Buyers Should Be Prepared
Many people dream of one day achieving their financial independence from owning 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 to Pursue
Along with finding one’s passion, a prospective business buyer should think seriously about what kind of business they wish to buy. The business buyer should have some degree of familiarity and competence of the industry. 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 should remember 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.
Business Buyers Should Be Realistic About Their Own Role
Before starting an online search of businesses for sale, a prospective buyer must also think about how much time and effort they are willing to put in the business. 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 absentee-owned generally have higher valuations compared to similar businesses which have active owner-operators.
Be Prepared to Replace Seller
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 most cases, buyers will not want to pay someone else to replace the seller because that will detract from their own net profits or adjusted owner benefit. If the buyer is not willing to work in the business, then they will usually pay a premium valuation.
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 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 wait before starting their search.
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.