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by | Feb 1, 2016 | Sell Your Business, Sell Your Company, Sell Your Florida Franchise

When Buying a Business, Points to Consider

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  • The most important point to consider is are you prepared to be patient? Are you in a state of mind for a journey that could take up to a year or longer, and ready to run after two or three opportunities before you find a good fit? Finding an opportunity with an owner benefit of over $250,000 or more typically takes more time than finding those at less than $250,000. You can’t afford to make a mistake – patience, please.
  • The more confined the geographic area of interest is, the longer it will take to find the right fit. The broader the area, the more alternatives there will be, and potentially a faster pace.
  • If the mission is to find a business with the maximum owner benefit and the least amount of cash injection, consider working with a broker who understands how to use a Seller Stand-by Promissory Note. This can be used to reduce the amount of cash injection required to secure bank financing. Many agents new to the profession don’t understand how to use this technique to get maximum leverage for a buyer.
  • It is important to be prepared. Sellers targeting transactions over the $250,000 owner benefit threshold will want to see a potential buyer’s personal balance sheet (without specifics), bio or résumé before providing detailed information about the business. This needs to be provided to the buyer’s broker to keep on file and used as needed. When a quality opportunity is identified, it is important to be prepared so you can move as quickly as is prudent. Quality opportunities don’t stay on the market for long.
  • Be aware that 90% of businesses on the market won’t sell, mainly due to unrealistic pricing and poor accounting records. Sometimes the overpriced opportunity can be converted into a sale by having the seller’s broker make a high-level, non-binding offer with some basic elements early in the process, to cut to the chase and see if the seller is realistic.
  • To secure bank financing for a business, sales have to be level or increasing, with no one customer representing more than 10% of total sales. Declining sales are a non-starter.
  • It is important to continue to receive financial updates up to the closing, to ensure nothing has changed. Always include in Offers and Purchase Agreements that the sale is subject to there being no adverse changes in the business up to closing.
  • The business must be able to provide a 1.25 debt coverage ratio. You want to work with a broker who understands how to calculate this ratio. That can help establish estimated closing costs, the cash injection required, and an estimated amount of cash flow after debt service to ensure it is a fit. It is not a matter of what you or the seller thinks is a fair price; it is how the bank sees it, and whether it will meet their profile.
  • If you would like a confidential conversation about how to prepare your business to be sold, or prepare to buy a business, feel free to contact me on my cell at 954-579-4687 or by e-mail at bobd@dolansales.com. I work with sellers and buyers. My LinkedIn profile is: http://www.linkedin.com/in/dolansales.

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