Categories
Blog

The Business Purchase Process

The purchase of a business in North America is a very challenging endeavor for the following reasons:

1. Financing the purchase of a business is almost non-existent.
2. The business for sale market is quite illiquid.
3. The process of buying a business is very inefficient since information about the businesses available opportunities for sale is not readily available.
4. Business sellers are generally very emotional when selling their businesses and experience mood swings that can be frustrating for business buyers.
5. There is a relatively few number of professional business brokers in the marketplace since the profession requires hard to find skills and knowledge and can entail a high degree of uncertainty that most professionals cannot handle emotionally.

The highly motivated buyers with a clear purpose to buy a reasonably profitable business do however succeed in reaching their dreams. Buyers with a good assessment of their skills and aspirations need to spend the necessary time to understand and research the marketplace in order to find the business that fits best their criteria. Buyers should beware that there is no perfect business. Therefore they should have the ability to act quickly when they find a company that matches their aspirations.

Serious business buyers need first to spend the necessary time to understand their real motives behind buying a business, their own skills and capabilities, and the different opportunities offered in the industries they are contemplating. Often wrongfully neglected, this basic introspective research helps focus potential buyers on the right business opportunities and save them time and money that could otherwise be wasted chasing businesses that clearly don’t fit buyers’ personalities and skills or that do not offer potential for reasonable profits enabling buyers to make a good living out of the purchased businesses.

Searching the Internet for business for sale websites in your city is a first step for a ready buyer who has already done his/her homework of understanding the local marketplace through reading books, local business blogs and other types of throughout research.

The second step is to aggressively contact business owners and/or brokers representing the business listings while showing motivation, readiness and financial capacity to close a deal.

The third step is to select a business and put an offer on it. While negotiating the right price and terms is extremely important, buyers should put their focus on reaching a buyer sided agreement. Sellers need also to have achieved a great deal for themselves. Reaching a win-win transaction is extremely important for the buyer for the following reasons:

1. Unhappy sellers do change their minds about selling very frequently (close to 50% of times in my experience). Most sellers are not in urgent need to sell and can wait a few more years, especially if the business is profitable and if they are not happy with how the negotiations went.
2. Unhappy sellers do not put their best efforts to train the buyer during the transition period. When goodwill represents a large portion of the purchase price, which is the case in the vast majority of business transactions, tremendous value is transferred to the buyer in the form of training, tips and tricks, relationships etc…. Unhappy sellers do not put their hearts into helping the buyer and the buyer suffers as a result loses that are much more important than the price reduction as a result of bargaining.

The final step is conducting a thorough due diligence with the help of an accredited Accountant in Ontario and closing the transaction. Due diligence is extremely important since buyers need to verify that information and assumptions about the business are valid. The decision to purchase a specific business is generally build on the validity of these assumptions so verifying these assumptions is paramount. Closing the transaction involves business lawyers and generally parallels legal negotiations on matters such as warranties and representations and other legalities. While these legal matters are important for buyers and sellers, most lawyers tend to exaggerate their importance leading to many deals unfairly falling through at the end.

Welcome to the world of business ownership!

Leave a Reply

Your email address will not be published. Required fields are marked *