How to Decide on a Small Business to Buy

Buying a pre-existing, established business can give its new owner a great advantage over starting a business from the ground up.  While there is still no guarantee when buying a small business , there are some goodies that may come with the business that will be very helpful.  You may choose to ask about some of the following in advance or even request them as terms of the sale.  Knowledgeable employees who are trained and competent at their jobs will help keep your new business running.  A loyal customer base will keep cash coming in.  A market that already recognizes and accepts the service or products will keep you from having to take the risk yourself.  While it’s true that there is much less risk involved, the buyer doesn’t exactly have it made in the shade with lemonade just yet.

This process can and should require some soul searching.  What are your reasons for wanting to own a business?  What type of businesses are you attracted to?  Do you have the appropriate skill set to operate that type of business?  Do you have experience in the industry?  Is your personality a good match for the rigors of the business?  And don’t forget to assess some of the realities that may dictate your success.  Are you situated in a good location or are you willing to relocate?  How is your credit and your general financial health?

Once you’ve taken the journey down this road and discovered that you want to move forward with finding a small business to buy and call your own, there are a few places you might want to search.  Look for the appropriately headed section in the newspaper in the location upon which you’ve decided.  You’ll often find contact information for the current owners and can then ask them the questions you’ve prepared in advance to find out if their business seems like the match you are seeking.  Other great resources someone in your position should know about are LittleBizTrader‘s business for sale opportunities and business brokers, both of which can lead you to opportunities that will satisfy your soul.

Determining the Value of a Small Business

It is generally a challenge to practice detachment from your business in order to evaluate it objectively, but this is exactly what is recommended in order to determine its market value. Without using this approach, most people looking to sell their businesses fall into the trap of overpricing them which can have the undesired effect of inviting a tedious level of scrutiny on the part of the buyer, as well as the business being on the market for much longer than they’d like.

If objectivity is beyond your grasp, you may want to look into hiring an outside professional. A business financial analyst can help you figure the realistic worth of your business and end saving you many times more than the upfront investment of hiring them. Another tool available to the small business owner to determine the realistic market value for their business for sale is the business profitability calculator. It is essentially a research tool meant to be used by the business community to provide small business buyers and sellers with an inside view of the potential deal.

Once the asking price has been established and you’re ready to put your business on the market, there are a few other things you can do to increase your professional image and decrease the change of squirming in the face of scrutiny. You can expect a potential buyer to want to see a business plan, balance sheets, profit and loss statements, and a list of your clientele. Having an agreement prepared and reviewed by an attorney for both buyer and seller to sign will put you in position to seal the deal as soon as an interested buyer is ready. It will show that you are organized and prepared and give the buyer one less reason to delay the decision to buy your business.

Businesses Bought and Sold

As with anything that is bought or sold, purchasing a business is based largely on perceived value.  It must be a good fit in the life of the new owner in ways that will almost always go beyond financial earnings.  Of course, it has to measure up to the standards set by lenders, but it also must satisfy lifestyle demands of the buyer, because as we know, and he or she knows, the purchase of a business will dramatically change the life of the owner.

As a seller, you may or may not choose to disclose your personal reasons to sell your business.  Again, as with selling anything, listing all the woes you’ve experienced with it will not help any prospective buyer to see the value.  Your lifestyle is likely very different from that of the buyer, and the parts that didn’t work for you might be just what makes it a perfect fit for him or her.

As they say, attitude is everything.  Focus on the positives in your business.  If asked, you may want to simply focus on the excitement of the new shining opportunity available to you and after all, one business at a time is enough, isn’t it?

The price your business commands is important, and as a seller, the higher the price the better for you, but beware of your personal attachment to it.  After creating it from the ground up, or just pouring yourself into it, and feeling it is a part of who you are, sellers are in danger of inflating the price they think is reasonable.  Think of your favorite hoodie sweatshirt from high school.  The edges were frayed, the hood was ripping, and the color was faded, but the value you perceived in it was still great – after all, it had been through a lot with you!  Hopefully your business is in better shape than your sweatshirt, but you see the point.  In either case, when it’s time to part ways it’s you and only you who calls that shot, just as it is the buyer, and the buyer alone who ultimately makes the decision to buy. 

Best of luck to both of you!