure to draw that line early in the process so you don’t waste your time.

Get Ready to React Quickly
Line up your ducks before you start looking so you can be responsive to an opportunity. If a business piques your interest, act on it. We have dozens of clients who were sorry they hesitated to make an offer on a business when they first had the chance. The good ones go fast!

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!

Nearly Every Offer You Receive Is Worth Considering

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offerPost by Business Broker Jay Lehenbauer, Certified Business Intermediary (CBI), and Apex President and Business Broker Doug Hubler, Certified M&A Professional (CM&AP)

When you’re ready to sell your business, you may feel like you’re putting your very self out to bid. So it’s natural to feel offended if a buyer submits an offer that shows he doesn’t value your business as highly as you do. But we’d like to help you see that nearly every offer you receive is worth considering.

Remember, most buyers are feeling pretty vulnerable, too. Many are putting their life savings on the line to buy your business.

First of all, you need to trust your broker to price your business competitively and only bring you deals that are worth considering. We rarely meet buyers who are trying to take advantage of a seller. If we do, we probably won’t even ask you to consider the offer. Remember, we represent you as the seller, so we always keep your best interest in mind.

As a general rule, we won’t consider an offer that’s less than 75% of the asking price. That’s a simple matter of our credibility and trustworthiness. If we do get a serious offer under that threshold, we might do some research to find out where the potential buyer is coming from. Does she know something about the business that we failed to uncover during our due diligence? That’s rare, but we do try to consider all the possibilities.

Low Offers May Have Merit
So, what happens if you get an offer that’s within 25% of your asking price, but it still feels too low? Here are some ways to consider it:

  1. How long has the business been on the market, and how quickly do you need to get out? If you’ve been on the market for more than a year, you might consider taking a lower offer.
  2. What can you do to lower the price? For example, can you remove some assets – such as older inventory or equipment – and sell them separately?
  3. What elements of the deal can you negotiate? Financing part of the purchase for the buyer may get you a better price, but bank financing and cash at closing may be more appealing.

Walking Away Can Be Dangerous
Several years ago, we were working with a seller whose asking price was $1.8 million. He was offended by a solid offer for $1.2 million and turned it down. Six months later, he shuttered the business. He would have been lucky at that point to get $100,000 for the inventory.

Another client priced his medical services business at $15 million and walked away from multiple early offers in the $11 million to $12 million range. A few years later, he sold for just $4 million.

Compromising May Work
Recently, we were helping a seller who wanted $1.1 million for his business and real estate. After two and a-half years on the market, the best bid he got was $400,000. He desperately needed to pay the bank and settle some other debts, so we all worked together and got creative. The buyer, the seller, the bank and Apex all gave a bit to make the deal work. And the proof is in the pudding. We’re still friends with the buyer and the seller today. The buyer has approached us about additional deals, and the seller has given us two referrals.

Keep the Lines of Communication Open
We often talk about the importance of building trusting relationships among the buyer, the seller and the broker. Some tips for successful negotiation:

  • This is a business transaction; try not to get emotional or take things too personally.
  • Even if you get upset, keep the lines of communication open.
  • Discuss every offer and consider why it was made the way it was.
  • Finally, be sure to have difficult conversations face to face or at least by phone. Email and texting can quickly send you down the path of misinterpretation.

If you or someone you know is interested in buying or selling a business, please call us at 913-383-2671 or contact one of our Apex Business Advisors today!