Achieving the desired goal takes preparation and organization. There are four key elements to the business buying process.
- Business identification
- Organized search process
- Collection of date
- Due diligence.
If you set out towards a destination without a map, you will get lost. Likewise, statistics show that without a business plan, the rate of success diminishes dramatically.
Items to include in your business plan.
- Financing- Acquisition time, a year of living expenses, acquisition-related costs (CAP, Attorney, etc.) down payment, working capital.
- Risk/Reward- analyze your risk to reward ratio. A buyer should assess how much he is willing to risk before he even begins the search.
- Self-assessment-In evaluating a specific business, determine your skill sets. Self-assessment should include why business ownership is for you.
- Location-The organization phase should include an assessment of how far a buyer is willing to travel or commute and what geographic areas the buyer will not consider. Narrowing down the geographic parameters can facilitate the process.
- Timing-To include due diligence, industry projections, and is it the right time to buy?
- Ability to Act-Does the buyer have the means to act quickly when the right acquisition target becomes available?
- Confidentiality Agreement, Buyer Resume, and Profile- A business intermediary will qualify the buyer. Nondisclosure or confidentiality agreements are involved in almost all business transfers. A buyer profile, personal financial statements, financial capability and liquidity
- What Type of Business Should I Buy?-Understanding your target Company: manufacturing, distribution, service or retail.
- Manufacturing-Manufacturing companies require a significant investment in capital assets: machinery, floor space, workforce, and capital needs such as cash for operations and capital for funding receivables and payables.
- Ideal Buyer Candidate: The ideal buyer is financially capable of funding with personal assets. Prior ownership experience in the manufacturing arena is a needed attribute.
- Market protection – proprietary product
- Loyal customer base for specific products with contracts
- Legitimate business operation
- Ability to expand
- Large capital investment for equipment
- Significant working capital levels and payroll expenses
- Large workforce requirement
- Significant plant / real estate implications
- Government regulation
- Distribution-In addition to inventory costs, the distribution also implies high accounts payable and receivable levels, drivers, and a sales team. Profitable distribution companies should be examined by buyers that have a keen feel for the capital requirements and the ability to sustain capital levels.
Ideal Buyer Candidate-The ideal buyer can fund or raise additional capital with personal assets and is well-connected in the industry being acquired.
- Ability to expand by increasing market penetration
- Having product lines with name recognition
- Highly collateralized business with significant inventory and accounts receivable levels
- Lack of market protection from manufacturer suppliers
- Large working capital requirements for funding significant inventory and accounts receivable levels
- Required distribution apparatus with rolling stock issues
- Government regulations
- Service-Service businesses are the safest investment for a first-time business buyer.
Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets; he can be a generalist with no technical skill sets needed.
- Many simple business formats requiring limited owner training
- Easier to staff
- Smaller fixed asset and working capital requirements
- Lack of market protection
- Competitors with similar services
- Unsophisticated workforce
- Possible licensing requirements
- Retail-Retail is the least sought-after business type. The negative view on retail businesses overlooks the relative ease in which retail establishments can be duplicated by setting up chain-type operations
Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets and people oriented.
- Very little capital equipment investment necessary
- Leasehold improvements don’t need continued maintenance
- All-cash endeavor, no liquidity needed to fund accounts receivable
- Can reduce cost by landlord paying a portion of leasehold improvements
- Limited clientele geography
- Continuous marketing and advertising usually required
- Extended hours of operation
- Large cash infusion necessary for initial inventory and continued inventory maintenance
- Difficulty finding and retaining workers