Dear Reader, while I have been a member of California Association of Business Brokers for 3+decades, most all my business sales have been the small mom and pop businesses that no one else wants to touch because the business is just too small. While the largest I've sold was (in today's market) about at $4-million hardware store, I have found simple ways to serve as consultant to help sell these small businesses. I can't help everyone this way but I can help a surprising number. These transactions are often stealth in nature where only a few people even know they are taking place. This article below is written by persons (competitors actually) who I hold in very high regard as to their experience, wisdom, and knowledge and so I share it with you while giving them credit. I work in the East SF Bay Area, Livermore, CA, but their comments are universally applicable. Rich Buckley
Only 20% of all potential business buyers within California actually end up purchasing a small business.
I have found that the failure to buy a California business can be chalked up to not following the proven suggestions listed below.
The main items that should go into that checklist are:
1. Getting personally prepared: This includes putting together a buyer profile, including financial statement, description of what you want, and a resume summarizing your work experience. These documents demonstrate you are a "real" buyer, deserving of cooperation from sellers, business brokers, and agents. The information is personal, of course, and should only be shown to sellers who have a business you might want, or brokers whom you believe are honest and professional. Willingness to be upfront about your interests and capabilities will immediately separate you from the majority of people searching for business opportunities but, for one reason or another, will never complete a purchase. Another preparation strategy is to apply for an SBA-backed loan pre-qualification. Buyers who do this find out how much money they will have to work with, and can gain a competitive advantage over buyers who look for a business first, and look for money second.
2. Organizing a team: The purchaser who has a lawyer and accountant listed on his or her buying a business checklist will be in a position to move quickly once an interesting business is found. This means of course that the professionals are ready to be of service--the lawyer helping with language in the contracts and protecting you from problems, the accountant to help value a business and conduct due diligence. While other buyers interested in a particular business are trying to find the professional help they'll need to proceed, the entrepreneur who has taken care of that step will be able to move more quickly than competing purchasers.
3. Cast a wide net. The more businesses you're aware of, the better the chances of encountering just the right offering in a short period of time. That means working with more than one broker, answering for sale by owner ads, even posting a business wanted to buy request on a site such as BizBen.com.
4. Respect the sellers' requests for confidentiality. And be ready to sign a non-disclosure agreement. Showing that you are honest and "above board" will earn the cooperation of sellers. And without that, it's nearly impossible to buy a business.
5. Try for a win-win in negotiations with someone whose business you'd like to buy. The purchaser who wants to beat a seller in the price and terms aspects of a deal, might find he's taken "round one" but then when extra help is needed--a bit longer to pay off the note or advice about some confusing aspect of running the company--the seller will be unwilling to accommodate.
6. Pay attention to the details when a transaction is in the escrow/bulk sale process. After all the work and excitement as you come to the end of the buying a business checklist, it's a shame to lose a deal over some issue that might have been avoided had you noticed a developing problem and taken action right away. Make certain the escrow holder is competent and is doing everything that was promised.
Buying a small business is not rocket science, but it can be rather complicated and detailed. Make sure to be fully prepared, and that includes making up a buying a business checklist before you answer the first business for sale ad!
Comments Regarding This Blog Post
Contributor: Joe Ranieri - Restaurant Broker - Orange County Area
One major mistake that I have seen over and over is when a buyer will negotiate directly with the seller instead of going through the broker. A buyer may ask for concessions to close the deal, and ask the seller, which may lead to the seller being offended and wanting to cancel the deal. The broker should communicate with the seller during negotiations, because they are an impartial member to the transaction, and are able to remove emotion from the deal. Sellers and buyers negotiating with each other is a major reason why For Sale By Owner transactions can be so problematic and not close.