Frequently Asked Questions - For Buyers

Advantage Business Acquisitions has experience in selling and helping buyers acquire all types of businesses.  If you are thinking about buying a business now, or in the future, you probably have many questions.  The following are some of the most common questions we are asked.

Q. How are businesses priced?
Generally, at the outset, a prospective seller will ask the business broker what he or she thinks the business will sell for.  The business broker usually explains that a review of the financial information will be necessary before a price or a range of prices can be suggested for the business.  Most sellers have some idea about what they feel their business should sell for - and this is certainly taken into consideration.  However, the business broker is familiar with market considerations and, by reviewing the financial records of the business, can make a recommendation of what he or she feels is what the market will dictate.  A range is normally set with a low and high price.  The more cash demanded by the seller, the lower the selling price; the smaller the cash requirements of the seller, the higher the price.  Since most small business acquisitions include at least a small amount of seller financing, the deal structure and terms of the sale are very important.  In many cases, how the sale of the business is structured is more important than the actual selling price of the business.  Too many buyers make the mistake of being overly-concerned about the full price when the terms of the sale can make the difference between success and failure.

Q. Do I need an attorney to buy a business?
It is advisable to have an attorney represent you in the acquisition of a business or real property.  It's your decision as to what phase of the process you want to involve an attorney however, we strongly advise the use of an attorney at some point in the process. Some buyers prefer to engage an attorney after the terms & deal have been negotiated, to minimize expenses.  It is important, however, that the attorney you hire is familiar with business acquisitions and has the time available to draft or review the documents in a timely manner.  If the attorney does not have experience in handling business acquisitions, you may end up paying for the attorney to become familiar with business acquisitions.  It is also more likely for your attorney to make a critical error or take longer than what is customary to draft & review closing documents. Any experienced business broker has a list of attorneys who are familiar with the business buying process. Advantage Business Acquisitions has a list of attorneys experienced in acquisitions on the "Referrals" page of our website. An experienced attorney can be of real assistance in making sure that all of the details are handled properly.  Business brokers are not qualified to give legal advice.  However, keep in mind the fact that many attorneys are also not qualified to give business advice.  Your attorney will look out for your best interests; however, you need to remember that the seller's interests must also be considered.  The transaction should be fair for all parties.  The attorney works for you, and the final decision is yours.  If you know someone who has owned their own business for a period of time, he or she may also be a valuable resource in answering your questions about small business acquisitions. Good luck in your search!

Q. Why should I go to a business broker?
A professional business broker can be helpful in many ways.  They can provide you with a selection of different and, in many cases, unique businesses, including many that you may not be able to find on your own.  Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about.  Business brokers can offer you a wide variety of businesses to look at and consider.  Business brokers are also an excellent source of information about small business and the business buying process.  They are familiar with the market and can advise you about trends, pricing and what is happening locally.  Your business broker will handle all the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.  Your local professional business broker can be the best person to talk to about your business needs and requirements. An experienced business broker can also help you determine if a business is priced correctly, as well as helping you negotiate a favorable price & terms. 

Q. What should I look for when shopping for a business to acquire?
Obviously, you want to consider only those businesses that you would feel comfortable owning and operating.  "Pride of Ownership" is an important ingredient for success.  You also want to consider only those businesses that you can afford with the cash you have available.  In addition the business you buy should be able to supply you with enough income - after making payments on it - to pay your bills, or have the potential to do so in the near future.  You should always consider what you can do with the business after you acquire it - how you can improve it and make it more productive and profitable, while reducing expenses.  There is an old adage advising that you shouldn't buy a business unless you feel you can do better than the present owner.  All businesses have "areas of opportunity". Some businesses just have more "areas of opportunity" than others. Some buyers prefer to buy businesses that are already doing quite well & only have a few "areas of opportunity" to grow, and don't mind paying a premium because there is less risk. There are other buyers who prefer to buy businesses that require improvements & have many "areas of opportunity" because they often get a better price & terms and can expect much stronger growth & future potential. It's really up to you & your comfort level.

Q. Why should I buy a business rather than start one?
An existing business has a track record.  The failure rate in small businesses are largely in the start-up phase.  The existing business has demonstrated that there is a need for the product or service in a particular locale.  Financial records are available along with other information on the business.  Most sellers will stay and train a new owner for 2 to 4 weeks and many will also provide a small amount of seller financing.  Finding someone who will teach you the intricacies of running a business and who is also willing to finance a portion of the sale can make all the difference.

Q. What is the real reason people go into business for themselves?
There have been many surveys taken in an attempt to answer this question.  Most surveys reveal the same responses, in almost the same identical order of priority.  Here are the results of a typical survey, listed in order of importance: 1) to be my own boss & control my own destiny, 2) I don't want to work for someone else & worry about getting fired, laid off or down-sized, 3) to better utilize my skills and abilities, 4) to make money.  It is interesting to note that making money is not at the top of the list, but comes in fourth.

Q. What happens when I find a business I want to buy?
When you find a business, the business broker will be able to answer many of your questions immediately or will research them for you.  Once you get your preliminary questions answered, the typical next step is for you to submit an offer based on the price and terms you feel are appropriate.  This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you.  The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered.  There isn't much point in continuing if you and the seller can't get together on price and terms.  The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer.  You then have the option of accepting the counter proposal from the seller, modifying it or rejecting it and continuing your search for a business to acquire.  If you and the seller agree on the price and terms, the next step is for you to deposit earnest money with the seller's broker and begin your "due diligence phase".  Once your contingencies have been met and you are satisfied with the information & financials you have received/reviewed, the closing documents can be prepared, and your purchase of the business can be successfully closed.  You will now join millions of other entrepreneurs who, like you, have chosen to become self-employed!

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