Buying A Small To Medium Sized Business

 Business For Sale System:

1. Where to look
2. What to look for - goodwill and more
3. Getting prepared 
4. Meeting the owner(s)
5. 3 Golden Rules
6. Meeting number 2
7. Making the offer
8. Making the deal
9. Moving in
10. Exit plan

1 Where to look
When buying a business there are two categories of acquisition to look for 
1 : the business that you are experienced in 
2 : the franchise where the franchisor provides their experience 
Businesses are ‘for sale’ in various publications, websites and brokerages. 
Where location is important and the business is basically NOT moveable or relocatable (i.e. restaurants, hotels, pubs etc) estate agents will promote the sale, sometimes even using ‘for sale’ boards outside the premises. 
The majority of businesses however tend to avoid the blatant promotion of the sale in order to avoid upsetting the customers - people do not like change.
Therefore searching through the ‘businesses for sale’ adverts in ‘the media’ will probably not identify the business by name or exact location. DON’T WORRY - this is not unusual - the aim is to maintain a veil of confidentiality around the deal in order to keep the goodwill alive.
‘The media’ consists of local, regional and national publications, both general i.e. newspapers and specialised, i.e. trade publications. Some publications only list ‘businesses for sale’ adverts on specific days ( ie. Sundays & Tuesday or dates 1st of the month ) - others list in every issue. It is very rare to find such listed other than in a special section of the classified adverts.
Certain brokerages will sell you a list of businesses for sale, others will request a subscription to their client list which is updated on a daily, weekly or monthly basis. Look (and read) far and wide : compare adverts / prices - however, do not waste your time looking at businesses for sale adverts unless you know ‘The Business’ activity through hands-on experience, or it is a franchise that offers hands-on support . 



2 What to look for - goodwill and more
The price of the business is partially determined by the tangible assets (i.e. the physical assets) that contribute to making profit - such as plant & machinery, office equipment delivery vehicles etc) and the intangible asset (i.e. goodwill).
Assuming you are business aware, then you will be seeking to acquire a business whose ‘for sale’ advert attracts you. The advert should give some idea of main activity, locale, annual turnover, gross profit, net profit, reason for sale, any USPs (unique selling points - i.e. 80% of customers under annual contract) ) and an asking price. In addition, there will be contact details of how to acquire further information about the business for sale. You may be required to complete and return a confidentiality agreement and even provide financial references before obtaining any further data about the business that is for sale.
The confidentiality can be important. The owner of the business only wants to meet serious potential purchasers, who understand the necessity of keeping the deal quiet until the deal is done in order to minimise the staff and customer uncertainty which a sale / transfer of ownership of the business may create. 
The initial sale information when it appears should advise you of the history of the business, the activities, how turnover is split, staffing, customer base, supplier base, the good points and, most importantly, any bad points about the business. Why bad points? Well, if something comes out of the woodwork subsequent to the initial sale information, that something casts a shadow and taints everything else said about the business. Why was it not mentioned at the outset ? You need to know the price of the business assets, both tangible and intangible : tangible assets can be financed - it is virtually impossible to get finance for intangible assets, i.e. goodwill. 



3 Getting prepared 
Before going to meet a business owner, draw up a checklist of questions, do some research, check out the product range, check out the competition via Yellow Pages and via internet search engines. 

Get familiar with the market sector and put yourself in the position of the new owner of the business and open your eyes and mind to the business.

Look at the financial accounts - is turnover growing ? steady ? keeping up with inflation ? dropping ?
Look at the margins -
Gross profit percentage - steady or erratic ? Comparable with industry standards ?
A reduction in turnover can in fact give an increase in gross profit percentage and gross profit - therefore do not just view one figure - take an overview. 
Look at the overheads - look for fluctuations and again compare with previous years.
Then look at the bottom line - but BE AWARE - each business in each tax year has different parameters to satisfy the owner’s remuneration requirements. Therefore try to get an extract of the net profit before the owner’s remuneration package - that revised extract of the net profit is the profit the new owner will expect to inherit.
Look at the balance sheet : check the average time taken to pay the suppliers and for customers to pay the business : debtors divided into turnover : creditors divided into purchases.
Check the fixed assets schedule - there are often more assets than shown in the balance sheet. 
At this stage, you do not have to draw up a check list on a clipboard before visiting the business, you merely have to be business AWARE 

4 Meeting the owner(s)
You merely have to be business AWARE to meet the owners - ideally speaking you should meet them out of hours at the business premises. 
Out of hours ? - there should be nil interruptions to the meeting.
At the premises ? - you are buying the business - so now is the time to see it for the first time.

There is no script to the meeting - let them tell you about their business from their early days, let them tell you about their staff, their customers, their suppliers, their USPs ( Unique Selling Points). ). 

You are business aware, so you should be able to compare your knowledge with theirs - there should be no great discrepancies. If there are, probe - there may well be an explanation. 

If you have turned up with a clipboard full of questions so be it : but at this initial get together, no matter how well prepared you are, you will within 15 minutes of leaving think of at least three matters you should have bought into conversation during the meeting. The most important purpose of the first meeting is to get a feel for the business. So, relax, hope the owners offer you a cuppa, and let the meeting flow - the owners may be more nervous than you! Regardless, expect to be asked why you are interested in the business and also to be asked about yourself - take along your c.v. 

In all probability, the business owners will want to ensure the business’s future and get confirmation that the future of their staff - their team - without whom there would probably be no business - is safe. 

5 3 Golden Rules
When you visit the business for that first meeting THREE points are essential for your interest to be sharpened .

ONE : First impression
TWO : Up to date facts & figures
THREE : Click 

First impression : There can only ever be one first impression - if the owner’s get it wrong - beware.

Up to date facts & figures : If day to day financial data is not to hand, one should wonder why not ? Is it being suppressed for some reason ? If it is to hand, the first meeting is not the time to evaluate such - merely relax in the knowledge that such is available. 
No data - beware.

Click : The chemistry between the owner and you : the owner must be able to click with customers otherwise there would be no business on the market to buy. But if you do not feel the chemistry, you will probably not click with the business’s staff and / or customers - no click ~ no business.
No click - beware 

Be Aware - you need ALL THREE to make the deal : 
Two from three don’t work - BEWARE.

6 Meeting number 2
As you leave the meeting, you need consider all the facts - information overload is not uncommon at this stage. Assuming ALL THREE Golden Rules are in place and YOU are HAPPY - don’t make promises of offers when leaving the first meeting : merely state you will consider matters and get back to the owner ( ideally out of business hours).

Go back to 3 Getting prepared and start re-evaluating the business, having actually seen
and felt the business in the flesh. 
Assuming everything still stacks up, now is the time to draw up the clipboard full of lists of queries - 
Approach each aspect of the business with a clean sheet.
List questions one by one : remembering to leave space for answers .

Revisit your lists a few times, reconsider and revise them, before arranging Meeting Number Two.
Meeting Number Two will determine your interest in the business - serious - sleeves up - maybe even with an agenda. As you have already seen the business, it does not have to take place in the business premises, provided the agenda indicates what topics will be covered.

Harking back to Meeting Number One after Meeting Number Two - are there any inconsistencies?
Do not expect everything to be available at Meeting Number Two, but do expect any supplementary data within two or three weeks. 
No data ~ no deal.

7 Making the offer
The offer is rarely the deal. 

Therefore assuming you are interested in the business on offer - consider your offer package and EXPECT to bicker, banter and barter .

What do you want to pay ? 
For what ? 
When do you want to pay it ?


What do you want to pay ? If you are buying looking for a return of x% - leave a margin for negotiation and pitch the offer slightly under what you are prepared to pay.

For what? Be specific and indicate exactly what you expect to be included and excluded - 
Assets - list the major assets.
Goodwill : Do you want a handover period? If so - how long, how many hours, is it part of goodwill and unpaid, what is expected from the owner in the handover period?

When do you want to pay it ? Part will be paid on completion, part to be paid at the end of the handover and, maybe, part from future income - although the part from future income must be realistic, achievable and practical and only on offer as a bonus. 
Put your offer forward - ‘ Subject to Contract ‘ - and suggest that the owner neither rejects or accepts it without first studying it and, most probably, sitting round a table with you to clarify and fine tune the offer. 

8 Making the deal
When the fine tuning begins, it is essential that lawyers and accountants are involved in order to translate the agreed offer into a deal.

In the case of limited companies, the shares can be bought or the company’s assets and goodwill (including company name and all business trading names) can be bought.

What is most tax efficient for a purchaser to buy, is rarely most tax efficient for a owner to sell - let the respective tax advisors talk to each other.

Then take into account - legal fees - share sales are VERY EXPENSIVE both for the buyer and vendor should the deal be a shares only package .

Let the lawyers listen and get estimates of fees - also make sure your lawyer has done these deals on a very regular basis in the past - an experienced lawyer is ESSENTIAL.

These deals are about communication - lawyers must talk to each other and not write to each other and expect a reply in two weeks - THE DEAL IS NOW not tomorrow.

While the professionals talk, it is essential than you and the owner of the business talk and discuss problems thrown up by your respective advisors - that click must remain.

The longer these deals remain in lawyers hands the more the chance of failure - the lawyers still expect to be paid deal done or fail

9 Moving in
Expect and demand a planned handover to minimise the disruption - people do not LIKE CHANGE .

Staff : you are to be introduced by the old owner as the eventual successor to the old owner - the old owner will remain around as part of the handover - hold yourself out as a positive captain who will not be changing the way things are though, in due course, efficiency changes may be to everybody’s benefit. And do not march in on Day One and sack anybody - you are buying a team, not breaking it up.

Customers : Major customers may have to be personally introduced to you by the retiring owner - agree a plan with the retiring owner. When meeting customers, emphasise three keys points i.e :
1 the old owner still there ~ 
2 any problems - both old and new owners will listen ~ 
3 you value their custom

Suppliers : as per customers - meet major suppliers and establish the supply chain 
as you wish to grow your business and theirs will obviously benefit .


10 Exit plan
Give yourself targets.

And remember ....
one day in the future you will no longer be the buyer of a business, but the seller of a business, and you will wish to sell your business,

and remember ....
how a buyer will approach you, just like you approached that seller many years earlier,

and remember ....
be prepared - a buyer just may appear tomorrow offering you a fantastic profit,

and remember ;

1 Where to look
2 What to look for - goodwill and more
3 Getting prepared 
4 Meeting the owner(s)
5 3 Golden Rules
6 Meeting number 2
7 Making the offer
8 Making the deal
9 Moving in
10 Exit plan .

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