Buying a Business – Our Personal Insider Tips
You can look at hundreds of businesses and only find a few that meet your investment and lifestyle goals. There is a ton of info already available online but we hope you’ll agree that our sharing of our own tips and insights is a more intimate glimpse into what to look for, do, and not do. We feature lots of good businesses to start on your own on a frequent basis as well so if you have more of a bootstrap mentality and want a fresh start visit that page. Buying a business has lots of advantages; faster timeline to cash flow, tweaks and improvements can create more revenue, and you get to fix things instead of starting at the very beginning and doing everything yourself.
First-Time Business Buyer Traps…don’t fall for them
Your feelings on our strategy may be different, but thought it would be helpful to know what we as experienced business buyers and seller do our best to avoid.
Don’t Buy a Job! The most important thing is to not buy yourself some piddly salary, doing an annoying task…but rather focus on getting a good return for time invested doing something you enjoy. Even if a business is very small you should get paid for your time in a reasonable and rewarding way and look forward to working in it or on it.
Don’t Buy Stress! If a business seems like it might be stressful, dangerous, risky, or not quite legitimate, go with your gut. No matter how lucrative the offering, stress will ruin your enjoyment of the enterprise.
What To Look for and What to Avoid – Narrowing Down Options
What We Avoid
These are our personal preferences, and may not fit you. We tend to avoid heavy capital outlay, products that carry elevated risk, and anything likely to result in an ever-diminishing return due to competitors slashing prices. There are lots and lots of options that don’t involve the following complications or potential pitfalls.
Large Inventory Requirements
Heavy Capital Outlay
Service Businesses Dependent on Personality and/or Skill of Prior Owner
Service Businesses Focused on a Vulnerable Population
Consumables including Food Products, Medications, and Supplements
Products Applied to Skin or Other Membranes
Overly Complicated Products
Fads or Trendy Services or Products
Dangerous Services or Products
Adult, Violent, or Misogynistic Services or Products
Asset Overpriced Due to Business Broker Commission
What We Look For
When you are browsing businesses for sale it helps to have a preset list of criteria so you don’t get sidetracked by businesses that just don’t fit your goals. Some of our criteria appear very strident, but in general we stick to them. A bit of latitude is given if we find a great business with a just a few things that fall outside our typical requirements.
Price < 12 Months Net Cash Flow (this translates to a multiple of 1 or less)
High Net Revenue per Employee
Minimal Training and Travel Investment for Successful Transfer of Knowledge
Quick Simple Closing Ideally 30 Days or Less
Feel Good About the Product or Service
95% of Sales Possible without Customer Interaction
Mostly Organic New Business Development not Expensive Media Buys
B to B Potential
Business Can Easily be Packaged and Resold if Desired
Next Steps When Buying a Business
Once We Find Something
Here’s where it gets interesting. You find a business that you’re interested in and begin to communicate with the owner about details of the operations. First things first, are they easy to work with and is the business viable long-term?
Prefer Dealing Directly with Owner
Owner Quick to Respond with Info and to Answer Follow Up Questions
Individual Owners Instead of Partnerships, Divorces, or Investor Shares Outstanding
Asset Sales not Entity Sales
Not Dependent on Just a Few Large Customers
Not Dependent on Just a Few Suppliers
Future Financial Results Expected to Match or Beat Current Results
Guesstimated Upside Potential via Operational or Marketing Improvements
Minimal Ongoing Investment of Our Time After Improvement Phase
Early Stage Pre-Contract Expectations
We try not to waste people’s time, or ours for that matter so things are looking pretty good at first blush if we’ve reached this stage. What we need now is a bit of verification and confirmation of our gut feeling that what’s being advertised or described by the owner is a good representation of the business that’s being sold.
Both Parties Excited About Moving Forward- warning sign if owner doesn’t seem happy
Competitor Research- keywords, ranking, media buying, product prices, discounting
Website Passes Plagiarism / Duplicate Content Checks
Online Account Activity– google search email addresses of owner and business, physical addresses, and phone numbers to uncover any potentially litigious or less than desirable online conversations, or content
Feel-Good Price and Terms Agreed without Arm Twisting Owner- you want the owner to feel really great about what you bring to the table, for them and their customers, with no sense of seller’s remorse or feeling cheated or tricked into selling for too little
Don’t Sign a Contract Yet!
Last Steps Before Moving Forward with Full Contract
We’re now at the point that not much else will be learned without insider access to the business. This step is separate because it’s actually a pre-courser to a real full blown contract with all the individual terms and requirements outlined further along in the process. If any of the information obtained during our quick pre-contract reviews sessions doesn’t check out with what the owner advertised or discussed, we simply request our deposit back and move on.
Small Good Faith Deposit Before Actual Contract
Deposit Letter- states specific high level numbers and processes being verified
Financial Review Session- includes access to live view of numbers and business activity to confirm seller representations, just a general, this feels good, not a detailed viewing
Webmaster Review Session- includes general website and social media review to confirm traffic numbers, country codes, and referrers, and organic vs media buys
OK with Deposit Forfeit- if everything checks out but we decide a no-go for us, we willingly forfeit our deposit as a show of courtesy to the seller who shared confidential information in hopes of a sale
Back Out Gracefully- if we decide not to pursue a business we tell the owner over the phone as quickly as possible, offer help if there is a way to do so, and make sure to NEVER share details of their business with others without their permission
Unlock Our Private Process for The Following Critical Categories
Business Improvement
Upside Potential
Purchase Process
Contract Inclusions
The Discovery Process
Contractual Due Diligence
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