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Where to buy a business

Here’s one vital piece of advice for those wondering where to buy a business: cheap doesn't mean a bargain. Likewise, even great return on investment doesn't necessarily mean a bargain. It all comes down to the buyers and their specific needs.

Is the business a bargain because they’re fantastic in that field or industry? Or because it only takes 10 hours a week to run it? Or because the price is substantially less than other similar offerings? If we define a bargain as being price sensitive, it’s usually due to the personal circumstances of the vendor leading to a need to sell.

The two things you need to think about are the risk profile of the business or industry, and the required owner involvement.

If you are purely looking for the best return on investment, an industry in decline can present consolidation opportunities for quick gains, but the long-term prospects will be reduced. Alternatively, a business that required a high level of owner involvement can produce the same sort of returns, but again you will find this a short-term win, as continued involvement can lead to burnout.

Balancing value and risk

Risk can present itself in many different forms. It’s up to you as the buyer to ascertain those risks and find the ones that you are comfortable to deal with. For example, if one client is a significant percentage of the business, do you have the skills to go out and win more business quickly? If the equipment is old or the factory is at capacity, do you have the resources or spare space in your other business to facilitate the growth? If the business is in decline, can you see what can be improved that will turn the decline around?

If there are no systems and the current owner has run the business for year, you have a bigger question to ask of yourself: Are you the sort of person that can build systems, hire and train the staff to run the business?

Where you see the opportunity to use your skills to improve the business, that can represent value in the price.

Where to buy a business that’s right for me?

You have a huge advantage if you’re buying a business where you’re familiar with the market and the industry. It lowers the risk when you take over as you're not learning something new. Being in the industry of the business that you purchase is highly recommended.

If you're not in the industry of the business you're purchasing, maybe you have transferrable skills, otherwise it’s a good idea to offer incentives that encourage the owner to remain for a longer period of time than would be standard. Ultilise that six- or 12-month period to make sure you're capable of running the business by the time they move on.

How does LINK help in this process?

Our involvement starts before the buyer's even been introduced to the business. We put a lot of emphasis on assessing the buyer and matching them with the right business. When there's a good match, it ensures a fluid sales process with a meeting of minds between the vendor and the buyer. Our aim is to create a healthy, mutually beneficial relationship.

Building a reliable brand like LINK means that we have to look after all parties and make sure people are set up for success. We vet our buyers and understand their strengths and weaknesses so we can help to steer them in a purchase that fits.

The end goal

Once we've introduced a buyer to a business, the price of the business will be considered in context with the terms of the purchaser’s expectations. Negotiations then begin in earnest. How long is the handover period? How long is the vendor involved in the post-sale, if at all? How would that be considered by the vendor in context with the price of the business? Our ultimate goal is to give buyers the best opportunity at success in their newly purchased business.

 

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Dan Levitus
Business Broker