Business Buying Process: Step-by-Step Guide by B3 Business Brokers
Do you dream of owning your own business?
Buying a business can be a complex process, from finding the right one to working out all the details required for a smooth transfer of ownership.
While there is no such thing as the “perfect” business, a business broker knows the importance of finding one that fits your needs, talents, skills, and lifestyle.
Below you will find some helpful information as you consider whether buying a business is right for you.
What Every First-Time Business Buyer Needs to Know
Going into business for yourself is a big step, one that can be full of apprehension and even fear. Almost 90 percent of all those who purchase a small business have never owned a business. Most of them bought a business that was different than what they had been looking for. These buyers had the opportunity to explore the marketplace and subsequently found a business more to their liking. In most cases, the seller financed the sale.
Most buyers are seeking to obtain the following when considering the purchase of a business:
Pride in the service or the product
Flexibility
Income
Control of own destiny
Recognition
Security
Privacy
Status
Customer and employee contact
As you begin your search, keep in mind that running your own business is more than a job; it is a lifestyle change. In most cases, it is a very big lifestyle change.
Usually, you will be working longer hours, making all of the decisions, and, as the expression goes, “you will be the chief cook and bottle washer.”
In other words, you will be doing all of the work from running the business to, in many cases, sweeping the floor and changing the light bulbs.
A business with a long track record typically means it has a history of success. It will be well known in the area, and people will be used to patronizing the business or using its services. The longer it has been in operation, generally, the better the business.
The longer the present owner has been in business, the more likely he or she has been successful. People don’t tend to stay in business if they are not making money.
If the owner has been in business for six months and is 37 years old, this could be a reason to be suspicious. However, the more valid the reason for sale, the more realistic the seller will be in considering your offer. Keep in mind that after five or six years or more, people do get restless, “burn-out” sets in, and people look for new challenges. Why the seller is selling is an important question – be sure to get a satisfactory answer.
Financial records are a good indication of how well the business has been doing over the years. Keep in mind that tax records are not designed to show the business in the best light; no one likes to pay more taxes than they have to, and business owners are no different. Generally, tax returns are a worst-case scenario. You need to be able to look at the expenses and discover which ones are non-cash items, such as depreciation and business use of home and vehicles. How important was that business trip to Las Vegas? A professional business broker can assist you to review these records and consider the pros and cons involved.
Keep in mind that financial records are only the history of the business. There are no guarantees that they will or can be duplicated or repeated. All of your profits are future. In the final analysis, the financial records of the business are an indicator of what the business has done; what you do with its future is up to you.
The simple answer is – you can’t! Not reporting income is against the law.
You should consider only the income that the seller can show you. We all know, of course, especially in cash type businesses, that there is the possibility that the seller is not reporting all of his or her income for tax purposes. This “underground economy” has been well-documented and is in the billions of dollars. Many sellers will tell you about how much they are “skimming,” but you should ignore their statements, since they have no way of proving these amounts.
The bottom line
Being in business for yourself can be a daunting prospect. There are no guarantees. At some point, after all of your investigation is completed, you will still have to make that “leap of faith” that is necessary to proceed with the purchase of the business. You will have to work hard, perhaps even “tighten your belt” a little, and perform many different jobs to be successful in your own business. But, if running your own show, making your own decisions, not having to worry about job security (remember, no one can fire you from your own business), and just being on your own are important – then it sounds like owning a business is for you.
After taking this leap of faith, almost all business owners will tell you that they would never go back to being an employee.
INSIDER TIP
Unless you are completely familiar with the type of business purchased, it is beneficial to include as part of the agreement that the seller will stay with you (30 days is fair, with perhaps another 30 to 60 days of telephone consultation) a sufficient length of time to teach you the business – at no charge. If you want the seller to stay longer, it may be best to offer to pay him or her a consulting fee of some type.
What Every First-Time Business Buyer Needs to Know
The next step to buying your own business is to make sure it is the right move for you and your family. Owning one’s own business is still very much “the great American dream,” but it’s not for everybody. Here are some questions that you should ask yourself before taking the next step.
Many people are interested in buying their own business, but are not willing to make the commitment necessary to move forward. They continue to look just like those who continue to look at new and expensive automobiles, but will never spend the money necessary to buy. One veteran observer has said that the longer you look, the less likely you are to buy.
If you’re thinking of buying a business in two years, it’s good to start your education. BizBuySell is a good place to start. Keep in mind that it really doesn’t make much sense to start your search now, since any business you find now will have been sold by the time you are ready to buy. It’s important, however, to arm yourself with all of the information and education available before you begin the search.
If you are not motivated to buy a business, you won’t. You must go into business for yourself for the right reasons. If you’re tired of the corporate world, just have a “job-job,” or perhaps even a dead-end job, then business ownership may be right for you. Certainly if you’re unemployed or being transferred to a place where you don’t want to go – buying your own business can be a viable solution.
Buying your own business requires a serious financial investment. If you’re the type who does not want risk, you might want to rethink owning your own business. It is not for the faint-hearted.
Operating a small business requires continual decision making. You’re the boss, and you are in control. All of the decisions are yours – right or wrong. And, you will make a lot of wrong ones. The question is, can you recover and keep going forward? If you brood about poor decisions or they keep you awake at night, owning your own business may not be for you.
If your family, especially a spouse, is not behind you 100 percent, then you should think twice about business ownership. It’s very important that you have the support of your spouse. He or she has to understand that running a business can be time-consuming. On the plus side, however, many businesses do allow for flexibility so you can attend the afternoon little league game.
It’s best if you are open-minded, especially if you are a first-time buyer. There are many types of businesses available, and you don’t want to limit your choices. You should be looking for a business that will provide the income you need (or ability to do so), that you can afford,that has numbers that work, and, most importantly, that you can see yourself running.
Do you think that you can buy a business with lots of cash flow for $100? It’s important that you have realistic expectations about what your money will buy. Many sellers are willing to assist in financing the sale of their business, but remember, they’re not going to give it away. Keep in mind that many business owners have spent years building their business, and it may represent the biggest financial asset they have. They’re not going to just hand it over to you.
Many prospective business owners do their homework, do everything necessary to begin the purchase process, and then back out of the transaction. They just don’t have the courage to go forward. There is nothing wrong with that; not everyone should buy and own their own business. However, if you don’t think you can part with your money and take over operating the business on your own, you may want to take a second look at business ownership.
If you are looking for a guarantee or a sure thing, then business ownership is not for you. You can and should look at all of the financials, tax returns, and all of the books and records. Remember, however, that they all represent history. You can’t buy anyone else’s history. A new owner makes changes, no matter how subtle. Their management style is different, and times change. You have to look at the business with the attitude of how you can improve things. The financial history of the business is certainly important, but it does not guarantee the future of the business – you do.
Why should I buy a business rather than start one?
What is the real reason people go into business for themselves?
How are businesses priced?
What should I Look for?
What does it take to be successful?
What happens when I find a business I want to buy?
Why should I go to a business broker?
Do I need an attorney?
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How do businesses measure the success of a buying process?
The success of a buying process is measured by evaluating key factors such as the return on investment, the seamless integration of the acquired business, and the overall satisfaction of both buyers and stakeholders involved.
How long does the business buyer process typically take?
The business buyer process typically takes several months to complete. Factors such as the complexity of the transaction, due diligence, and financing arrangements can influence the timeline.
What factors influence business buying decisions?
The factors that influence business buying decisions include financial performance, market conditions, business location, industry trends, and the buyer's personal goals and preferences. Each of these elements plays a crucial role in making informed choices during the purchasing process.
What are the key stages of the business buying process?
The key stages of the business buying process include identifying potential businesses, conducting due diligence, negotiating terms, securing financing, and finalizing the purchase agreement. Each stage is crucial for making informed decisions and ensuring a successful acquisition.
What triggers the business buying process?
The business buying process is triggered by various factors, including personal motivations such as seeking new opportunities, financial goals, or a desire for independence, as well as market conditions that present favorable acquisition opportunities.
Who are the typical stakeholders in a business buying process?
The typical stakeholders in a business buying process include the buyer, the seller, business brokers, legal advisors, financial advisors, and sometimes lenders. Each plays a crucial role in ensuring a smooth transaction and successful acquisition.
What role do procurement teams play in business buying?
The role of procurement teams in business buying is crucial as they assess suppliers, negotiate terms, and ensure the acquisition aligns with the company's strategic goals, ultimately facilitating a smooth purchasing process.
What are the stages of the business buyer process?
The stages of the business buyer process include identifying potential businesses, conducting thorough research, evaluating options, negotiating terms, and finalizing the purchase, ensuring that buyers make informed decisions at each step.
How do businesses negotiate with suppliers?
Businesses negotiate with suppliers by discussing terms such as pricing, delivery schedules, and payment options to reach a mutually beneficial agreement, often leveraging volume purchases and establishing long-term relationships to secure better deals.
What are the factors influencing business purchasing decisions?
The factors influencing business purchasing decisions include financial health, market conditions, industry trends, business location, customer base, growth potential, and the overall alignment with personal goals and values of the buyer.
What metrics assess buying process effectiveness?
The metrics that assess buying process effectiveness include the time taken to close a deal, buyer satisfaction levels, percentage of closed transactions compared to initiated offers, and the accuracy of initial business valuations.
How can buying process duration be optimized?
The duration of the buying process can be optimized by conducting thorough research, preparing necessary documentation in advance, and engaging a knowledgeable business broker to streamline negotiations and ensure efficient communications.
What role do emotions play in buying decisions?
The role of emotions in buying decisions is significant. Emotions often drive consumer behavior, influencing perceptions and motivations, which can lead to impulsive purchases or strong attachments to particular brands or businesses.
How do cultural factors influence buying processes?
Cultural factors significantly influence buying processes by shaping consumer values, preferences, and behaviors. These elements affect how individuals perceive products, make decisions, and engage with brands, ultimately impacting purchasing outcomes.
What tools assist in measuring buying success?
The tools that assist in measuring buying success include financial metrics, key performance indicators (KPIs), customer feedback surveys, and market analysis reports. These resources help evaluate profitability, customer satisfaction, and overall business growth post-acquisition.
How do businesses prioritize purchasing needs?
Businesses prioritize purchasing needs by assessing immediate operational requirements, evaluating potential return on investment, and aligning purchases with strategic objectives to ensure efficient resource allocation and long-term growth.
What trends impact business buying behavior?
Trends that impact business buying behavior include shifts in consumer preferences, economic conditions, technological advancements, and increasing emphasis on sustainability. These factors influence buyer sentiment and decision-making in the pursuit of viable business opportunities.
How is stakeholder influence assessed in purchasing?
Stakeholder influence in purchasing is assessed through analyzing their interests, power, and impact on the decision-making process, ensuring that their needs and concerns are considered to facilitate effective negotiations and outcomes.
What legal considerations affect business buying processes?
Legal considerations affecting the business buying process include understanding contracts, compliance with regulations, assessing liability issues, and confirming the ownership of assets. It’s crucial to conduct thorough due diligence to avoid potential legal complications.
How do negotiation strategies vary by industry?
Negotiation strategies vary by industry due to differing market dynamics, regulatory environments, and customer expectations. Each sector demands tailored approaches, from aggressive tactics in highly competitive markets to more collaborative methods in regulated industries.
What are common pitfalls in business negotiations?
Common pitfalls in business negotiations include failing to do adequate research, not clearly defining goals, overemphasizing price while neglecting value, and allowing emotions to cloud judgment. Understanding these challenges helps facilitate more successful negotiations.
How do economic conditions impact buying decisions?
Economic conditions significantly impact buying decisions by influencing consumer confidence, credit availability, and overall market stability. During favorable economic periods, buyers are more likely to invest, while uncertain conditions may lead to cautious purchasing behavior.
What strategies help streamline the buying process?
Strategies to streamline the buying process include setting a clear budget, conducting thorough market research, and engaging with experienced business brokers. These steps help simplify decisions and ensure a more efficient transaction from start to finish.
What are the impacts of supplier relationships?
The impacts of supplier relationships are significant, influencing cost management, product quality, and supply chain efficiency. Strong partnerships can lead to better pricing, reliability, and innovation, ultimately enhancing business competitiveness and customer satisfaction.
How can businesses improve supplier communication?
Businesses can improve supplier communication by establishing clear, consistent channels, implementing regular updates, and actively soliciting feedback to ensure mutual understanding and timely responses to issues.
What are the phases of buyer decision-making?
The phases of buyer decision-making include problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior. Understanding these stages can help buyers navigate the complexities of acquiring a business effectively.
What factors contribute to buyer dissatisfaction?
Factors contributing to buyer dissatisfaction include unclear business valuations, unrealistic expectations, lack of due diligence, inadequate support during the purchasing process, and post-purchase surprises that can affect profitability.
How important is research in the buying process?
Research is crucial in the buying process. It helps buyers understand the market, assess the value of the business, and identify potential risks, ultimately leading to informed and confident purchasing decisions.
What criteria do buyers use for vendor selection?
The criteria buyers use for vendor selection include factors such as price, quality of products or services, reliability, vendor reputation, and customer service. These elements help buyers ensure they choose a vendor that aligns with their business goals.
How do external factors shape purchasing strategies?
External factors significantly shape purchasing strategies by influencing market conditions, consumer behavior, and competition. Key external elements, such as economic trends, regulatory changes, and technological advancements, drive strategic decisions to adapt and align with evolving business environments.
