HOW TO FIND A BUSINESS INTERESTED IN SELLING
By Jim Blasingame
We all make mistakes. But I believe one of the keys to
success is knowing enough about what you are doing so that you don't make too
many big ones. And at no time does this rule apply more than when buying a
business.
One of the biggest mistakes small business owners make often
happens before they even become owners, like when they are trying to buy their
first business without understanding the critical business-buying steps, and
how they work together to elevate the parties to a successful transaction.
There are many steps that must be taken in order to properly
and successfully buy a small business - hundreds, perhaps thousands of steps.
My purpose here is to identify what I call The Ten Big Steps, not to give you
all the answers - I want to give you a leg up, but I don't have room in this
piece to give you all the answers.
Here are the Big Ten. If you don't know how to conduct ALL
of these steps, be sure you correct that deficiency before you proceed. At the
end of this article, I'll send you to some places for more help.
The Big Ten
1. The Choice
First you have to decide what industry you want to be in. I
know what you're thinking: Duh! Right? Well, believe it or not, small
businesses are purchased every day merely because they are for sale and somebody
wants to become a business owner - not because the business fits the buyer's
background, experience, passion, and maybe not even their interest.
Running a business is tough enough when you know what you're
doing. But when you own a business you're not passionate about, well, that's an
unhappy situation waiting to happen. And an unhappy owner is usually an
unsuccessful owner.
Make sure you look for a business that fits your ability,
interest, and passion. When the details of operating the business gets you
down, the only thing that will make you show up the next morning is the love of
what you do.
2. How Big?
Now that you know what kind of business you want to own, you
have to decide how big a bite of the apple you want to take. There are two
primary questions that must be answered:
a) What size company will your management skills allow you
to handle? Quantities to focus on include, but are not limited to: employees,
sales volume, geography, and number of operating units.
b) How much capital can you come up with? In a few minutes
you're going to read about The Closing, which is where you will hand over a Big
Check. Now is the time to determine how big a check you can cover, not when the
seller is minutes away from depositing it. If you don't yet understand how
debt, investment capital, and possible seller financing can be combined to
leverage the underwriting of your deal, stop the process and don't go any
further until you do.
3. The Hunt
Find a company for sale in the industry and the size that
you've chosen. This is where good old fashioned shoe leather enters the
process. Drive around. Look around. Ask around. Find a qualified, and
recommended, business broker. There could also be a lot of pointing and
clicking. As with many things these days, a lot of searching and researching
can be done on the Internet.
Since this stage could be very long - months, even years -
this is where the impatient usually fail. There are many worthy conditions and
circumstances that can contribute to failure. Impatience is not one of them.
4. The Meeting
Now that you've found a prospective business to buy, let's
meet the sellers. Do you know what you should say? This is not like meeting
your steady's parents in high school. Find a professional, or at least someone
who has been there before, and conduct a role play session on what you should
say, AND what you shouldn't say. Virtually everything you say to a seller has a
place and time. If you didn't know that, don't proceed until you've got this
base covered.
5. The Qualifying Process
When you are selling a product, you qualify your prospects
early in the selling cycle to make sure you're not spending time with someone
who cannot, or will not, buy. It's the same thing here. The buyer qualifys the
seller to determine if this person can be relied upon to perform, as well as
continually qualifying the business opportunity.
The seller must qualify the buyer's ability to perform
financially. But often sellers will also qualify a prospect with regard to
whether they want to hand over their baby to this person.
The facts and figures are what they are; you just have to
find the information. But the interpersonal aspect of this step is a dance. If
you don't know how to do this dance, take some lessons before you get on the
dance floor.
6. The Letter Of Intent
The LOI is the document that contains information known and
understood by the parties to date, including that both parties will forsake
other offers long enough for the buyer to conduct the due diligence process.
The LOI is typically not as much of a binding contract as it
is an understanding. But there are important strategic points that must be part
of this document. Make sure you know what those points are before you finalize
this step. Let a contract attorney help you with this, but be careful about
letting the attorney meet the sellers at this stage. Attorneys are essential to
putting a deal together, but they can also be deal killers. If you don't know
how to find, hire, and control a contract attorney, get someone who can before
you proceed with the LOI stage.
7. The Due Diligence
This is the granddaddy of all the steps, for three reasons:
a) Other than possibly Step 3, this is the longest step. YOU
MUST BE PATIENT!
b) When conducted properly, it produces key information
without which an intelligent buying decision cannot be made. YOU MUST KNOW WHAT
TO LOOK - AND ASK - FOR!
c) Your interpersonal skills AND your operating detective
skills will be put to the ultimate test. DON'T BLOW THIS STEP!
Hundreds of five-pound books have been written on due
diligence alone. Find a good one and memorize it. Also, hire professionals,
like an audit (CPA) or consulting firm to help you with this stage. It will be
money well spent.
8. The Contract
Enter the lawyers, again. Other than the LOI, it's quite
possible, depending on the complexity of the transaction, that this is the
first time you bring the attorneys in to work directly on the sale. The keys to
success here are to:
a) Find a contract attorney who has business sale experience
(Flash: all lawyers aren't contract experts!);
b) Get the seller to let you pay for, and create, the
contract documents. To use a tennis metaphor, it's better to be serving than
receiving.
9. The Closing
Yogi Bera said it best: "It ain't over 'till it's
over." MANY sales get all the way to the closing table, after hundreds,
maybe thousands of hours of work, millions of spoken and written words, and
thousands of dollars spent, only to have the whole deal fall apart when the
parties merely sit across the table from each other.
There are lots of reasons: New information surfaces that
should have been found, or divulged, in the previous steps; one of the parties
gets cold feet; one of the parties lets their attorney get out of control; plus
thousands of others.
It ain't over 'till it's over. Don't take a victory lap
until someone drops the checkered flag. And if you're the seller, that's when
the check clears the bank, a day or two after the closing.
10. The Big Day
After the dog caught the car he was chasing he asked,
"Now what do I do with it?" Sometimes becoming the owner, after a
long purchasing process, can be a little anticlimactic. Just like a new
President of the United
States , your first hundred days are critical
to your future success. Will you be ready?
One of the challenges of buying a business is to make plans
for a successful sale transaction while you are negotiating a deal that may
fall apart at any moment. You've heard me say this before: If buying a business
was easy, monkeys would be doing it.
Write this on a rock... Just as a house is only as strong as
its foundation, the success of the business you buy is directly supported by
how well you conduct The Ten Big Steps.
©2003 All Rights Reserved
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This
27-Year-Old Made Millions Riding the Death Spirals of Penny Stocks
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