Buyer Frequently Asked Questions
A professional business broker can help buyers in many areas when seeking a business. A broker can provide you with a selection of different businesses. Industry statistics indicate that more than 80% of buyers buy a business outside of the industry they first inquire. It’s important that buyers are exposes to a variety of businesses.
Brokers work with business owners on a daily basis and they see very unique opportunities that you not be able to find on your own. Find a broker that you feel comfortable with and stay in contact with them. Many times you can find the right business before it’s advertised on the market.
Business brokers are also an excellent source of information for small business and the business buying process. They are familiar with the market, where to find financing and can advise you about trends, pricing and what is happening locally.
You want to consider businesses that you feel comfortable owning and operating, ie; buy a business in an industry you are comfortable with. Having great pride in your business is an important ingredient for success. Consider those businesses that you can afford with the cash you have available.
One main reason businesses fail is lack of capital and you don’t want to put yourself in that situation. The business you buy must be able to provide you with enough income to accommodate your lifestyle. In the business brokerage world we refer to a “sanity check”. You must have enough cash flow to pay yourself after making payments on the debt service and paying the operating expenses.
Most buyers make a business purchase with great ideas and ways to improve the business operation. You should pay for a business based on its past performance but you want to find something with potential and an opportunity you can improve. You have skills, new energy and talent that can bring value to a business.
These opportunities are available. On the other hand, don’t be too quick for change. “If it ain’t broke, don’t fix it.” Keep this in mind if you think to buy a business in the near future, know your reasons for doing so.
Before I list any business, I perform a Brokers Opinion of Value (BOV). The first thing a seller wants to know is “What’s my business worth?” The BOV that Murphy Business provides values the business using three commonly used methods in the broker and financial industry. The value is calculated by combining all three methods using a weighted index. Reputable business brokers will have access to “comps” (like kind businesses that have recently sold), industry statistics and standard pricing multiples.
Many times sellers have an over inflated idea of their business’s value. One of the most difficult jobs a business broker encounters is convincing a seller of the true value of the business. A business broker is familiar with market and values a business based on the view of banks and buyers. By reviewing the financial records of the business, brokers with the proper tools can make a business value recommendation. As a general rule there are two key indicators that dictate the price of a business
1) Cash Flow
3) Depending on the size of the business you want to buy, a certified business valuation will be completed for the business.
In today’s market, most business transactions have some type of seller-finance. Many times SBA and commercial lending institutions will not make the loan to buy a business unless the seller finances a portion of the deal. 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. Don’t make the mistake of being overly-concerned about the price of the business when the terms of the sale can make the difference between success and failure.
We advise all buyers and sellers to have an attorney review the legal documents. More importantly is hiring an attorney that is familiar with the business buying process and has the time available to review the closing documents in a timely manner is important too when you buy a business. If the attorney does not have experience in business transactions, you may be over paying for excess billed hours. Most business brokers have lists of attorneys who are familiar with the business transaction process. Although business brokers are a great resource, they are not qualified to give legal advice. On the other hand, attorneys are not qualified to give business advice.
Your attorney should have your best interest in mind, make sure of this before buy a business. You also need to remember that the transaction must be a win-win keeping the seller’s interests in consideration. If your attorney goes too far in trying to protect your interests, they can lose the business. The transaction must be fair for all parties and there are times when attorneys need to be reminded they are working for you.
Having a mentor or someone who has owned their own business can be a valuable, independent third party resource to help keep things in line.
You tell us the type of business you want and the geographical area. Murphy Business and Financial Services has a professional marketing department that contacts businesses owners meeting your criteria. Find additional information here: Buyers Search