Finding a Business to Buy

So, what is really involved when finding a business to buy and how complicated could it be?

I’d like to say the answer to this question is "it’s very simple", but since it really isn’t, I won’t insult your intelligence. And it is definitely not similar to searching for a home. Except for the fact that there are Brokers to help you and market trends involved to assist in valuations, there is no comparison to buying a home. 

Believe me, if you have not bought or sold a business before, the process of finding a business to buy will come as a shock to you if you are looking to compare it to house hunting.  

In this process, you will be highly analytical and the Seller will be highly emotional.  This is their baby that they have built on their own, or like you are attempting to do, have bought from someone else and made it their life. Hopefully I can help prepare you for the general process steps that will occur.

Before you go forward and read the steps below, it is important that you have already prepared yourself to buy a business. To make sure you are ready for the information on this page, please look at the Preparation page first.

Finding a Business to Buy- Shopping Around

There are many places to look for businesses for sale and there are ways to go about buying unadvertised businesses. This second way is a little complicated and too much for this page so we will stay with advertised businesses for sale. 

As far as looking for advertised businesses are concerned, the internet is a great place to look. The newspaper is the worst place to look and in a moment I will tell you why.

You will find two types of businesses in your hunt: those for sale by the owner and those for sale through a Broker. You are much better off sticking with Broker based sales. These can be found on Broker websites and they also occupy 95% of the listings on general business for sale sites.

I recommended staying away from newspapers because most of those ads are for sale by owner (FSBO) businesses. On top of that, they do not give you enough information to warrant truly looking into the business.

Concerning dealing directly with Sellers in a FSBO sale, it is a rare instance that this is ever a good experience.  The pricing is normally way off and the information is very often inaccurate. If you get past that, then the negotiating will often be very unpleasant.

By the way, when I say use a Broker, I mean a BUSINESS BROKER. Do not waste your time with any listings you find with a Real Estate Broker. The majority have conned a not-so-savvy business owner into thinking that they know how to price and sell a business just to lock them into a 6 month contract and hope a sucker comes by to purchase the business.

Don’t be that sucker. Again, this is not like selling or buying a house so stick to a Business Broker.

Finding a Business to Buy- Taking Action

If you see something you like, take the next step in getting more info from the Seller or Broker. You will most likely need to sign a non-disclosure form. If a Brokerage gives you this form, you will only have to sign it once and it will carry over to every listing they show you.

Respect this short but very legally binding document.  It should basically state that you will be receiving confidential information and you agree to keep it confidential. Confidentiality will also mean not exposing the for sale status to any employees, vendors, customers, etc.

Lastly, it will have a circumvention clause that states if you try to pull a fast one and go around the Broker after you have this vital information, you will be caught (believe me you will) and you ,as well as the Seller, will owe money to the Brokerage company. It’s shady and not right so just don’t do it.

Finding a Business to Buy- Information Gathering

Once you have signed the non-disclosure and asked for further information, you will receive a packet of vital information. In most cases you are not going to get 3 years worth of tax documents or even P&L reports for that matter. You can ask for it, but the odds are slim on getting it. That’s too much information at this point to give to a semi-committed Buyer.

What you will get is a profile which will give the latest 12 months of revenues, expenses and cash flow information. Other provided information may be whether inventory is included in addition to its value, the value of furniture, fixtures and equipment (FFE), an extended business description, and lease or property purchase information.

At this point the address and name of the company may be given to you, but often that is done after you have reviewed the information and request to see the business. Again, this avoids giving tire-kickers vital information and the location when they are really not serious Buyers.  This may disrupt the business or waste the Seller’s time.

Finding a Business to Buy- Review

Once you have the vital information you need you must really review it. This is the time to ask questions. However, it is not the time to start negotiating.

If you are getting into a business that you are not very familiar with regarding the technical aspects, get some help with good questions to ask. Believe it or not, asking irrelevant questions will not be received kindly by either the Seller or the Broker you may be working with. 

There is nothing wrong with going into a fairly unfamiliar business, but asking the right questions with help from a Business Advisor or Broker will become essential in this type of circumstance.

Asking nothing at all, whether you know the industry or not, is also not a good idea.

Finding a Business to Buy- See the Business/Seller Meeting

When you have done your review and things still look interesting, this is the time to request a viewing of the business and/or a meeting with the Seller. 

A meeting with the Seller will not be made to negotiate price when dealing with a Broker. This is neither the time nor the place. Doing this separately with the Broker in the middle of the Seller and you is crucial.  Most smart Brokers will also have you conduct a visit before allowing a Broker-mediated meeting with the Seller.

If a Broker is not involved, this meeting will probably end up being the start of negotiations between you and the Seller. But I do not recommend it if avoidable. Take the additional information you have now that you have seen the business and review it again along with the previous information you received. Do this after the meeting without the Seller present.

Again, it often ends up not being pretty when negotiating directly with the Seller unless you are going to offer very close to the asking price. This is why I do not recommend dealing with FSBO businesses.

Finding a Business to Buy- Now You Can Value the Business & Make an Offer

In order to make an initial offer, which is a non-binding offer at this point, you need to be able to take all of the financial and historical information you gathered and value the business. Then an offer can be presented. After finding a business to buy, these two important issues are part of the next phase in the purchase process.