Buying A Business The Basics
By: More articles by kismet

Buying a business in todays economic climate requires that you the buyer be on the ball with regard to business basics. This economic climate as far as businesses are concerned is a sellers market.

With the 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. Professional business buyers report that it takes anywhere from 3 months to 3 years to find the right business. So if anything what can be done to speed this looking process and at the end finally get a good business

The decision 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. This is really really important. What are the criteria for this business you are looking to buy Do not make a wish list or what would be nice. Make a list of what is important. For example if your standard of living requires $100000 income do not compromise by looking at businesses that make only $50000.

That is unless you consider yourself a knowledgeable business manager and marketing person who knows that any business they buy will double in income and sales. That kind of buyer can buy a business that makes no profit and probably should.

Other criteria 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 sales organizations and do not buy a manufacturing firm unless you have a partner that likes running a production line.

I have people call me to inquire about buying a body shop that have no automotive experience at all. You can buy an auto repair shop muffler shop brake shop or lube store and learn the business with no experience to start. You probably should not buy a salvage yard body shop or scrap yard with out being raised in the business. If you are a salesman you can buy almost any business.

All manufacturing distribution or retail sales require good personal sales skills. If you are poor at communication skills or English is a second language consider buying a liquor store gas station or hamburger stand just a few of the businesses that do not require personal selling or do they

About you There are some things you need to prepare for the brokers when they start coming to you with possible businesses. You need 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. You can get yourself prequalified for a business loan or an SBA loan if the business you are buying is required by you to show a profit on the books. SBA loans are only available to businesses that have shown a 5year profit on their tax returns. If you are looking at businesses that are heavily unrecorded income you must have cash or seller financing.

Being your own broker You should determine who is going to make your offer. A broker or yourself If it is you then you should locate the necessary offer forms and study them carefully. Determine what must be in your offer so that you can put in an offer the instant you find a business that meet your requirements. This is an important step as putting in an offer tends to lock out other buyers while you look over the business. Make sure you have contingencies in your offer which means you have lots of get out of the deal clause.

I would like to suggest for the less experienced buyer to hire as a consultant the sharpest attorney or business broker you can find and pay him for his time to watch your rear end in negotiations and in reviewing the companies you are considering buying. In real estate we call this a buyers agent except with businesses the listing agent will not always cooperate in splitting the commission. This means you need to be willing to pay your agent an hourly fee for helping you. Let me give you a real example.

David and his father were looking for a business to buy. They were interested in a Scrap yard that I was selling. I asked their buying agent to bring them over so I could interview them and to explain this business to them. In 3 minutes it was clear that they should not even consider this business. We spent the balance of the meeting talking about the businesses they had looked at and the pros and cons of each. I gave them my honest suggestions about each from their description. They thanked me and left.

Two months later David calls and asked if he could come talk to me. He told me about an FSBO For Sale by Owner who would never pay any agent a commission unless he got his price + the commission. That of course doesnt make sense to a buyer. David told me about the deal and I gave him my honest opinion about it. David asked what my time was worth and gave me a check for an hours time.

Two months again passed and David called and said I need to see you today. He proceeded to tell me about a Car Wash Soap manufacturing company that was suppose to be making $500000 profit per year. The asking price was $2 Million. David wanted several things from me. He wanted my opinion of the business he wanted me to help get the price down to a more reasonable amount and he wanted me to verify the income. It took me 30 hours of reviewing the books and talking to the seller to determine that the business was making only $350000 per year including what was not on the books. The books were made complicated intentionally so that no one could understand what was going on.

I related my findings and told David he had to do his own negotiations but I would coach him every step of the way. David paid my fee and I didnt hear from David for one year. When he called I asked what happened to the car wash soap business. He filled me in on the story.

He bought the business for more than I suggested because he saw where he could improve the business instantly. The profit turned out not to be $500000 as the seller guaranteed but exactly $350000 as I had determined. David took over sales and marketing and within 1 year had the company profit up to the $500000 he was promised.

David now had found a related business that had been listed with an agent who did not understand the business he was marketing and could not sell it. David was now talking to the seller directly. The seller wanted $550000. David wanted me to negotiate on a consulting fee base