Thomas applies the DIY approach. He does some self research. He downloads templates online. He reads buy then build the HBR guide to how to buy a business. He might connect with some industry peers on some successful acquisition entrepreneurs. He listens to acquiring minds. He’s doing all the right things, but he’s struggling with some of the analysis.
Thomas is spending nights and weekends scrolling through business listings on BizBuySell, Axial, or some of the other platforms. He’s frustrated by some of the setbacks. He feels the process is not moving fast enough.
Many months into his business search, he finds his ideal business, the business that meets his buy box. It’s his Eureka moment.
He calls the owner.
The owner picks up and says, “Hello.”
Thomas freezes.
He introduces himself, mentions he wants to buy a business, but isn’t sure what to say next. A few minutes later, the business owner hangs up and Thomas never hears from him again.
Thomas is crushed.
I’ve met dozens of acquisition entrepreneurs like Thomas. So don’t feel like you’re alone or doing the wrong things.
My first tip for those of you starting your search is to stop planning and start doing.
Don’t wait for the perfect plan. Start moving forward today. Make that first call or email. Network. Build connections early.
You will learn how to best approach buying a business and searching for one through repetition.
Like riding a bicycle, you need to learn through repetitions how to speak with ownership, how to ask the right questions, how to search for businesses.
The sooner you can start your business search and stop thinking or planning about it, the better off you will be in the long run.
Planning is important. Establishing a buy box is even more important. But some of the nuances such as building a website and having a domain name are less important.
Picture this.
You’re Thomas and you’re scrolling business listings. You come across a business listing which pencils to some of your ideal businesses.
You spend the next month reviewing the broker SIM.
While you may know everything about this business, you have fallen into the analysis paralysis trap.
If you review a SIM for one business over the course of several weeks or months, it’s very likely that business listing is gone.
You need to move swiftly with your analysis to arrive at a decision point.
The decision point should be:
Do I want to pursue this business listing further?
Is it worth a phone call with the seller?
Do I want to talk to the broker?
In a matter of one, two, or three days.
Being quick and decisive are attributes I see in successful business searchers.
|
|
Contributors
|
I asked three business owners: If you could go back to the start of your business search, what would you tell yourself?
One said, focus on building relationships early. Networking with brokers and other business owners made all the difference in finding the right deal.
Another said, don’t rush. Take time to thoroughly understand the numbers before committing.
An HVAC owner said, be persistent. The right deal will come, but it’s important to stay patient and not get discouraged by early setbacks.
They are all successful acquisition entrepreneurs, but they have different perspectives.
One speaks to persistence.
One speaks to patience.
One speaks to analysis.
What is a business buy box?
The business buy box is a single set of criteria.
Ask yourself:
How will I pay for it?
Will I consider using loans, outside investment, or personal savings?
Who’s running the business?
Are you going to run it?
Are you going to buy a bigger business with a management team in place?
Are you going to hire an operator?
What type of business do I want to buy?
Specific industry?
Certain location?
Am I willing to move?
By establishing these three simple criteria, you can better navigate prospective business listings.
Once you create your buy box, commit to sticking to it.
Very often a searcher loosens the criteria after months of searching.
You go under LOI and you’re close to purchasing a business that falls outside your buy box.
Halfway through the process, you walk away.
Now you’ve spent money on lawyers, QOV providers, and bankers.
By committing to your buy box, you establish discipline.
Deal flow is the age-old question.
There are business listing sites such as Axial, Baton, BizBuySell, PE Marketplace.
Some are aggregators. Some are free. Some charge fees.
There are many ways to source deals through your own outreach.
You can hire a buyside broker.
Deal flow requires your own time and effort.
Financing issues.
Working capital disagreements.
Seller backing out.
Changing deal terms.
Small business deals are delicate.
Breaking deals is the nature of the beast.
To the extent you can limit this, you save time, money, and effort.
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.
Initial discussions.
Letter of intent.
Formal due diligence.
Purchase agreement.
Closing.
The letter of intent is a nonbinding document. It highlights the basic terms of the deal.
It establishes credibility. It is a reflection of you.
Once signed, you move into formal due diligence.
You inspect the business.
Analyze private company data.
Verify financial performance.
The goal is to make sure the business performance and financial data is verified compared to what is presented in the SIM.
When you call the owner, what should you ask first?
Revenue verification.
Is the revenue project based?
Is it recurring?
Is it stable?
Cash flow.
How long does it take to get paid?
How long do you pay vendors?
Expense analysis.
What are fixed expenses?
What are variable costs?
What are salary expenses?
Marketing expenses?
Assets and balance sheet.
Do they have trucks?
Large manufacturing equipment?
Old machines?
Understanding future capital expenditure needs is critical.
I worked with someone who purchased a manufacturing plant. The primary machine was very old. After closing, it broke. It was a $25,000 immediate cash flow hit.
Understanding the balance sheet early prevents surprises.
You sign your LOI. You are given 90 days exclusivity.
Days 1 through 30, 30 through 60, 60 through 90.
It’s best practice to kick off financial due diligence right away.
The financial data in the SIM is largely unverified.
It needs to be rerun in the company’s accounting system.
By hiring a financial due diligence provider, you can quickly verify revenue, expenses, and net income match what you originally bid on.
I often see 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 understand the actual financial performance of the business.
If it doesn’t match your perception when you submitted the LOI, you’ve saved yourself time and money.
Stop planning and start doing.
Make that first call.
Set weekly goals.
Avoid analysis paralysis.
Create your buy box.
Stick to it.
Move swiftly.
Be persistent.
That is your first step to business ownership.
|
|
Contributors
|