Many Business Owners will utilize a professional business broker to help sell their business. Many prospective business buyers may hire a business broker to help them in their quest to find and buy the right business. The perspective of a business broker will be different from the perspectives of both the buyer and seller.
The business broker has the perspective of being involved with reviewing many businesses and speaking with many prospective buyers and sellers. A “normal” business buyer or business seller may only buy or sell a business one time in their business life. But what sort of business would a business broker buy if he/she were buying a business?
- What Business would a business broker buy?
- Would a business broker buy a franchise
- Would a business broker choose to start a business
- Would a business broker decide due to current market conditions to wait and defer the decision to buy a business until the economy improves
Just as every business buyer will have their own set of criteria for evaluating and making a business acquisition, every business broker will have their own criteria they deem as important. As a business broker based in Florida, and former business owner ,I always look at businesses for sale from the perspective as a prospective business buyer and ask myself “Would I buy this business at this price if I was buying it?”. And if I ran across a terrific business opportunity that is a great value, that met my lifestyle and financial requirements, I may be a business buyer again.
Business Broker`s Criteria For Buying A Business
What are the few basic conditions I would most look for in today`s business environment.
- Motivated Seller– I recognize the Seller really needs to want to sell. Not that the Seller needs to sell, but rather WANTS to sell for what ever reason it may be. Selling ones business is a process. Many business owners have been doing a certain thing for a long time, and continuing to run a business vs selling may be “ the path of least resistance’’, Attempting to sell a business on a whim or buying a business from someone “kind of interested” in selling can be arduous . For me, there needs to be a strong “want” when selling a business.
- Seller Financing– I want to buy a business that offers Seller Financing. When Seller Owner holds a note on the business he has a vested interest in your success. To avoid not going thru a bank or other lender holds a high value to me and would be my first choice.
- A Good value relative to asking price as a multiple of adjusted cash flow. A higher multiple may be ok but must be quantifiable.
- I would be willing to buy a business that has poor financial records yet feel numbers can be substantiated. I recognize different small businesses handle their “accounting” in so many different ways, and if I can find good value does exist within a a company with poor records , I would have further interest. Some business buyers may be less comfortable when records on the surface dont make sense.
- Recurring Income- Strong recurring revenue would be important to me. Am I walking into ongoing sales or am I going to have to go out and get new sales each and every month. And what is the cost to get that new business.
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“A Rising Tide Raises all Ships. ” Now is a good time to buy a business. As the economy improves, I feel value will be realized. The process of buying and selling a small business requires certain individual criteria to be met. My criteria will be different than the next persons. What is important to others may be similar to the above criteria. But if you are looking to buy a business you need to outline what is important to you.
Great post, Scott. What do you feel is the correct multiple for a business with a SDC of $200,000 ?
Paul- the type of business and industry have so much to do with Potential sale price of a business. And that changes over time. Certain Technology, Medical, Manufacturing type businesses may sell for different multiples than service businesses or restaurants. SDE of 200k is a nice number. While multiples may vary according to geography location, you can look on my site and search for “like” businesses to see what they are attempting to sell for. thanks for checking in-Scott
Great post and a good way to look at businesses. Synergies is always something to try to take in to account as the buyer may be able to reduce some expenses or cross sell to customers which can increase the purchase price.