Buying a Business
Your success in finding the right company for you will start with a self-assessment. Your unique answers to the following questions will be a helpful start:
a. What kind of company are you looking for?
You may be interested in acquiring manufacturing companies, start-up ventures, distribution or service firms. You might be interested in the growth potential of technologically oriented firms or the stability of a traditional service or retail business. A conversation with a career placement specialist can be very helpful if you find yourself looking aimlessly at numerous business opportunities. A helpful hint is to check your local yellow pages business categories and determine what types of businesses attract you. Better yet, review the listings of industry that you will find in the Standard Industrial Classification (SIC) or North American Industrial Classification System (NAICS) coding. This information and an in-depth discussion of your objectives with The Business Brokerage Group will help you focus on the specific industries and business types that are best for you.
b. Where is your company?
Determine your geographic scope. You may be curious at how another company does business. You might even learn more about the business purchase process. However, if you and your family haven't discussed moving, you won't be very happy with a great company located where your family does not want to be. In fact, you will lose focus on the good companies in your geographic area that will make a good purchase for you. In either case, develop a relationship with a reputable Mergers & Acquisitions specialist who can contact or represent you when the targeted business types are available. You should know that this is standard operating procedure for The Business Brokerage Group.
c. How much is it worth?
A "diamond" business for one business investor is a "dog" for another. It all depends on your interests, objectives, skill levels and capital. You will probably find yourself disagreeing with a seller on the value of a business. A fairly priced business for one may be overpriced for someone else. When all else fails a professional valuation is the best way to get an objective third party opinion. The Business Brokerage Group has the expertise in the valuation of privately held companies that you need.
You can certainly make some tests on your own to determine if the business that you are looking at is reasonably priced and makes economic sense. Check to be sure that it provides for:
- a fair return on the capital that you are willing to invest,
- a fair market wage for an operating owner or manager,
- a reasonable replacement fund for capital assets that periodically need to be replaced in the business, and,
- the ability to pay for principal and interest on the debt that is incurred in the purchase.
d. How will you buy the company and properly structure the deal?
Value is one part of the equation, the other is structure. You will need to take a close look at the mix of assets and earnings to determine how you should buy the company. Items to look at are your cash capital contribution, the availability of "standard" commercial financing based on the assets and earnings of the business, owner financing on portions of the transaction, and any other specific financing that may be available for the business from economic development or industry or trade oriented financing sources. The Business Brokerage Group always determines the best purchase structure for you and your target company.