What Do Buyers Really Want to Know?

Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.

  1. Want to do their own thing; to control their own destiny, so to speak.
  2. Do not want to work for anyone else.
  3. Want to make better use of their skills and abilities.
  4. Want to make money.

These surveys indicate that by far the biggest reason people want to be in business for themselves is to be their own boss. The first three reasons listed revolve around this theme. Some may be frustrated in their current job or position. Others may not like their current boss or employer, while still others feel that their abilities are not being used properly or sufficiently.

The important item to note is that money is reason number four. Although making money is certainly important and necessary, it is not the primary issue. Once a person decides to go into business for himself or herself, he or she has to explore the options. Starting a business is certainly one option, but it is an option fraught with risk. Buying an existing business is the method most people prefer. Purchasing a known entity reduces the risks substantially.

There are some key questions buyers want, or should want, answers to, once the decision to purchase an existing business has been made. Below are the primary ones; although a prospective buyer may not want answers to all of them, the seller should be prepared to respond to each one.

  • How much is the down payment?  Most buyers are limited in the amount of cash they have for a down payment on a business. After all, if cash were not an issue, they probably wouldn’t be looking to purchase a business in the first place.
  • Will the seller finance the sale of the business?  It can be difficult to finance the sale of a business; therefore, if the seller isn’t willing, he or she must find a buyer who is prepared to pay all cash. This is very difficult to do.
  • Why is the seller selling?  This is a very important question. Buyers want assurance that the reason is legitimate and not because of the business itself.
  • Will the owner stay and train or work with a new owner?  Many people buy a franchise because of the assistance offered. A seller who is willing, at no cost, to stay and to help with the transition is a big plus.
  • How much income can a new owner expect?  This may not be the main criterion, but it is obviously an important issue. A new owner has to be able to pay the bills – both business-wise and personally. And just as important as the income is the seller’s ability to substantiate it with financial statements or tax returns.
  • What makes the business different, unique or special?  Most buyers want to take pride in the business they purchase.
  • How can the business grow?  New owners are full of enthusiasm and want to increase the business. Some buyers are willing to buy a business that is currently only marginal if they feel there is a real opportunity for growth.
  • What doesn’t the buyer know?  Buyers, and sellers too, don’t like surprises. They want to know the good – and the bad – out front. Buyers understand, or should understand, that there is no such thing as a perfect business.

Years ago, it could be said that prospective buyers of businesses had only four questions:

  1. Where is the business?
  2. How much is it?
  3. How much can I make?
  4. Why is it for sale?

In addition to asking basic questions, today’s buyer wants to know much more before investing in his or her own business. Sellers have to able to answer not only the four basic questions, but also be able to address the wider range of questions outlined above.

Despite all of the questions and answers, what most buyers really want is an opportunity to achieve the Great American Dream – owning one’s own business!

Key Factors on the Acquirer’s Side

Photo Credit: Clearly Ambiguous via Compfight cc

Photo Credit: Clearly Ambiguous via Compfight cc

There are several key factors on the acquirer’s side of a sale, most of which are necessary to achieve a successful closing. Just as a seller has to deal with quite a few factors, the acquirer must also. Some of the more important ones on the acquisition side are:

  • Sufficient financial resources to complete the deal as specified.
  • Depth of capable staff to run the existing business and also execute an acquisition at the same time.
  • A rational approach to the type, size and geographic location of target companies.
  • The willingness to “pay-up” for acquisitions such as 6x EBITDA and, if necessary, the willingness to pay 100% cash, whether the sale is one of assets or a stock transaction.
  • Assuming the acquisition search generates satisfactory deal flow, a willingness to stay the course for 6 to 12 months in the search process.
  • A confirmation by the board of directors of their commitment to complete a deal.
  • A “point person” in the search process, preferably the CEO, CFO or Director of Development who is reachable on a daily basis to discuss relevant matters.
  • Complete access to sales manager and others by the business intermediary to discuss suggestions of target companies.

Questions to Consider for the Serious Buyer

Photo Credit: Instant Vantage via Compfight cc

Photo Credit: Instant Vantage via Compfight cc

A serious buyer should have the answers to the following questions:

  • Why are you considering the purchase of a business at this time?
  • What is your time frame to find a suitable business?
  • Are you open-minded about different opportunities, or are you looking for a specific business?
  • Have you set aside an amount of capital that you are willing to invest?
  • Do you really want to be in business for yourself?
  • Are you currently employed or unemployed?
  • Are you the decision maker, or are there others involved?

The real key to being a serious buyer, however, is whether the individual can make that “leap of faith” so necessary to the purchase of a business. No matter how much due diligence a buyer performs, no matter how many advisors there are to advise the buyer, at some point, the buyer has to make a leap of faith to purchase the business. There are no “sure things” and there are no guarantees. If a buyer is not comfortable being in business, he or she should not even contemplate buying one.

Advantages of Buying an Existing Business

Photo Credit: morebyless via Compfight cc

Photo Credit: morebyless via Compfight cc

1. Established.

An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location and has furniture, fixtures, and equipment all in place.  The term “turnkey operation” is overused, but an existing business is just that, plus everything else. New franchises may offer a so-called turnkey business, but it ends there. Start-ups are starting from scratch.

2. Business Relationships. 

In addition to the existing relationships with customers or clients, vendors, and suppliers, most businesses also have experienced employees who are a valuable asset. Buyers may already have established relationships with banks, insurance companies, printers, advertisers, professional advisors, etc., but if not, the existing owner does have these relationships, and they can readily be transferred.

3. Not “A Pig in a Poke”. 

Starting a new business is just that: “a pig in a poke.” No matter how much research, time, and money are invested, there is still a big risk in starting a business from scratch.  The existing business has a financial track record and established policies and procedures. A prospective buyer can see the financial history of the business — when sales are the highest and lowest, what the real expenses of the business are, how much money an owner can make, etc. Also, in almost all cases, a seller is more than willing to stay to teach and work with the new owner — sometimes free of charge.

4. Price and Terms.  

The seller has everything in place. The business is in operation and a price is established. Opening a new business from scratch can be the proverbial “money pit.”  When purchasing an established business, the buyer knows exactly what he or she is getting for his money. In most cases, the seller is also willing to take a reasonable down payment and then finance the balance of the purchase price.

5. The “Unwritten” Guarantee.

By financing the purchase price, the seller is saying that he or she is confident that the business will be able to pay its bills, support the new owner, plus make any required payments to the seller.