BizQuest's Business for Sale Blog

Due Diligence Issues That Arise With Any Business for Sale

Continuing last newsletter’s subject of the due diligence stage of a business for sale, this edition we will discuss how to separate minor issues from major ones, what if a buyer has to renegotiate the deal based upon their findings and how to conduct a thorough review given the concerns every seller has about due diligence.

There are always issues and problems with every business for sale as there is no such thing as a perfect business. Actually, there is: it’s the one no buyer has been able to find yet but believes it exists. Anyways, sorry to digress, let’s get back to the discussion on due diligence when buying a business.

How to Separate Minor Issues From Major Ones

This is a huge aspect of the due diligence process. In my experience, it is one area where inexperienced prospective business buyers really get stuck. The due diligence phase is one step closer to the finish line, and fear starts to creep in as an individual begins to realize they may soon in fact be a business owner. They may begin to second-guess their decision and therefore every minor issue gets magnified. My rule has always been to step back and separate problems into one of two categories: incidents or catastrophes. I have discussed these in the past and the key is to understand the difference between the two, and above all, do not treat any incidents as catastrophes nor should you treat any catastrophes as incidents. In other words, focus on problems that arise that significantly impact any part of the purchase deal, or ones that can change the entire business in the future.

Every business has its warts. If you avoid buying a business because of the odd minor issue, you will never complete a deal. Incidents can be a slight variance in the financials, or a minor decrease in customer count, or the inventory levels are not spot-on as originally represented. These can all be dealt with easily. However, one must never, ever overlook major issues that are discovered and these have to be deal with effectively; the ones I call catastrophes. Examples of these can be a huge discrepancy in the financials, customer concentration issues or the non-renewal of contracts or licenses to name a few.

Renegotiate or Walk?

The goal of due diligence is to conduct a thorough and complete review and thus the best strategy is to complete the process before approaching the seller with any major issues which necessitate a discussion or possibly a renegotiation. Obviously, if a buyer discovers something that is beyond reconciliation then of course you would want to abort or halt the process earlier.

Keep a log of all issues that are discovered during the review. Then rank them as either (i) deal breakers, (ii) concession needed or (iii) talking points. Alongside each of these three categories (and especially items one and two), list how you want to resolve them. Then, meet with the seller and go over them. It is always helpful to start the discussion with: “overall I am pleased with the due diligence review but I am not able to sign off on it as there are a few points we need to discuss.”

Keep in mind that when a buyer enters due diligence, most sellers start to see their exit from the business so this sudden change or hiccup can cause them to become disgruntled as you are interrupting or derailing their plans. Unless you discovered something which is so significant it cannot be remedied and you have to walk from the deal, your strategy should be to work towards a solution. Do not enter the discussions with “guns blazing”. Often times, renegotiating a deal is more tenuous than the initial negotiations. Take your time and explain your perspective in a logical manner backed up entirely with factual data accumulated during your due diligence review.

The Sellers Concerns About Due Diligence

The obvious concern every seller has is allowing a buyer full access to their company with the possibility that a deal may not materialize. As such, there are certain aspects of the business where the seller may not want you to access which can include employees, supplies, and customers. The nature of the business will dictate to what extent these potentially sensitive areas may have to be investigated. Sometimes, they do not need any review and in other cases they are paramount.

For these hyper-sensitive areas, the one solution I have found to be acceptable to all sellers is to address the due diligence in stages. For example, you may want to review the financials first and once those are deemed to be accepted, you can move on to the next area (i.e. suppliers). Once that is completed and accepted by you, perhaps you can next meet the landlord. The idea being to do this in steps so the seller does not have to expose any part of the business unnecessarily and without knowing that the buyer has at least satisfied the previous contingency. This approach allows the parties to build credibility with one another and not put either party in too vulnerable a situation in the event the deal does not ultimately get consummated.

Click here to read more about due diligence when buying a business
Have a great week.

Richard Parker
Diomo.com

Due Diligence When Buying A Business

The most crucial stage in the process of buying a business is when the formal due diligence phase begins. This is the time when the parties have come to an agreement and the buyer will have a certain period in which to investigate the business and, if necessary, rescind their offer if they determine the business does not meet their criteria.

While there are a wide array of parameters to establishing the due diligence period which could last anywhere from a few days until the actual closing, there are, nevertheless, some common issues that all parties need to consider which will be discussed over the next few blog/newsletter posts.

Today, I want to discuss the following:

1. When due diligence begins
2. The buyers agenda
3. Basic protections for the buyer

When does the due diligence period begin?

As mentioned above, the “formal” due diligence phase starts once an agreement is executed by the buyer and seller. However, one must set aside the “formal” phase and realize that the due diligence of a business begins the moment it is of interest to the buyer. Since there is a limited time frame allocated in an agreement for a buyer to have full access to the company and its records, a prudent buyer understands that the investigation of the industry, competition and the preliminary financials have to get underway earlier. While many areas can only be reviewed once full access is available, certainly the initial investigation can begin.

It is estimated that fifty percent of all deals that enter the formal due diligence stage never make it to the closing table. This has always been a staggering and disturbing statistic to me but not at all surprising. There are a number of reasons for this dismal statistic, but the common denominator is the end of the period arrived and there was too much uncertainty for the buyer to move forward and close the deal. One key ingredient that leads to this is the buyer's lack of preparation to complete an exhaustive review in the period allocated. Had they addressed these issues from the beginning as I have discussed, often times those unresolved issues could be satisfied and the uncertainly eliminated or diminished.

What should the buyer’s agenda be?

Some buyers go into due diligence looking for problems with the express hope of being able to renegotiate the deal. This is the wrong strategy. Due diligence is the time for a buyer to reconfirm everything that has been represented by the seller and to validate that the business is worth purchasing. Obviously, it is paramount that any and all problems be uncovered including misrepresentations and potential looming threats that could hurt the business after a new owner takes over. That is why it is critically important that a buyer goes through all areas of the business with a fine-tooth comb.

Basic protections a buyer should have in place

A buyer needs to be certain they are not locked into any obligations through to the end of the due diligence period. This means they (the buyer) can, at any time during this period, rescind their offer for any reason (or no reason), and not have any obligation whatsoever to the seller, financial or otherwise.

One clause I have seen in contracts is where the buyer is deemed to have accepted the due diligence period if the company revenues/profits are within a certain percentage of what was initially represented. Well, what if indeed this is the case, but the seller discovers that one client represents 80 percent of the sales, or the company just lost a major customer, or its lease won’t be renewed, or a major supplier won’t supply a new owner, or there is a multi-year major road construction project being planned for the main access way to the business and all traffic will be re-routed? The potential issues that could influence a buyer to not to proceed with a deal are endless so it does not make any sense to be locked into anything until the period is over and the buyer can make a prudent decision either way.

Remember:

Due diligence is the buyer’s period. It is their time to complete the tangible analysis and also reconcile the psychological factors. In other words, it is an exercise of both logic and emotion. Proper preparation is key, but diligence, as the name suggests, in addressing all aspects of the business, is what will allow the buyer to complete their review effectively and ultimately, if the future sustainability of the business can be validated, the deal will, in most cases, get to the closing table.

Next edition we will discuss how to separate minor issues from major ones, what if a buyer has to renegotiate the deal based upon their findings and how to conduct a thorough review given the concernss every seller has about due diligence.

Have a great week.
Richard Parker
Diomo.com – The Business Buyer Resource Center™

The Business for Sale Market in 2012

I am always reminded of the old cliché that time goes too quickly when the end of the year approaches and I write my final blog post until the New Year. 2011 has in some respects gone by very fast, while other events that occurred in the past year seem to have been much longer ago. I think this is probably because there has been such upheaval in domestic and world events, economic struggles, and of course, all of the political nonsense. So now we must turn a page and look forward to a fresh start in the business for sale market in 2012.

In a prior post, I mentioned the great sense of relief I felt from my personal sabbatical of not reading or listening to the daily news and had suggested that you do the same. As our economy sputters along, this approach may be exactly what every stakeholder in the business for sale arena needs to do in the new year.

I have not spoken with anyone in this sector who is overly optimistic about the near term. Most business brokers are struggling, business sales remain in decline, financing of small deals by traditional lenders is not materializing and therefore one can easily adopt a gloom and doom outlook. It is akin to what anyone can perceive on a more global scale when they subject themselves to the daily bombardment of information, most of which is completely inconsequential. Or, as an old colleague of mine used to say: “It’s just a bug on the windshield of life.”

I am, by nature, an incredibly optimistic person. However, I do believe that the alleged downturn we have experienced over the past few years is in fact the new level of an economy and will remain that way for a while. There are simply too many prongs to the carnage for any quick remedy. Given this, the question becomes whether individuals will allow themselves to be held back or will they find a way to successfully work within the parameters. I decided a while ago not to participate in the recession. And so, with that attitude, I have found ways to continue to grow and expand my businesses.

Moving forward to 2012, the successful buyers, sellers and brokers will be those who find a way to get deals done regardless of the external noise and certainly by not paying attention to the naysayers.

Everyone needs to adjust their thinking.

Buyers have to realize that many businesses are not thriving now and so they need to have the wherewithal, confidence and acumen to come to grips with the present status and see beyond to what the business can be with them as the new owner. In order to get deals done, buyers have to be willing to bend and make some deal term concessions. Even in the best of times every business has warts, so forget about the concept of buying that “perfect” business. It never existed nor will it ever materialize.

Sellers have to recognize they cannot sell “blue sky”. Except in very rare cases, their businesses’ value is reflective of the present; not future phantom events that nobody can predict. So to any sellers I say: if you want to sell your business, be realistic with your expectations, flexible with your terms, and when you find a qualified buyer who can get to the closing table – work with them to get the deal done.

For brokers, the past few years have been quite challenging. The ranks of the broker community have shrunk which is a normal evolution in a difficult marketplace and usually a good thing. For the future however, brokers too must toss aside preconceived notions and rigid practices based entirely on legacy. Be open minded with buyers because today, the single most important factor to determine who is a qualified buyer is whether or not that individual has the confidence and fortitude to get to the finish line. All other issues can be negotiated, or at least they should be explored.

I want to wish you a wonderful holiday season and extend my gratitude for your ongoing support of this blog. I hope that I have been able to provide you with some helpful content over the past year.

I also want to thank the Bizquest staff for the opportunity to share my views on this platform and I look forward to do so for many more years.

Richard Parker

Business Buyers Have To Understand The Role Of A Broker

I read an interesting article online last week regarding the use of a business broker when buying a business which I believe was very misleading. For any of you who have read any of my guides, articles or blogs over the past decade, you know that I have a very black and white view about using business brokers, whether as a buyer or seller.

Whenever I am asked by a buyer or seller if they should use a business broker, my reply is always: “yes..but”, with the “but” being mostly related to using the right one. While that is a fairly open-ended statement and one that merits greater dialogue, it is not the subject matter for today, so back to the article I referenced earlier.

In it, the author pinpoints how a business broker can help a buyer avoid making any errors during their review of the business, will help in structuring a deal so the buyer is properly protected, will offer valuation services, can be an extra set of eyes during due diligence on behalf of the buyer, and will steer the buyer away from bad businesses and insure they buy the right one. While some of this guidance may be provided if a buyer hires an intermediary/advisor/business broker and pays them directly, buyers who anticipate this to be the job of a broker are in for quite a shock. This is not the guidance that a broker can nor should offer to a prospective buyer and certainly not if the broker’s fees are paid by the seller, which is most often the case within the small business for sale arena.

A good broker will help a buyer gain access to businesses for sale, they will act as a needed buffer between the parties, and since they have gone through this process before, they serve a valuable function to keep the deal moving along and to get it to the closing table. They may provide some quasi consultative services but they will not make decisions for the buyer.

Brokers are not going to tell a buyer whether or not they should buy a specific business, nor will they work on their behalf to dissect financials, conduct due diligence or approve agreements. That is not their role.

While there is a wide degree between brokers of what they will do to assist buyers, their role is far more of a deal facilitator and that is a crucial function is this process Buyers often times become agitated dealing with brokers (which we have discussed ad nauseum in prior posts so no need to regurgitate why this happens) although certainly there is blame to be laid on both parties for these complaints.

Much of that frustration could be eliminated if a prospective business buyer garners a clear understanding of what a business broker can and cannot do for them. It is paramount for the buyer to never assume that certain functions are automatically part of a broker’s role or responsibility.

I have used a broker in nearly every one of my own businesses that I have sold and there has been a broker involved in most that I have bought. Some of been great, others terrible, but I made sure I knew exactly what I was dealing with early on so there was no confusion later.

Since there is no standard practice in place that all brokers adhere to, a buyer is well advised to simply ask every broker upfront to specifically outline their function so there is no ambiguity. Once done, the buyer will have accurate expectations set and can thereafter work within those parameters. By doing so, the buyer will experience how the buying process can be enhanced with the involvement of a good business broker and will not be derailed when a less qualified broker is part of the potential transaction. Ultimately however, the broker’s influence on the buyer is limited and they do not make the final decision on any matter. It is always up to the buyer to do so.

Have a great week.
Richard Parker - diomo.com

Buying A Business For Sale Requires a Rifle-Like Approach – Not A Shotgun

In the last blog post I talked about industry statistics and generic business for sale data which can often be more detrimental than helpful in the business buying process. My take on it actually goes beyond the statistical aspect and dovetails well for this week’s discussion.

I have been in the business for sale sector for more than twenty years in all aspects – as a buyer, seller, broker, advisor, author and financier. In my current focus in the publishing of buyer “how to” guides, I receive a lot of emails from prospective business buyers who have visited one of the various websites we have on this subject matter who are seeking free information. From these inquiries, it is so obvious to me that the reason why so many prospective buyers never become business owners is a result of their complete lack of focus.

The Internet has actually been a detrimental tool in this regard because anyone can spend countless hours searching business for sale websites, reading tidbits of generic information from various sources claiming to be experts, and thus the so-called “buyer” actually believes they are making progress when all they are doing is wasting time.

This shotgun approach to the process will rarely yield any success. To effectively go from “looker” to buyer requires focus. It requires a plan. It requires knowledge. You need to have a laser beam approach.

This week, amongst the emails we received from our website contact page were a number of questions from individuals who are not our clients, although we are always happy to answer them. These examples perfectly highlight the problems I mentioned earlier. Here are a few of them:

• “If the purchase price is X what should the net profit be as a guide?”
• “If I buy a restaurant, what return on my investment should I expect? I don’t need any help buying a business but I what's the point if I can't make an educated guess as to how much money I'll earn off it?”
• “I don’t want to waste money on a lawyer to buy this company – what do I need to know to protect myself and get a good deal on this business?"

I don’t know about you, but to me, these are “give your head a shake” questions. I mean seriously, how could someone possibly ask such outlandish, generic, open-ended, and even dangerous questions? How can anyone expect there to be an answer to them? To me, these explain a good part of why the rate of successfully completed business purchases is so miniscule.

If you ask generic questions, don’t expect specific answers. If you are new to buying/owing a business, don’t fool yourself into thinking that you have any clue what to do. There are a massive amount of considerations to be made in any deal, regardless of the size of the business. None of these issues are beyond anyone but certainly, if not given adequate attention, you will overlook them.

I desperately want to see prospective business buyers succeed because I know first hand how incredible owning the right business can be and the positive impact it can have on someone’s life. And so, I am bothered by the fact that for some bizarre reason, so many prospective business buyers and many sellers as well, do not feel the need to call upon and leverage experienced advisors such as at business brokers, industry experts, attorneys or accountants to assist them in this process. A buyer who foregoes the importance of equipping themselves with proper knowledge, who simply floats from website to website expecting to acquire meaningful knowledge, who ridiculously believes the ideal business will just fall in their lap, or who flippantly dismisses the importance of being surrounded with the right team, will almost certainly spin their wheels “looking” for a business and never get to the finish line and actually buy one. Or worse, they will end up making enormous mistakes along the way.

Richard Parker
Diomo.com

Considering Industry Statistics and Sales Comparables When Buying a Business

Although I am a huge believer in the value of utilizing effective data when making any decision, one area where prospective business buyers and sellers often get side tracked is when attempting to use industry specific information regarding a business for sale. Comparable figures have long been the gospel metric with the sale of property and clearly, they can be an extremely valuable tool for both buyer and seller in real estate transactions. However, a functioning business is completely different from property. There are infinitely more variables to consider.

Unlike a property which barring any unforeseen circumstances will still be standing a few years after of a sale, a business without solid fundamentals probably won’t be operating. As such, strictly utilizing industry averages or prior business sale comparables as the basis for the asking or offer price is not a viable strategy.

Certainly, it makes sense during the analysis stage to consider what other like businesses have sold for or what industry averages may be regarding financial data, but it is nearly impossible to find two exact businesses. For example, if there are two similar types of businesses which, at face value, have the same attributes, and both have generated $100,000 of profit in their most recent fiscal year, are they worth the same thing? What if Business A generated $50,000 three years ago and $75,000 two years ago whereas Business B generated $200,000 then declined to $150,000 in the same period and is now at $100,000? Obviously, the business trending upwards is worth more – right? Well yes, but not necessarily. What if Business B has just signed new long tem contracts with several major clients, or has recently launched a new product or service which has already garnered great success and the business is on track to generate $150,000 of profits next year?

This example alone is an indication that a buyer must consider the core fundamentals but more importantly, has to take into account what “life will look like” after they take over the business. While a buyer should not value a business based upon the future, the single most important consideration to be made is to determine the sustainability of the business post-sale. This factor alone can debunk the theory of using any industry comparables or averages to value a business, both from a buyer and seller’s perspective.

I have seen far too many buyers get hung up on using business sale comparables and not be willing to pay a bit of a premium for a rock-solid business which is a terrible strategy. A business is a fluid and living entity and generally, the industry comparables that are used are just that – general data, not in any way specific to the individual business being considered. Although comparables can be utilized as a barometer to consider, they are not absolute. They are usually more effective when used by one side in the deal to get the other party to move up or down in their valuation. In other words, they provide good negotiating resources when used properly by either side.

I am not suggesting that anyone simply disregard comparable sales or industry data. Rather, these metrics should be part of, but not stand alone data points to use in one’s overall assessment of any business for sale. Buyers (and sellers) have to understand that a business has to be valued on its specific present-day merits, past performance and outlook for the future. Looking at what other businesses have done or were sold for, regardless of their supposed similarities is not necessarily relevant. It is far more important to dig into the specific business’ fundamentals and determine whether or not it provides a platform that a new owner can firstly sustain and secondly, can be grown in the future under new ownership.

Have a great week.
Richard Parker
Diomo.com - The Business Buyer Resource Center™

Is Buying A Business Simply Buying A Job?

Nearly every prospective business buyer asks themselves the question at some point in the process as to whether or not buying a business is no more than buying themselves a job. Or, they get the same inquiry from others who they may consult in the process, and most often from those who are not immediate advisors. It is a valid point and while some may look at it negatively, I do not believe the concept of potentially buying a job is the right way to interpret it and this is especially true right now.

While many prospective business buyers state they want to buy a business to better control their own destiny, the fact is that most are either looking to replace an income or generate one. With unemployment still at ridiculous levels and no immediate hope it will decline, what is really wrong about the idea of buying a job? However, if the business will never evolve into anything greater, then it is not the right business or approach.

The one key element to consider is that unlike being an employee, there is no ceiling placed on the business owner’s potential income. As an employee, who hasn’t griped about not being compensated commensurate with one’s contribution? It is a very common employee critique. As an owner however, no such restrictions exist. The trade off for dealing with all of the pressure and headaches that come with being an employer is the incredible gratification one gets from being in control, not having any limits, the opportunity to dramatically improve one’s quality of life and to ultimately build value which one day can be translated into a financial windfall.

I cannot imagine ever working for somebody. Despite the associated problems of business ownership, the scales are entirely titled towards the positives when weighing the employee versus employer options.

Is it possible that in some potential business purchases the buyer is effectively buying themselves a limited income stream? Of course it is, but so what? While this situation is typically more applicable in smaller businesses generating more of a "living" than major profits for the owner, at the very least you are putting yourself in a position to reap all of the wonders that business ownership can bring. And that, in itself, is the key to future financial success.

Furthermore, even if the benefits do not reach one’s initial aspirations and the business evolves into nothing more than employment for the owner that can still be pretty darn good – especially in today’s dismal employment market, or compared with having to deal with a boss. Plus, you will have a tremendous learning experience and can sell the business and move on to another, more oportunistic situation. That is exactly what I have done for more than twenty years. So to me, it is a no-lose situation. One the one side you can guarantee yourself a job and with a bit of hard work, ingenuity and a dose of good luck, the upside can be enormous.

If at some point you are having second thoughts and you start to believe that buying a business is simply buying a job, then congratulate yourself because that makes you infinitely smarter than anyone who chooses instead to spin the wheels trying to find a “going nowhere fast” job that in no time at all they will likely despise, and certainly they will never have a chance to grow in it as an employee like you will as the boss.

Have a great week.
Richard Parker
Diomo.com

Start On The Right Road When Buying A Business

While the entire process of buying a business is not difficult, expecting to buy a good one with the right deal terms is darn near impossible if you are new at it and do not educate yourself first. It still amazes me how many buyers get derailed so early in the process and generally flounder for months. The result is always the same: they either give up or end up buying horrific businesses and overpaying paying for them. Then again, any price is usually too high for a garbage business – right?

Today, I want to briefly discuss five areas where prospective buyers get easily trapped or have misconstrued ideas and often these come early in the process and leads them down the wrong road from which they never exit.

The “No Money Down” Concept

The chances of buying a good business for no money down are close to impossible. The fact that there even a couple of books that allegedly show you how to do it only exasperates the problem. I have been in this sector for more than two decades and I can recall only a handful of times when I have seen it happen. It would be great if it did, but it doesn’t, so if that is your strategy; find a new one. If you do not have any personal financial resources to use as a down payment, you should either find investors or a partner because without them, you will simply spin your wheels or waste your time and everyone else's.

Do not confuse this with the strategy of getting seller financing – that is a realistic plan and especially in today’s market where third-party financing is nearly non-existent. Qualified buyers armed with the right know-how certainly can get motivated sellers to agree to finance a large percentage of the deal but the key point here is knowing how to present and structure it.

Finding the Right Business

This is undoubtedly the most common challenge for prospective buyers. It is made even more confusing by the sheer volume of businesses that are available for sale. The simplest tact and most effective one initially is to pick a few general categories of business types and several in each and then investigate them. Doing so will enable you to eliminate some categories and narrow down your criteria for others. It is helpful to utilize a business broker or search firm but you can only expect those resources to work with you if you if you either prove that you are qualified and serious (we will discuss this in a moment) or you compensate them for their time.

Present Yourself As A Qualified Buyer

Prepare an initial list of what criteria you seek in a potential business and be realistic. You also have to be flexible. Do not go overboard – do not for example expect to have access to ten years of audited financial statements or insist that the seller provides mountains of confidential information early on in the discussions. Compile a personal financial statement and make it available to the other side in the deal. After all, if you want to look at their numbers to determine if the business is financially sound, so too should they have the right to know if you are financially qualified.

When you initially contact a seller or broker simply state your interest in the business and let them know you will execute the necessary and standard non disclosure agreements so you can obtain more information. The first communiqués should be benign in nature. Everybody needs to get to know each other. In other words, do not be the proverbial bull in the china shop. Regardless of how the market may be today, sellers are always apprehensive about buyers and confidentiality is a massive concern so be empathetic. At the same time of course you do not want to be a "pushover".

Dealing With “Ass-Backwardness”

Yes indeed folks, the process of buying a business can be completely illogical at times. While not always the case, it is unfortunately quite common to have inexperienced prospective buyers dealing with first time sellers and incompetent brokers. It’s the perfect storm of the absurd, so be prepared. How can a buyer possibly be expected to make a viable offer on a business if the seller won’t release any information? They can’t – that’s how, but it happens, and at times, a buyer has to play the game and make an offer simply to be able to access the information.

How do you deal with a seller of a declining $500,000 business who is using $100 million businesses as his basis for the asking price? Again, not easy, but you have to be ready to do so and educate the seller over time and possibly by making an offer or letting them sit with an unsold business for a year.

Then there are buyers who want complete access to confidential financial data without demonstrating how they plan to finance the deal or ones who expect sellers to relinquish their businesses for a fraction of its value.

Of course there is the usual scenario of someone putting up their business for sale without having any books and records whatsoever, yet they are steadfast in “assuring” you about how much money it makes – amazing. Obviously, these are the ones where the buyer must either walk, or buy it strictly under the terms of an earnout. If you do otherwise and the business turns out to be a pile of crap, don’t blame the seller or the broker or your attorney or accountant; look in the mirror.

A common frustration is dealing with business brokers who never reply to emails or calls. It defies logic doesn’t it? But again, it happens, so you have to potentially move on or become more aggressive with them.

While the examples above are not necessarily the norm, they absolutely do occur frequently enough based upon the sheer numbers of buyers, sellers and brokers who are activelyt engaged in this sector at all times and so if you spend any time in the business for sale arena you will encounter the nonsense – guaranteed.

The Answer Is…

Be prepared!

Do not set lofty expectations of having this be a seamless, painless or effortless process.

Educate yourself.

Buying a business is definitely within anyone’s reach, but, there are bumps in the road. You cannot get to the finish line successfully without equipping yourself with the right knowledge before you dive in.

The process is flawed; deal with it. This is always the case whenever there are multiple personalities involved and a dizzying array of intangibles (i.e. who really can state with absolute certainty what a business is worth?).

While there are lots of incompetent business brokers and inept sellers, there are plenty of helpful and effective intermediaries and many motivated and willing business owners serious about selling.

There are some who never complete the journey to buy a business because they do not have the knowledge or experience to handle the imperfections in the process. There are others who thrive on it. The process, while anything but perfect, is, in my opinion, the greatest breeding ground for enterprising individuals because these challenges are precisely the pressures and typical stream of obstacles that every business owner faces.

The successful buyers, just like successful business owners, are able to navigate their ways to the finish line by dealing with all of the twists and turns one scenario at a time and by placing the burden of their success on their own shoulders instead of blaming others for any failures.

Get on the right path today and become a knowledgeable buyer. Take a moment and visit my website at Diomo.com – there is a ton of helpful information available for you.

Richard

Learn To Make Your Own Decisions When Buying A Business

If you do not get used to making your own decisions when buying a business, you can rest assured that someone will make the wrong ones for you!

In the best of economic times, one can always find reasons to not buy a particular business they may be reviewing. Certainly, for anyone looking for that proverbial “perfect” business to buy (which of course does not exist), this is always the case. So when the overall economy is in a tailspin, it is easier still to convince yourself the business or timing to buy simply is not right. While that is understandable, buyers have to learn to make that decision on their own, and not allow others to unduly influence their decision.

Of course, having good advisors on your team is a crucial component to this process, but far too often I see buyers relying solely on the advice of others. Worse yet, is allowing friends and family members to dictate your decisions and determine your destiny.

Every successful entrepreneur learns early on in their career that making decisions, their own decisions, is absolutely fundamental to their individual business success. Relying on others for input, information, and advice surely weighs into their decisions, but the true entrepreneur possesses the ability to actually make the decision and execute. If the results are not as expected, they evaluate why, modify the plan and put the new strategy into action and lead the charge again.

It is very easy to sit on the sidelines of a deal and offer criticisms and opinions. I see this with accountants and attorneys all the time who represent business buyers and sellers. The professionals you hire will generally, but not always, want to protect their own rear ends in addition to yours and therefore may lead you down the path of reasons not to buy a particular business. I have met numerous entrepreneurs who happen to be attorneys and accountants by education, but there are very few practicing accountants and attorneys who are truly entrepreneurs and so they simply do not have the same enterprising blood running through their veins as a prospective business buyer should. My intent is not to bash these groups but rather to have business buyers (and sellers) understand that these professional have their role in the business buying process but they are not, nor can they become, your decision maker by proxy.

Similarly, prospective business buyers have to realize that friends and family especially will lead the line of naysayers. Most of them simply do not want to see you get hurt. Some, in a perverse way, do not want to see you succeed.

The lesson is clear: While the majority of professionals you engage and personal parties you talk to about your intentions will have your best interests at heart, their objectives are not necessarily the same as your goals. Their opinions can be easily tainted and mixed in with their feedback.

The rule is always to seek the advice of true experts in the field and to confer with those close to you who will be impacted by your decision. But, it is you that has to make the ultimate decision, and you had better get used to making them because as a business owner you will be doing so all day – everyday!

Have a great week. If you want a resource to help you make all the right decisions when buying a business visit www.diomo.com

Buying A Business With Today's Economic Carnage

Over the last couple of years, if I had a dollar for every time a prospective business asked me “what is a recession-proof business” or “is this a good time to buy a business?” I would probably be retired by now. My standard answers have been: “I’ve decided not to participate in the recession” to the former question, and “It’s ALWAYS a good time to buy a business” to the latter.

I categorically believe in my responses but interestingly enough, the two common questions often prove to be enough of a hindrance to prospective buyers to prevent them from completing a deal. In light of that, it may be time for a few of you to get a dose of reality so here are a few things to consider:

This Isn’t A Recession - It’s The Economy!

The textbook definition of a recession has zero relevance to the average person so forget about it. The market we find ourselves in today is simply the “economy” in my opinion and will be for a while, so get used to it. The question is whether or not you will let it sabotage your plans to be a business owner or not.

The stock market is NOT the economy. It is understandable to be concerned about the volatility and watching your investments shrink, but if you become consumed with the daily activity you will drive yourself nuts. If the swings cause too much heartburn for you then take out your money and put it in the bank or under your mattress and stop worrying.

Similarly, we have created a worldwide instantaneous news feed that has made addicts out of too many people. The constant barrage of “doom and gloom” is enough to depress even the most optimistic person. Do yourself a favor and don’t read anything whatsoever related to news events for a few days. Avoid the online crack habit and read a book instead or do some other activity. I cannot tell how invigorating it is and how you will immediately get a sense of relief. Then extend the moratorium – the longer you avoid filling your head with all this negativity, the better you are going to feel – guaranteed!

Measure Recent Results

The most recent past is a glimpse into the near future. Adopt a “what have you done for me lately” attitude regarding any business for sale. Forget about what it did in the glory years or the delusion opportunities the selling side may present. What you have now is what you will get, and will likely stay that way for a while so weigh your valuation and decision on the reality of today and not hallucinations of tomorrow.

There Is A Ton Of Available Capital – But Not For You

Third party lenders (a fancy term for banks), were never a major factor in funding small business purchases when the economy was roaring so they certainly are not at this point either. Since the beginning of time of buying and selling businesses, seller financing was, and still is, the major vehicle to get businesses sold. Anyone who tells you otherwise is either lying or misinformed. Besides, it is the ONLY way to get deals done today.

Be Patient

I can find a reason to not buy every single business listed for sale, but that is simply not how to achieve success. Every business has warts and problems. The only “perfect” business is the one you cannot find so here too; forget about that strategy. However, this does not mean that you should rush into a deal. Be patient. Stay focused. Look at as many opportunities as possible BUT understand that you have to pull the trigger at some point. You need to realize that “looking for a business” is entirely different from “buying a business”. As such, the credo here is to take your time but don’t waste your time.

Make Offers

This is undoubtedly the single most important strategy you need to adopt. It is the only way to elicit a meaningful response from a seller. If you do not like the counter or there is none at all, or a deal becomes unworkable, then move on. There is nothing lost and the opportunity to structure the right deal can only materialize by tabling an offer. There are mechanisms you can include in any offer to protect yourself so that cannot be a concern. If you find a business that interests you and the fundamentals prove to be intact, then get an offer in writing and in front of the seller. You may be very surprised what evolves from it, and it is certainly the most effective way to generate a qualified dialogue between the parties.

Have a great week.

Richard Parker
Diomo Corporation - The Business Buyer Resource Center