Buyers Should Be Prepared Prior to Searching for A Business
Many people dream of one day achieving their financial independence from operating their own business. There are many wonderful businesses for sale in the South Florida market to choose from that range in size from very small ‘mom and pop’ shops to multi-million dollar business opportunities. Before embarking on a business search of business sale advertisements, buyers should think seriously about what kind of business they wish to purchase, how involved they wish to be in the business, and what purchase price they may realistically afford.
Business Buyers: Follow Your Passion!
- The very first thought that should occur to every buyer before searching for a business is truly understanding what interests and excites them.
- This may include being passionate about working with children, running an on-line business, or helping people in the healthcare industry.
- Having a passionate interest in a business or industry usually results in the buyer having a far better chance to operate the business successfully over the long term.
- As every entrepreneur knows, providing excellent products or services to customers is the most important part of running a business.
- Without passion or interest in learning about and improving one’s business, it is very difficult to keep ahead of one’s competitors and stay successful.
- Sometimes following one’s passion may mean completely altering career paths, but having the courage to change and follow one’s passion is usually the right choice.
Selecting the Right Industry Critically Important for Business Buyers
Along with finding one’s passion, a prospective business buyer should think seriously about the industry of which they are comfortable operating. The selected industry or industries should not only fit the business buyer’s passion or interest, but it should also be an industry with which the business buyer has some degree of familiarity and competence. A prospective business buyer who simply says ‘I’m open to any industry’ is not being honest with themselves and will have an incredibly difficult time in narrowing down their search for business to purchase. For example, a business buyer with no interest or knowledge of cooking or the hospitality industry should not attempt to buy an owner-operated restaurant. Business buyers may select the right industries from which to choose by remembering skills or experience learned in their youth, thinking about hobbies they enjoy, and taking an honest look at what specific skill sets they possess.
The SBA May Require Relevant Industry Experience
The Small Business Administration (SBA) frequently provides funding for business buyers, and is an excellent means by which a business buyer may preserve their own capital and fund a deal on attractive terms. Business buyers must realize, however, that the SBA will typically not fund a deal unless the buyer has at least some relevant experience in the same industry as the business being purchased. The SBA wants to ensure their loan is repaid, and the odds of repayment decrease dramatically if the buyer can not demonstrate they know what they are doing. This is especially the case where the industry requires specific skill sets and licenses (such as the construction, healthcare, or hospitality industry).
Business Buyers Must Decide How Active They Will Be In Business
Before starting a business search, a prospective business buyer must also think about how active they wish to be in whatever business they wish to purchase. Most small businesses have active owners who work full time in the business as owner-operators. Some businesses have semi-absentee owners while a select few have truly absentee owners. Prospective business buyers should be aware that business which are owner-absentee businesses generally have higher purchase prices compared to similar businesses which have active owner-operators. This is because buyers of business with active owner-operators must replace the seller with their own labor or pay someone else to replace the seller’s labor. In any event, prospective business buyers who wish to run a business as an absentee owner will pay a premium and find their search options severely limited.
Business Buyers Must Be Realistic About Their Price Range
At the end of the day, a business deal can only work if the buyer has the funding necessary to purchase the business. As a part of the basic qualification process, a professional business broker requires a business buyer to show sufficient means by which to fund the transaction. Before wasting one’s time by searching for a business that one may not qualify for anyway, a prospective business buyer should sit down and honestly appraise their own finances and the liquid funds they have available. If a prospective buyer thinks they will procure the liquid funds at a later date, then they generally should not start their business search until and unless they actually possess such funds.
Business Buyers May Get SBA Prequalified
- If a prospective buyer wishes to use financing in order to fund a business sale transaction, then they may seek prequalification from their bank for an SBA-backed deal.
- It will greatly help and speed things along if the buyer already has an established relationship with their bank.
- As part of the qualification process, the prospective buyer will need to show the bank evidence of their current financial position (including tax returns or W2 records).
- Additionally, the bank will inquire about the relevant work and industry experience of the buyer.
- As discussed, the SBA will generally not back business deals with which the prospective buyer can not demonstrate sufficient industry experience or knowledge.
- Please note, however, that the SBA does not simply look at the prospective buyer’s own financials and merit when approving a business transaction.
- The business itself must also qualify for SBA lending, and the buyer’s skill sets must match up with the requisite knowledge or industry experience necessary to run the business successfully.
Every prospective business buyer should know that they may find the business of their dreams when they are prepared and realistic about the available business opportunities.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.