By: Jeffrey D. Jones, ASA, CBA, CBI
Finding profitable businesses for sale at reasonable prices can be difficult. Often business owners have an inflated idea as to the value of their business due to articles in the Wall Street Journal describing the high multiples of earnings obtained by some of the publicly owned companies. The primary resources for finding profitable businesses for sale include the following:
- Ads in trade publications – If you are looking for a specific type of business, then obtain trade publications within that industry. They often have classified sections advertising businesses for sale.
- Suppliers – Suppliers sometimes are aware of when their customers are ready to sell. Again, if you are looking for a specific type of business, then call on the vendors who sell to the businesses within the industry and seek their knowledge of customers who may want to sell. Calling or writing to these suppliers and vendors and making them aware of your acquisition criteria may surface several prospective sellers that are not actively on the market, but would consider selling.
- Direct mail – Using direct mail to contact business owners whose businesses meet your general acquisition criteria can generate potential seller prospects. This method is frequently used by business brokers to seek out business owners who desire to sell. A short coming of this method is that you are contacting owners who may not be actively for sale and therefore, their motivation to sell may not be very strong which often results in unreasonable prices and terms of sale.
- Business Brokers – These companies can be a valuable resource of businesses for sale. Their full time job is to contact business owners and find those who are motivated to sell. Business brokers will usually have a variety of businesses listed for sale at any given point in time. Brokers usually helped the business owners with determining reasonable values for their businesses, and then prepare business profile packages that greatly help buyers In doing their due diligence . Business brokers usually are aware of the financing resources and can help direct buyers to those sources best suited for specified business investments. The broker’s fee is typically paid by the seller. It is usually stated as a fixed fee or a percentage of selling price. It is not an add-on to the otherwise fair market value of the business, but rather a cost to the seller for getting the fair market value of their businesses.
- Searching the Internet – This is the newest method for finding businesses for sale. Most business brokers have web sites where they provide a list of businesses they have for sale. There are several national web sites where both brokers and business owners list their businesses for sale. These sites include: Bizquest.com, BizBuySell.com, businessbroker.net, and Businessesforsale.com. In addition to providing a list of businesses for sale, these sites also provide educational material regarding how to buy, sell, and value a business.
- Hire the services of a business broker – Finding a business for sale and be a long and tedious process. While most of the time business brokers represent the seller, they can be hired to represent the buyer. This is especially helpful when you are looking for a specific type of business for sale that may not be actively on the market. Often, a business owner will consider selling when a qualified buyer approaches them; however, many owners do not want their business actively on the market for sale.
Once you find a business owner who is willing to sell, then conducting your due diligence is an important process prior to closing on the transaction. When dealing with a business broker, there will usually be a business profile package that describes the business and provides a summary of the business. The broker will have already obtained copies of the business and financial documents you and your advisors will need to properly analyze the business. Typical parties to a transaction will be the seller and his advisors, such as his attorney, accountant, and broker, the buyer and his attorney and accountant, a landlord, a lender, a franchisor (if the business is a franchise), an escrow attorney who typically prepares the closing documents for both sides, and a real estate title company, if the sale includes the real estate. Coordinating all these parties to a transaction can be difficult and any one of these parties has the potential to help kill the deal. It is part of a business broker’s job to help coordinate all these parties and to enhance communications among them.
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Jeff Jones is President of Advanced Business Brokers, Inc. and Certified Appraisers, Inc. 10500 Northwest Frwy., Suite 200, Houston, TX 77092 713-401-9110, jdj@advancedbb.com www.advanced.com.
