How to Buy a Business
A 101 Buyer’s-Guide for First Time Acquisition Entrepreneurs
Where to Look
There are numerous online marketplaces for small and mid-size businesses (bizbuysell, dealstream, etc.) as a place to start, similar to residential property search on Zillow. Just like working with an experienced and seasoned real estate agent, buyers find better success—and hidden gems— by working with a business broker who is plugged into their market. Outside of Exit Equity LLC, the International Business Brokerage Association (IBBA) is a great resource to find a broker who is best suited to find a company that meets your parameters.
Owning and running a profitable business is not the same as success in a large corporate company. There are no vacations, no days off, no delegating a fire-fight when the ultimate profit and loss falls upon your shoulders. Before buying a company, a new owner should consider:
- What strengths am I bringing to the acquired company?
- Is there an existing team in place when the current owner(s) walk away?
- What experience and skillset do I have that will ensure continued success?
- What is it about the company that will drive my passionate engagement 24/7?
There are two perspectives to keep in mind:
Company Financial Performance
- What does the balance sheet and financial statements look like for the past three to five years?
- Have I done my research into the owner’s discretionary income, financial recasting, and opportunities to drive ops and sales efficiencies?
- What are the most applicable valuation methods to arrive at your opening offer, best and final offer?
- What price point am I willing to offer? At what point will I walk away from buying the target company?
- What financing options are available based on the company profile (e.g. SBA loan, seller financing, unsecured loan, etc.)?
- How does the worst case and expected performance of the company impact my overall financial picture, including making the loan payments?
Buying a small business means something different to each buyer. It’s critical you reflect on:
- What goals do I have for the company – business as usual, or grow and sell to private equity?
- How does buying a business impact my current time allocation to family, friends, hobbies, and personal pursuits?
- How does buying a business change my overall wealth and retirement strategy?
Working for yourself can be incredibly lucrative, satisfying, challenging, and terrifying. For a more an in-depth approach, contact us today to learn about our Buyer’s Guide Playbook.