One of the most important services business brokers perform for our clients is screening and qualifying prospective buyers.  Unfortunately, many buyers are their own worst enemy when searching and negotiating for a business acquisition.

“My advice to the individual buyer,” says Frank Orlando, an experienced Milwaukee business broker, “is to spend some time developing your search criteria and be realistic and honest with yourself, the brokers you speak with, and the potential sellers you engage.

“For most individual buyers the purchase of a business may be the largest single investment of their lives, in most cases greater than their home or any real estate transaction.

“Even more important,” he says, “this investment is more than likely going to be your primary source of income. That said, you need to understand what your buying power will support. When you’re straight forward with the broker, he can point you to the right deals that fit your investment criteria and your income needs.”

The two biggest mistakes buyers make, in my opinion, are attempting to remain anonymous and being stingy with their financial information.  I often receive non-disclosure agreements with only first names, no telephone numbers, and blank financial information.

These buyers may be fully qualified and suited for the business, but they won’t get any further because they were not forthcoming with critical information.  This information could tell the broker if the business is right for the buyer, or inform him that it will not meet his buying criteria.

This sounds elementary, but it’s often overlooked until after the buyer has searched for months or years looking at deals they could not realistically complete.

Here are some quick Dos and Don’ts that will make you a more effective buyer:

Do:

1. Accurately disclose your financial information, including if possible a financial statement and even a credit report if you are seeking owner financing.  Your broker will protect your confidentiality the same as he protects the sellers.  It also establishes you as a “real” potential buyer. 2. Clearly indicate the types of businesses you are NOT interested in.  It is rare that buyers buy the kind of business they thought they would when they began their search. 3. If you will need SBA financing and have had some prior credit, legal, or other issues such as DUI or bankruptcy, you should first get pre-qualified for SBA financing with an experienced SBA lender.  Clearing up these issues can take 9 months or more.  No seller is going to wait that long, so take care of these issues before you start your search. 4. Respond and communicate in a timely manner whether you’re working with a broker or a seller, so they know what you’re thinking, and what your concerns are.  If you have a problem or a concern, don’t make up your mind without discussing it with your broker. 5. Make an offer on any business you really like, even if your offer is a fraction of the asking price.  This may seem odd to you, but it works.  Many owners ask unrealistic prices but are willing to take less.  You could pass up an opportunity by not making an offer. 6. Network with brokers and let them know your search criteria, and update them regularly as your situation changes.

Don’t:

1. There is a proper place and time to discuss and negotiate price, and it isn’t on your first contact with the broker or the seller.  No one can form an intelligent opinion based on listing information. 2. Do not violate confidentiality.  This includes talking to the owner in front of his employees, or talking to his competitors, or doing anything else that would reveal to others that the business is for sale. 3. Do not misrepresent or exaggerate your resume, skills, background, or abilities, because most people can see through people who play that game.  Don’t tarnish your credibility. 4. Do NOT talk about price and terms with the seller, if you’re working with a broker.  Negotiating price and terms with the broker at arm’s length will keep relationships friendly between the buyer and the seller. 5. Don’t do all the talking.  Prior to the meeting, create lists of questions that clearly indicate you have read the information that has been provided to you.  Read all the information you receive.  Asking for an offering memorandum weeks after you first received one indicates you’re really not serious. 6. Don’t attempt to renegotiate price and terms after an agreement is reached, unless you have a valid reason based on your due diligence.

If you need immediate ideas or advice, click to contact me now.

Buying a business doesn’t have to be hard and confusing.  There are several steps to buying a business. If you follow them, you’ll have a smooth journey. If you don’t, you may not reach your destination.

1. Work with an experienced intermediary. An experienced and competent business intermediary can save you lots of wasted time and frustration by negotiating at arms length between you and the seller. This ensures you both are satisfied with the price you agree to, and you avoid any personal conflicts during negotiations. They know what you need to do to purchase the business that will work for you.

Occasionally, their suggestions or ideas may seem odd to you, but they work. You won’t ever be pressured to make a decision, but they know the decisions you must make. They walk you through those decisions in the proper sequence. If you don’t follow the proper sequence, you’ll end up frustrated and will not be able to get the vital information you need to make the final decision to buy, or not to buy, a particular business.

2. Buyer Registration / Non Disclosure Agreement: The most important thing you need to know is that you cannot remain anonymous if you want to get information about a business. You must be up front about who you are and what your financial resources are. In other words, you must be qualified, and you must be willing to prove that you are qualified. Otherwise, a business intermediary cannot show you the confidential information about a business because of his fiduciary and legal obligations to the seller prevent him from doing so. Until you complete this step, you will not be able to obtain any substantial information, except some very general information that reveals the type, size, and the general location of the business. So . . . complete in every detail a Buyer Registration / Non Disclosure Agreement including complete and accurate financial information.

3. Meet with the intermediary, preferably in person, to discuss the opportunity.

4. Review the Business Brief: You will be given a detailed brief on the business. After reviewing the it, you will know if you’re interested in learning more. At that point, you probably will want to schedule a meeting with the broker, the seller, and yourself, where you can ask the seller any questions you want to ask. One exception: Don’t ask about price or get into negotiations. It is much too early for that, and doing so will likely kill the deal. After all, the seller knows virtually nothing about you at this point.

5. Submit a Letter of Intent: After your preliminary evaluation of the information provided by the seller and the intermediary, you are ready to take the next step–submitting a letter of intent or an offer to purchase. The intermediary will show you how to write a no-risk offer or a letter of intent that will protect you, the buyer. You will be able to withdraw at any time your contingencies are not met and satisfied.

This is an important decision, but don’t view making an offer as a final decision. It’s just your first move and you may withdraw at any time, because we show you how to make an offer that protects you.

You should make an offer when you have seen the business, visited with the owner of the business and determined the business may be right for you. This is probably the only way you will be able to learn all you need to learn about the business. Most small business owners are reluctant to reveal details of their business until they know they have a potential buyer with a genuine interest in their business, and have the ability to buy it and run it successfully. Also, why spend all the time and effort to research the business only to find out that you and the seller cannot agree on the price and terms?

Make an offer – it works! You are at absolutely no risk – you can terminate your offer and get your deposit back any time you wish, unless you have instructed the intermediary to prepare closing documents.

6. Perform your “due diligence.” If your letter of intent, or purchase offer, is accepted, you will be able to make a closer investigation, view actual financial and other documents, and confirm to your satisfaction the validity of your offer. This is called the “due diligence.” If your due diligence isn’t satisfactory, you may withdraw your letter of intent or purchase offer, and your escrow payment will be returned to you.

7. Have closing documents prepared. I recommend sharing this cost with the seller. The intermediary’s lawyer will not argue the position of either party, but will draft legal documents to comply with the agreement the buyer and seller have reached. This will always save you legal fees. Your attorney can review the documents if you desire. In fact, I recommend it.

8. Close the purchase.

9. Begin your first day as the owner of your own business.

10. Your broker and the seller will assist you with an orderly transition.