Simple tips for smart buyers
Written on the 30 November -1
National Business Sales CEO Patrick Lui looks at how you can find the right business
WITH the typical business buyers taking on average about six to 12 months to find a business, it can be a frustrating process.
Within six months, I would not be surprised that you would have reviewed as many as 100 businesses and may have made five to10 offers. Furthermore, you may have put a few businesses under contract. Despite all your efforts, you may still have not succeeded in buying the business you want because you missed out on a few good businesses that you really liked, some of the businesses did not pass due diligence, you failed to get finance, you had cold feet at the 11th hour or the solicitors messed up the deal.
So, how can you avoid all the above pitfalls and buy the business you want without struggling? The short answer is that you can't, but you can make your business search process much less frustrating and more effective if you:
1.Start with an honest self-evaluation. It is not uncommon to see the wrong buyer buying the wrong business - they tend to come back on the market - usually within 12 months - at a loss.
2.What industry experience do you have? What are the critical success and
risk factors in that industry? Who are the Top 10 dominant players? Can you compete with them?
3.Research and investigate on only one or two industries in which you have relevant experience. Stick to the ones that you know best. Talk to business brokers who have significant experience in
4.Know what you are looking for. If you tell brokers that you would look at anything, they won't take you seriously.
5.Know what you can afford to buy. How much cash plus how much real estate equity you can borrow on? Talk to banks and finance brokers before making an offer.
6.With the assistance of a good accountant, learn how to do the basic due diligence before putting the business under contract. If you have to miss out
on the business several times, so be it.
Most importantly, you will learn what pitfalls to avoid.
7.Avoid using solicitors who have a reputation for breaking deals.
8.Only deal with the most reputable brokerage firm that usually lists quality businesses - A-grade businesses list with an A-grade business brokerage who attracts A-grade clientele.