The 3 Biggest Mistakes Most Business Buyers Make
Buying a franchise or an existing business is a very exciting process. There are so many things to consider while you are searching for the right opportunity such as; income potential, growth and expansion, competition, local market, facility, etc. that many business buyers get so caught up in the details that they forget the basics. Savvy business buyers won’t let the details get between them and their entrepreneurial objective.
Counting them down backwards like Letterman does it:
Mistake #3: STAY FOCUSED – KNOW YOUR LIMITATIONS.
We receive hundreds of buyer inquiries a year from prospective buyers asking for information on several unrelated types business at one time. A person that asks for information on a gas station, a nursing home, and a construction company, all at the same time comes off as lacking focus and unaware of their own limitations. Because the drive to own a business and be your own boss is so strong, many people just jump out on the internet and start sending in inquiries before they have any idea how they would evaluate and then operate a particular business, much less secure the funds to acquire the business.
As a business broker, I have trouble taking this type of prospective buyer seriously. More often than not, this prospective buyer will never end up buying a business from me or any other business broker.
Mistake #2: KNOW HOW YOU ARE GOING TO FINANCE THE BUSINESS.
Once you have asked a business broker to share information about a particular business you must be prepared to give him/her detailed financial information to show that you have the financial resources to be considered a serious potential buyer. If your answer when asked for this information is something like; “Don’t worry I have plenty of money,” or, “I will worry about that if I decide I like the business,” or “I have investors that will be going in with me,” a business broker worth his/her weight in salt will most likely let you know immediately that he/she do not work with unscreened and un-qualified prospective buyers. Sellers do not want their brokers wasting their time with people that are not ready, willing and able.
If you are not sure how you are going to finance the business ask your broker to give you some ideas how a deal might be structured to make an acquisition possible. When we know about it ahead of time we can usually help many buyers through the process to successfully secure financing.
Investing your time looking at businesses that are beyond your financial resources is a waste of everybody’s time.
Mistake #1 (BIG MISTAKE): FAILING TO MAKE AN OFFER
Every successful journey starts with the first step. You might be a great candidate for a particular business, you might have all your financing lined up, you could well be the most ideal potential purchaser for a business, however, if you don’t make an offer you will surely never make a deal on that business.
When you make an offer on a business you are starting the buying process. It is interesting to note that not all first offers are accepted, not all second offers are accepted, there is no guarantee that any offer you make will be accepted. The only thing that is guaranteed is that if you never make an offer, you will never buy a business.
When you are ready to make an offer, make your offer on a contract not a letter of intent. A purchase contract tells the seller you are serious, ready, wiling and able to buy their business. Your broker will help you to ensure that there are safeguards built into the contract to give you the ability to back out and void the contract if you are not satisfied with the books, or the valuation, or if you cannot secure the balance of the financing you need, or if the landlord will not approve you to take over the remaining unexpired term of the real estate lease, or just about any other contingency you can think of for your protection.