Guide To Buying a Business

Approaching Competitors

If you have a close competitor, they may be the best possible acquisition target. You will know the market and the company, reducing the problem of information asymmetry. You'll undoubtedly know how to run the business once you have acquired it. With a track record of success you will be better able to secure financing. You may also gain some pricing power by eliminating a competitor.

The disadvantages to approaching a direct competitor is that the owner will have a better understanding of what the business is worth to you and will therefore be able to negotiate better than an indirect competitor (one who serves a different geographic area or offers a different product).

Unless you have a close personal relationship with the competitor I would recommend approaching them through an intermediary. A competitor will worry that even being willing to talk to you will reveal information that you can use to their detriment. A good intermediary will be more likely to overcome the objections that a competitor will have by answering questions, providing assurances, and getting non-disclosure agreements in place before the seller talks to you.

Finding Businesses for Sale On The Internet

There are many sites on the Internet that offer listings of businesses for sale. Some of the biggest include BizBuySell and BizQuest.com. A simple Google search will find hundreds of sites with listings. You can search geographically, by industry, and by many other criteria.

Pouring through these listings can be time consuming, but you can sometimes find a great business to purchase that way.

Hiring a Business Development Professional

You may consider hiring someone to search for, evaluate, screen, and negotiate acquisition deals on your behalf. While this can be expensive it frees you to continue growing your business in other ways. A business development professional can sometimes work on other projects, such as sales and marketing and devote only a portion of their time to finding acquisitions.

Working With A Business Broker

It is far easier to find a good buyer for a business than to find a good seller for a buyer. so, it is difficult to get a business broker excited about looking for a business on your behalf. As a business broker, almost any business I approach will enthusiastically agree to look at potential deals I bring their way because it is quick and easy. they may get a great bargain or learn something. Few will actually complete a transaction.

Generally when a potential buyer calls, a business broker will try to determine how likely the buyer is to complete a transaction. As a potential buyer if you call a broker and say that you're looking to buy something and your description is either too broad or too narrow the broker is unlikely to provide much assistance. If you ask to buy any manufacturing company or say "I'll know it when I see it" the broker will probably decide that you haven't really decided what you are looking for. On the other hand, if you say "I want to buy a highly profitable nutritional supplements company that has a patented muscle growth enhancer and manufactures its own products" the broker will realize that finding a candidate that matches your criteria (unless you know of some that you'd like the broker to approach) will be very difficult.

As a prospect, a broker will let you know of any current listings that match what you are looking for. Additionally, if you have financing and look like a good prospect, a broker will put you in a database of potential buyers in case a future listing looks like a good match for you.

As brokers we tend to do searches for acquisition targets for three types of buyers:

Professional buyers, such as Private Equity Groups — These buyers are easy to deal with, give a detailed description of what they are looking for, and will close deals. We have also done searches for large companies (our most recent client in this category has about 14,000 employees) that have a history of completed transactions and want to grow via acquisition.

Past Customers — If you closed a deal with us before, we'll be happy to look for other similar deals on your behalf.

Paying Clients — Customers that are willing to pay, at least partially, based on an up front fee.

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