Atlantic Canada's Business Transition Specialist

Over 1000 Successful Transitions

Buyer Preparation

Individual buyers as well as many corporate buyers frequently find the process of searching for a business acquisition to be a frustrating and ultimately disappointing experience.

Looking for a business is easy and, even better, it’s usually free. There are many websites with available businesses listed and accountants, lawyers and other professionals often know of someone who is thinking of selling. Despite this, only about one in ten people who say they want to buy a business actually end up doing so. The reason for this is that most of these people either aren’t serious or haven’t prepared themselves in such a manner that sellers and business brokers who represent the sellers take them seriously.

Some of these “buyers” have recently become unemployed and, while searching for another job, decide to see what is available to buy as well. Why not, they have the time and it doesn’t cost anything. These people are not motivated buyers and, when offered a job, immediately forget about business ownership.

Another group of “buyers” have unreasonable expectations about the amount of money they can take home during the first year of ownership. Some expect to be able to replace the six figure salary they received during their previous employment despite the fact that they do not have enough money of their own to provide the down payment required to purchase a business large enough to produce that level of owner compensation.

Others simply don’t know what type of business they want to buy. These people turn an interest in buying a business into an extended search for “the right business” because, while they don’t know what that is, they will “know it when they see it.”

For all of these people, the best advice would be to stop looking. They are wasting a great deal of time unless they consider the search to be a fascinating hobby.

In order for prospective buyers to be taken seriously by people who wish to sell their business and by the people who represent those sellers, the buyers have some work to do. At a minimum the buyers should:

•    Consider what role they expect to play in the operation of the business. Do they want to be an investor, management only, work actively in the business on a day-to-day basis?
•    Do some preliminary research and choose one or two industries that are of particular interest.
•    Analyse their skill set, education and work experience. Would some formal training be required before acquiring a business? Should the present owner be retained for a lengthy period for training purposes? Would key employees have to remain with the business?
•    Realistically understand their financial needs and set goals and expectations. What is their comfort level concerning how much of their own money they are willing and able to invest in the purchase of a business.
•    How much income do they need (not want) to take from the business during the first few years of ownership?
•    Keep spouses fully informed and ensure that they support the goal of buying a business.
•    Consider location. Are there family ties, spouses’ employment or other factors that limit the area in which businesses must be located in order to be of interest?
•    Set a realistic time frame for an acquisition to take place. This will vary according to personal circumstances, but set a goal and stick to it.
With the proper preparation buyers can move forward with confidence and with the full expectation that the search process will ultimately be successful.

by Stewart Baker