How to find businesses that are for sale
Where do we look when we go looking to buy a business? Where do we find the business we want to own?
Businesses that are for sale are usually marketed in a confidential manner. Most of the time the best businesses are not advertised at all. They are sold through accountants and attorneys, or to friends and family. Your challenge is to dig out these nuggets before someone else does. You can also find good profitable businesses advertised and listed with brokers. You just have to dig through more junk to find the nuggets. The following is a list that I have and still use to find the business Seller I want to talk to. This list is in no certain order. Talk with everyone you know and let it be known that you want to buy a business.
• Newspaper Business For Sale classified
• Trade Magazines
• The Internet
• Insurance Agents
• Business Brokers
• Networking Groups
• Direct Mail
Let’s start with accountants, attorneys and bankers. These professionals have the inside track. They will usually be the first people to whom the Sellers will discuss the idea of selling their business. The accountant is first because he will have to begin preparing the financial information so the Seller can create or engage in an outside evaluation of his business. A good way to make contact with these professionals is by mail. Send letters out to about 100 accountants and attorneys. Be sure the attorneys work in the business world. In the letter, state that you are personally interested in acquiring a business. Wait a couple of days, then call each one on the telephone to discuss your letter. Bankers have a pretty good pulse on the business community and a lead from them, especially if you can use their name, will carry a lot of weight. It is important to build good relationships with accountants, attorneys and bankers.
Newspaper classified section
Most local newspapers will have more businesses for sale ads in the Sunday edition. The traditional businesses will be advertised under businesses for sale and all the rest under business opportunities. I spend my time in the businesses for sale section. You need to understand that owners of businesses will sometimes advertise their business, for sale by owner, before they list it with a business broker. I like to keep an eye on the businesses I might be interested in and track how long they have been advertising. I also get an appointment with the for sale by owners as soon as possible. Urgency is important.
Sometimes it’s called timing. Read the business-classified section during the week. Most owners are not sophisticated enough to understand the best time to run their ad is in the Sunday newspaper. It’s important to check back issues. You might find that the owner advertised his business at a different price, probably a higher price. This is important because you have found a seller who is in a weakening position. This, of course, puts you in a better negotiating position. Also, another way to use the newspaper is to write your own ad saying you want to purchase a business and place it in the business for sale section of the newspaper. Don’t advertise your no money strategy down or your financial ability to pay for the business.
I always scan the broker ads. In fact, you can learn a lot about buying a business by working with brokers. Most Sellers are emotional when it comes to selling their business, especially if they did a start up and made it grow for 20 years. A good broker can act as a third party and help keep the Seller calm. A lot of emotions happen along the way and at the closing table. After all, the Seller will pay the broker fees. When scanning the broker ads, keep in mind that they only advertise a small percentage of their actual listings. Usually they will advertise the best ones or the newest one.
Generally, when you cal a broker on a particular business, he won’t give you much information on the telephone. They will want confidential and financial information on you before they release any information about listings and most will want you to come to their office and that’s okay. When they ask about your financial condition, tell them, “Don’t worry, I can handle the deal”. The broker will ask you general questions about what type of businesses interest you. Keep your options open, unless of course you have zeroed in on the type of business you want to buy. Get information about all his listings and how long have they been for sale. Ask the broker which listing has the most motivated Seller. At this stage, sign a confidential agreement, but try not to give out financials.
Remember, you are trying to buy with no money down, but you never let the broker know that you are going to buy a business with none of your money down. He will be very concerned about where his commission will come from. When you start dealing with the Seller or a business broker, always demonstrate the confidence that you have the money to put the deal together.
Always treat everyone in a business like manner, be nice and be unreasonable when necessary. Dress the part, look and act business like, don’t get emotionally involved in the deal until it’s a done deal. Mentally, always be in the position to walk. Be persistent, be patient.
Suppliers are rarely the first to know if and when a business might be for sale, unless the owner is in trouble and he lets his supplier know he wants to sell. That can be okay, if you’re looking for a turn around situation. Talk to delivery people. Talk with people in the supplier’s office, the bookkeeper or the comptroller; they hear rumors all the time.
The Internet is a great source of business listings for sale in your area, both by owner and by brokers. I strongly encourage you to start surfing the net. If you don’t, you’re missing out on a great tool. For example, go to http://www.bizbuysell.com and select a location by state and broker. You’ll have hundreds of businesses to look at, plus lots of information on buying a business. You can also find for sale by owner sites. It’s a good way to get information quickly without all the hassles.
You should put out the word in your networking groups; chamber, rotary, social, religious, and business clubs. Convey your interest in buying a business. Word of mouth works. It can be the best way to find out about a good business that’s for sale before it goes on the market. You must remember that Sellers are and should be concerned about confidentiality. Dropping a word here and there is different then standing up before a group and announcing that you want to buy a business. Be discreet. Respect the confidentiality. Don’t be a loose cannon.
I believe the fastest way to find potential Sellers are by sending them a letter.
Be sure the letter is addressed to the owner with the word confidential printed on the envelope. This letter should be type written, one page and right to the point. This letter can reach Sellers in a very early stage. Sometimes they have been trying to sell their business unsuccessfully. It’s a great way to get to the owner before competing buyers or brokers learn the business is for sale. Follow up all letters with a personal telephone call to the owner.
Lets talk about getting by the gatekeeper. This could be a receptionist, another employee or even worse, a spouse. Never let any of these people know why you’re calling. I have had people tell me they are his wife or his daughter. You still don’t disclose why you’re calling. They might not know he is preparing to sale his business and you don’t want to be the one to tell them.
Here’s how I open my telephone call. “Hi, may I speak with Bob?” (Use first name). If asked who is calling, use your first name. If asked what this call is about say, “Its personal, just tell Bob I ’m on the phone please”.
Or this works every time, “I ’m returning his call”.
I have never been questioned by the owner using this technique. He will understand and appreciate the confidentiality. Always remember you are using the telephone to get the appointment. The purpose for the telephone call is to get an appointment in person. This is not the time to sell the whole story of why you want to meet with him. The appointment process really moves forward when the owner is talking. This is the time to be a good listener. Get the information you need, then get the appointment.
What do you do after you find a Seller
Your first contact with the owner is very important. First impressions here will go a long way in putting the deal together. How you handle yourself and the business owner during the first meeting will be a key element in your future relationship together. Take your time, don’t rush, ask the key questions on the business Sellers checklist. You might have a confidentiality agreement with you to offer to the owner right up front. This lets him know you are a serious buyer. The first thing you need to find out is why he is selling his business. You’ll need to probe to find the real reason. Make it your business to find the motivation for the Seller to sell. Some of the reasons might be:
• Retiring: This reason is used a lot, just make sure the Sellers aren’t thirty years old.
• Health: If the Seller looks and acts healthy, I ask more questions.
• Divorce: Not always the reason for selling.
• Break up of a partnership or partners:
• Death of the principal:
• Spin off:
• Lack of working capitol:
• Unwillingness to deal with change:
• Burnout: this reason is used a lot, be wary, most
of the time there are other reasons.
The Seller must be made to feel comfortable when discussing his business with you. You must convey to the Seller that you are sincerely interested in buying his business. Don’t move forward until you can feel that you are building a good rapport with the Seller. It will accomplish nothing if you are an adversary with the Seller. You don’t want your relationship to be built on “I am going to win by hook or crook”. No one wins in this kind of negotiating on buying a business. You’ll learn later when it’s to your advantage to be unreasonable, now is not the time. You need to remember the buyer and the Seller are natural adversaries.
Two Things That Keep A Business From Selling – Over Priced, No Terms
The buyer wants to pay as little as possible and the Seller wants as much money as he can get. Something else to remember, the buyer and Seller rarely get exactly what they want. Both parties will have to compromise along the way to close the deal. You want the compromising to start with the Seller.
We need to remind ourselves that this meeting is to gather as many facts and as much information as possible. Sometimes the Seller will give you a lot of information in your first meeting, depending on his first impression with you.
The first thing to find out is how long the business has been for sale. Also has it been offered for sale before? This probably should not be your first question. Other questioning will lead you to this question. The answer to this question is important because it will tell you if the business is over priced or lacks reasonable terms. Two things that keep a business from selling is being over priced and the lack of terms. You need to operate on the fact that the Seller is over priced. If the business has been on the market for more than six months, chances are the business is not worth what the Seller is asking. Of course, the business can go on the market for sale today and be over priced and usually is. The average business owner is his own worst enemy because of the lack of proper preparation.
Don’t be shy about asking questions. Make it your right to have them answered before you move on, as long as you ask the questions in a nice business like manner, for example: Why are you selling the business? What will you do after you sell? How much are you asking? How did you arrive at this price? Pay close attention to the answer to this question. In most cases you will catch the Seller off balance. Here are some examples of what they might say:
• That’s how much I have to have.
• My accountant says that’s how much it’s worth.
• A friend told me a business just like mine sold for that much in Ohio.
• In our industry you ten times the bottom line or cash flow. (that’s a good one)
• I added up my equipment and inventory and added so much for good will
Believe me I have heard all kinds of reasons why the Seller’s business was priced unreasonably. When you are questioning the Seller, don’t push, just be straightforward. Don’t react one way or the other. Notice the Seller’s reaction. Your objective here is not to be critical or to offend but to obtain sensitive information. The Seller will more than likely answer these questions, because you asked in straightforward manner. If he does balk, ask him if there is some reason why you shouldn’t know this information. Would it be possible that the answers to your questions would keep you from buying his business? Be nice. Shut up and wait for his answers. The answers you get will probably surprise both you and the seller. After all, the seller probably hasn’t been asked these kinds of questions unless he’s read this book.
What is The Real Reason You Want to Sell Your Business?
In your questioning process, you need to sneak in the following question and the timing is important. “What is the real reason that you want to sell your business?” Obviously by this time you have or you haven’t built a good rapport. Now you’ll really find out if you have a motivated Seller!
He will give you one of the reasons that we discussed earlier in this chapter. Whatever the reason, stress that this is one of your strongest skills. If he has management employee issues, tell him managing employees is your strong skill. Whatever his pain or fear, that is your strength. You must understand the seller’s position, but don’t agree with it. The following questionnaire will help you with the interview. If you have made it this far in your information gathering, you should try to get three years profit and loss statements. If you don’t quite feel comfortable, mention that you will need to pickup these financials in order to be able to assess the asking price. Set a date and time to do this as early as possible. Again, I like to get the financials on my first meeting. You won’t get them if you don’t ask. As soon as you have completed this business profile, leave the Seller, go home and analyze all the information that you have collected.
Name of Business Seller(s) Name
Phone Fax Home email
Partner/ Spouse Name
Phone Fax Home email
Business Legal Name Business Year End
Company DBA (Doing Business As)
Business Established Are you the founder Number of family members