Stop planning and start doing.
Stop planning about your business search, putting together the perfect CRM email outreach campaign and start doing it.
You need deal reps and you need to go through the motions in order to refine the process that works for you. There’s hundreds of different ways to buy a business and speak with brokers and complete a successful sale, but there is not a one-size-fits-all. It’s really you the searcher who needs to select a path that makes sense for you personally.
Don’t wait for that perfect plan. Just start moving forward. Make that first call. Send that first email to a broker. Network and build connections early.
Look for peer groups. There might be acquisition entrepreneur groups you can join which have first-time searchers. Community is often helpful where you can leverage resources appropriately.
If you’re stuck behind your computer, break out of your shell and build some of these connections in real life.
The analysis paralysis trap looks like this.
You receive a SIM from a business broker of a business you really like. You read through the SIM. You get really excited. The numbers are jing with your business buy box. It checks all of your buy boxes.
But you don’t follow up.
You sit on it for a few days, maybe a few weeks, and then you finally get the courage to reach back out.
The broker is likely to say one of two things.
One, thanks, but the business is no longer available. It’s already under contract because someone moved faster than you.
Or two, the business is still available. How would you like to proceed?
Very good business listings move quickly. If a business listing checks all your boxes, move with your next steps within a few days.
Know when to move fast and know when to slow down.
Move fast when you see business listings that check your buy boxes. Move slow during due diligence, during complicated conversations around working capital. Don’t get caught up in the administrative side of deal making because it won’t leave yourself enough time to slow down on the things that really matter.
When structuring SMB deals, there are two primary types.
An asset purchase or a stock purchase.
In an asset purchase, you’re acquiring the specific business assets of the company.
In a stock sale, you are buying the stock of the entity, assets, liabilities, and the business entity is just changing hands.
Stock purchases have favorable terms for sellers from a tax side of things. Asset purchases are more favorable from a tax standpoint for buyers.
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The process starts with identifying opportunities. Exploring platforms and marketplaces which list these businesses.
From there, you make the initial contact. Reach out to sellers. Reach out to brokers. Establish yourself as a credible business buyer which sellers and brokers should take seriously.
Think of this initial contact as a job interview. Present yourself in a professional manner. Serious prospective buyers typically will close on transactions because they’re taken seriously.
From there, negotiate the LOI, structure your offer, and put together the LOI term sheet.
Then move into due diligence, which contains legal, financial, operational, and tax.
Assuming those boxes check out, close the deal and finalize the acquisition process through the purchase agreement.
Picture this. You’ve just signed an LOI and you are 90 days away from finalizing your business purchase.
What do you do next?
You need to assemble your deal team.
An M&A attorney.
A loan broker if you want to secure an SBA loan or private loan.
A quality of earnings or financial due diligence provider who’s a licensed CPA.
Typically, it’s best practice to engage within 1 to 3 days of your signed LOI and start the diligence process within 24 or 48 hours.
You submitted a bid based on financial information which is largely unverified.
The reason it’s largely unverified is because this financial data was prepared by the broker and hasn’t been vetted for accuracy.
The only way to do this is to generate financial data from the accounting system and conduct a detailed analysis to confirm revenue, expenses, and net income are what they say they are compared to what was in your bid.
A SIM or marketing materials is a fancy slide deck. You need to get underneath the hood and examine the components of revenue, expenses, and net income.
The net income or cash flow of the business is absolutely vital because it’s going to tell you if this business can support an SBA or a bank loan.
More often than not, there are discrepancies in the topline revenues reported in the SIM compared to what’s showing in the accounting records.
The sooner you start this process, the better.
You can find this and other content on my YouTube channel, including shorts, long-form videos, and guest discussions focused on buying small businesses and improving operations.
If you want to reach out on LinkedIn or X, share feedback, or suggest topics, feedback is a gift.
Disagreement in working capital.
Seller getting cold feet.
Financing issues.
Small business deals are very delicate. Breaking deals is the nature of the beast.
To the extent you can limit this, you will save time, money, and effort.
You’ve uncovered a deal you’d like to submit a bid on.
Ask yourself:
Is the revenue real?
Understand the components of expenses.
What is the true cash flow of the business?
Balance sheet reality. What are you actually buying? Is it asset heavy? Is it asset light?
If you’re overwhelmed with analysis, focus on cash flow and what revenue and expenses look like on a monthly and yearly period.
These quick benchmarks will allow you to digest information faster and make decisions about if this is worth a second look.
Buyers ignore due diligence findings and have a bias to look the other way.
In one example, the SIM showed monthly expenses of about $100,000.
When reports were generated in the accounting software, the picture included $220,000 of expenses. There were employees who were not included in the SIM but were on payroll.
The business profitability was materially different than what was presented.
The business needed to produce $100,000 more cash flow to be the same type of business as presented.
The question is whether this is something you can work through in a deal or if it is a deal killer.
Listen to your deal team. Ask yourself if you are able to overcome this from a deal standpoint or if you need to reconsider.
Focus on building relationships early.
Don’t rush. Take time to thoroughly understand the numbers and the business operations before committing.
Be persistent. Stay in your buy box. Be disciplined in the types of businesses you’d like to purchase. Keep showing up every day.
The right deal will come.
Stop planning.
Start doing.
Move from active searcher to business owner.
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