Questions from buyers

Why should I go to an intermediary/business broker?

A professional intermediary (or 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 buyers end up with a completely different business than they first inquired about.

Intermediaries and business brokers can offer you a wide variety of businesses to look at and consider.
Intermediaries are also an excellent source of information about different industries and the business buying process. They are familiar with market conditions and can advise you about trends, pricing and what is happening both locally and regionally. Your intermediary will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, consulting with other professionals who may be able to assist you.

Your local professional intermediary 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 associated with the transaction. It is important 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 specifically handling business sales, you may be paying for the attorney’s education. Most intermediaries and business brokers can recommend 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. Intermediaries and business brokers work closely with seller’s and buyer’s counsel, but do not provide legal advice.

However, keep in mind that many attorneys are not qualified to give business advice. Your attorney 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. Remember, the attorney works for you, and you must have a say in how things is done.

You have to make that final decision and take that “leap of faith” when you acquire a business. Advisors can point out issues, but in the end, the decision to acquire and manage a business is one that only you can make!

What happens when I find a business I want to buy?

When you find a business, the intermediary or 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 an intermediary or business broker to assist you in the preparation of an offer based on the price and terms you feel are appropriate. This offer will generally be supported by the actual books and records that have been supplied to you thus far. 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 moving on to 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, and if necessary made an adjustment to the price and terms, the final closing documents can be prepared. Once the documents are signed you will be on your way to fulfilling your dream of owning a business. You will now join many others who, like you, have chosen to build their personal career through business acquisitions!

What should I look for when searching for a business?

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. The key is that the business must hold the ‘promise’ of providing you with professional and financial benefits that likely would not be achievable, over time, if you worked for someone else. 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 can come in and do just that.

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, some of today’s buyers are not willing to do what it takes to be successful in owning a business. At Calder Associates, we counsel you on those areas of the business that you need to become familiar with, and what it takes to grow and become successful. For those who have never owned a business, it is not always obvious about what decisions need to be made. What seemed easy before when you were looking at it from the other side of the fence, may seem foreign to you as a business owner. Calder will help you make that transition based upon our years of experience and understanding of the business transition process.

How are businesses priced?

Generally, at the outset, a prospective seller will ask the intermediary or business broker what he or she thinks the business will sell for. The intermediary 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 intermediary is familiar with market conditions and, by reviewing the financial records of the business, can make a recommendation of what he or she feels the market will dictate. A value 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 at least partially 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 (loan payments) 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 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:

1. To do my own thing, control my own destiny
2. Don’t want to work for someone else
3. To better utilize my skills and abilities
4. To make more money than I can working for someone else
And recently – with the impact of corporate consolidations, stock price issues, and layoffs, a major factor is:
5. I don’t want to work for a big organization anymore — one that has no allegiance or loyalty to me. I’m ready to control my own destiny.

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

Why should I buy a business rather than start one?

An existing business has a track record. The failure rate in most businesses is largely in their start-up phase. The existing business has demonstrated that there is a need for that product or service in a particular locale, region, or nationally. 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 some level of financing. Finding someone who will teach you the intricacies of running a ‘successful’ business and who is also willing to assist in financing the sale can make all the difference.