Buying a Business is Competitive in Today’s Market
With corporate downsizing, economic downturn and other factors, there are a lot of very knowledgeable buyers out there looking for one of the very few good business to buy. This means that you, as a buyer have a lot of competition. Consequently, you need to be well prepared. Depending on the type and size of acquisition being sought, it can take anywhere from three months to three years to find the right business.
The first step is deciding to buy a business. Once you have made this decision and you are definite and firm about the fact that you are definitely buying a business, the process has started.
The second step is to decide what kind of business. What are the criteria for this business you are looking to buy? Don’t make a wish list or what would be nice. Make a list of what is important. For example, if your standard of living requires $100,000 income, do not compromise by looking at businesses that make only $50,000.
Other criteria to consider when buying a business include: is it something you can handle? What kind of work are you willing to do? If you like sales and do not like running a factory, buy a distribution company or a sales organizations-but in any case, don’t buy a factory or manufacturing firm if you don’t like that kind of activity.
‘I’ve had people call me to inquire about buying a body shop when they’ve had no automotive experience at all,’ remarks Michlin. ‘You can buy an auto repair shop, muffler shop, brake shop or lube store and learn the business. However, you probably shouldn’t buy a salvage yard body shop, or scrap yard without being raised in the business.’
According to Michlin, if you are a salesman you can buy almost any business. All manufacturing, distribution or retail sales require good personal sales skills. If you feel you are poor at interpersonal communication skills, or, if, perhaps English is a second language, you might consider buying something like a liquor store, gas station or hamburger stand; just a few of the businesses that do not necessarily require great personal selling skills.
There are some things you need to prepare for the brokers when they start coming to you with possible businesses. One of the first things to address is to make sure that you have your down payment sorted out. Expected down payments are anywhere from 25% to 100% of the selling price. So make sure you know what you want to spend and then make sure you have the down payment easily available.
‘Then you need to get your financing options determined,’ says Michlin. ‘You can get yourself pre-qualified for a business loan or an SBA loan if the business you’re buying is required by you to show a profit on the books.’
SBA loans are only available to businesses that have shown a 5-year profit on their tax returns. If you are looking at businesses that have heavily unrecorded income, you must have cash or seller financing.