How do I get businesses for sale marketed to me?
February 7, 2011 3:23 PM Subscribe
I am interested in buying an existing business. How do I find businesses for sale, and how do I get taken seriously?
I am interested in buying an existing business. I am young and eager and have little desire to work for someone else for a living. I have enough capital saved up to demonstrate to a partner or lender that I am serious, but not enough to purchase most businesses outright. I am worried also that it might not be enough to get taken seriously by brokers.
I am interested in purchasing something that is cyclically distressed, such as a cement company or similar. I am wondering what the best way to find local businesses "on the market" is. I am also worried that, due to my lack of capital, brokers might either not take me seriously. I also have no idea how to find business brokers.
What are the best brokers in the Chicago area? I know that larger businesses would generally use an investment bank to sell themselves. Is this also true for smaller businesses? If so, how do I get brokers/bankers to send me marketing materials and to take me seriously?
I am interested in buying an existing business. I am young and eager and have little desire to work for someone else for a living. I have enough capital saved up to demonstrate to a partner or lender that I am serious, but not enough to purchase most businesses outright. I am worried also that it might not be enough to get taken seriously by brokers.
I am interested in purchasing something that is cyclically distressed, such as a cement company or similar. I am wondering what the best way to find local businesses "on the market" is. I am also worried that, due to my lack of capital, brokers might either not take me seriously. I also have no idea how to find business brokers.
What are the best brokers in the Chicago area? I know that larger businesses would generally use an investment bank to sell themselves. Is this also true for smaller businesses? If so, how do I get brokers/bankers to send me marketing materials and to take me seriously?
the mad poster! makes valid points. Find something you love to do, because as an owner, you will be "owning" every waking moment, and at times you will feel quite alone. OTOH, you sound like you have the spirit...just use caution
posted by lobstah at 3:44 PM on February 7, 2011
posted by lobstah at 3:44 PM on February 7, 2011
Best answer: You "get taken seriously" in the business world by having a combination of money and expertise. One, without the other, might make you "interesting" in some situations, but together, money and expertise are the minimum qualifiers you'll need to demonstrate to bankers, suppliers (who you'll probably be asking for short term credit on normal 30 day terms, or more), employees, and government entities that you have the wherewithal and expertise to operate a business, make payroll, pay taxes, and survive to make (you hope!) a profit. If you have a little capital, but not enough expertise to find credible businesses for sale, you probably should be looking for an experienced and solvent partner, or co-stakeholders in various multiple equity sharing arrangements like sub-chapter "S" corps, LLC, or partnerships, to augment your understanding of business and basic finance. To imagine yourself going it alone, bravely, in the business world, undercapitalized and inexperienced is violating Rule 1 of small business success: Minimize Risk, Where Possible.
That hard pill passed, you can and should form a "private acquisition team" if you are at all serious about buying a small business (under $25 million annual turnover). At a minimum, that would include establishing a relationship with an attorney competent in business law, a CPA, a commercial banker, and possibly, a business broker. Many CPA firms, and most commercial bankers will be well aware of reasonable businesses for sale due to succession issues, estate planning, or other owner-motivated reasons, simply from doing client work in the community; thus, you might not need to involve a business broker, possibly saving commission (but saving a few percent on commission is not a sufficient reason to shy away from brokered businesses). Moreover, getting yourself in front of bankers and CPAs you can trust to be frank about your prospects is vital to developing resources for implementing Rule 2 of small business success: Never Bullshit Your Banker, Your Lawyer, Your CPA, or the Tax Man. What you learn in getting started with these folks could well determine, at little or no early stage cost, whether your dream of small business success is at all viable.
Finally, explore free community resources for business advice and planning such as SCORE.
posted by paulsc at 3:46 PM on February 7, 2011 [2 favorites]
That hard pill passed, you can and should form a "private acquisition team" if you are at all serious about buying a small business (under $25 million annual turnover). At a minimum, that would include establishing a relationship with an attorney competent in business law, a CPA, a commercial banker, and possibly, a business broker. Many CPA firms, and most commercial bankers will be well aware of reasonable businesses for sale due to succession issues, estate planning, or other owner-motivated reasons, simply from doing client work in the community; thus, you might not need to involve a business broker, possibly saving commission (but saving a few percent on commission is not a sufficient reason to shy away from brokered businesses). Moreover, getting yourself in front of bankers and CPAs you can trust to be frank about your prospects is vital to developing resources for implementing Rule 2 of small business success: Never Bullshit Your Banker, Your Lawyer, Your CPA, or the Tax Man. What you learn in getting started with these folks could well determine, at little or no early stage cost, whether your dream of small business success is at all viable.
Finally, explore free community resources for business advice and planning such as SCORE.
posted by paulsc at 3:46 PM on February 7, 2011 [2 favorites]
Talk to someone at the Small Business Administration office near you. Also look into SCORE.
posted by mullacc at 3:46 PM on February 7, 2011
posted by mullacc at 3:46 PM on February 7, 2011
Best answer: I once bought a retail business, ran it for 5 years, sold it at a profit. I was pretty familiar with that type of business, but had to learn how to be an employer, deal w/ business taxes, hire bookkeepers, accountants, commercial landlord, etc. People can and do buy businesses that they aren't specialists in; it's just a lot harder. I also see lots of people start businesses in fields they know well, and fail due to lack of capital, unrealistic expectations and bad location.
I bought through a business broker because the seller had a broker. Broker was a nice guy; did little real work. I found the business, the broker didn't find me. Brokers contacted me about selling the business; very little professional expertise was evident. Business brokers charge 10% commission, or they did 20 years ago, in Maine.
I found the business through my personal network of friends. Develop your network. Join the Chamber of Commerce, Kiwanis and/or other networking groups. If you hear that the Smith family's cheese factory is in trouble, make an appt., get a balance sheet, assess the customer base, look at the physical plant, assess the suppliers. It's a lot of work, and it will vary by business. There are growing markets for 'green' and organic products that are local, so a cheese factory that gets its milk locally from cows not fed rGBH has some potential. If you buy an existing business, you get relationships with vendors, expertise from staff, a physical plant that may not be pristine, but is a sight cheaper than brand new, and can be upgraded later, and a business that is operating. In my case, these benefits were enormous. If there's a business that comes to your attention and you think it might be a sleeper, waiting for some new energy, call them up, ask to meet, and ask if they want to sell the business or a partnership. Businesses vary far more than houses, buying one is not formulaic.
Ben & Jerry started their ice cream empire with a mail-order how-to guide. Many things can be learned. It's more work than you think, way, way more work. I found that work pretty fun a lot of the time. And I value it as much as an MBA, though the marketplace foolishly does not.
posted by theora55 at 4:26 PM on February 7, 2011
I bought through a business broker because the seller had a broker. Broker was a nice guy; did little real work. I found the business, the broker didn't find me. Brokers contacted me about selling the business; very little professional expertise was evident. Business brokers charge 10% commission, or they did 20 years ago, in Maine.
I found the business through my personal network of friends. Develop your network. Join the Chamber of Commerce, Kiwanis and/or other networking groups. If you hear that the Smith family's cheese factory is in trouble, make an appt., get a balance sheet, assess the customer base, look at the physical plant, assess the suppliers. It's a lot of work, and it will vary by business. There are growing markets for 'green' and organic products that are local, so a cheese factory that gets its milk locally from cows not fed rGBH has some potential. If you buy an existing business, you get relationships with vendors, expertise from staff, a physical plant that may not be pristine, but is a sight cheaper than brand new, and can be upgraded later, and a business that is operating. In my case, these benefits were enormous. If there's a business that comes to your attention and you think it might be a sleeper, waiting for some new energy, call them up, ask to meet, and ask if they want to sell the business or a partnership. Businesses vary far more than houses, buying one is not formulaic.
Ben & Jerry started their ice cream empire with a mail-order how-to guide. Many things can be learned. It's more work than you think, way, way more work. I found that work pretty fun a lot of the time. And I value it as much as an MBA, though the marketplace foolishly does not.
posted by theora55 at 4:26 PM on February 7, 2011
Can you give a general idea as to a ballpark figure for the money you have saved? I think that's going to inform people's advice a lot.
posted by iknowizbirfmark at 5:37 PM on February 7, 2011
posted by iknowizbirfmark at 5:37 PM on February 7, 2011
Response by poster: Enough to buy a house outright or put myself through college, approximately.
posted by prunes at 5:51 PM on February 7, 2011
posted by prunes at 5:51 PM on February 7, 2011
Best answer: "Enough to buy a house outright or put myself through college, approximately."
posted by prunes at 8:51 PM on February 7 [+] [!]
Eh, then, somewhere between $50K and $200K, I'd guess, seeing that your blog identifies you as someone who lives in Chicago. If you're at the top of that range, and could find a business for sale at the historical average of American private business leverage (meaning 1:1 equity to borrowing), you could afford a business with a net annual turnover of about $400,000. Even with generous after-tax profit margin assumptions, it is hard to imagine any such business that could reasonably support a single individual in Chicago, on profit. You need partners/investors/co-equity before you'll likely go far, absent some utterly unique wrinkle, or your willingness to live like a monk indefinitely, or your knowledge of some secret cement formula that will utterly revolutionize the Chicago market.
In the middle of the go-go 1980's, I and three partners did a leveraged buyout of a business unit we all worked in at a leverage ratio of 13:1, meaning that for every dollar of equity we put in, our bankers put in $13. You simply won't find those kind of leverage deals today, unless the current owner and his banker are both heading to prison for life terms, and your brother-in-law banker is willing to step in, based on some dossier you have on him, that your sister would kill him over, if she read it. What made our deal work was that we proved to the bank that 65% of our total income streams had averaged an incredible 72% gross profit margin, over the previous five years. (It was a mature, specialty machinery business, and people will pay damned near anything for spare parts needed to put production machinery back into operation.) IOW, we were buying a money printing press, and the bank was pretty cordial.
Get a commercial banker, and maybe a CPA. $200K is nothing to sneeze at, but you obviously need help with basic finance and ratio analysis.
posted by paulsc at 6:24 PM on February 7, 2011
posted by prunes at 8:51 PM on February 7 [+] [!]
Eh, then, somewhere between $50K and $200K, I'd guess, seeing that your blog identifies you as someone who lives in Chicago. If you're at the top of that range, and could find a business for sale at the historical average of American private business leverage (meaning 1:1 equity to borrowing), you could afford a business with a net annual turnover of about $400,000. Even with generous after-tax profit margin assumptions, it is hard to imagine any such business that could reasonably support a single individual in Chicago, on profit. You need partners/investors/co-equity before you'll likely go far, absent some utterly unique wrinkle, or your willingness to live like a monk indefinitely, or your knowledge of some secret cement formula that will utterly revolutionize the Chicago market.
In the middle of the go-go 1980's, I and three partners did a leveraged buyout of a business unit we all worked in at a leverage ratio of 13:1, meaning that for every dollar of equity we put in, our bankers put in $13. You simply won't find those kind of leverage deals today, unless the current owner and his banker are both heading to prison for life terms, and your brother-in-law banker is willing to step in, based on some dossier you have on him, that your sister would kill him over, if she read it. What made our deal work was that we proved to the bank that 65% of our total income streams had averaged an incredible 72% gross profit margin, over the previous five years. (It was a mature, specialty machinery business, and people will pay damned near anything for spare parts needed to put production machinery back into operation.) IOW, we were buying a money printing press, and the bank was pretty cordial.
Get a commercial banker, and maybe a CPA. $200K is nothing to sneeze at, but you obviously need help with basic finance and ratio analysis.
posted by paulsc at 6:24 PM on February 7, 2011
You sound young and ambitious: You can very effortlessly piss all of your money away into any scheme any investor entices you into.
Really, you oughtta pick a line of business which you are curious about, and apply for a bottom rung job as an employee to learn the process. If the process makes sense to you, then you'll be more informed about investing in this field.
I am young and eager and have little desire to work for someone else for a living.
If you want to own a successful business, then working for someone else first is really good experience in how to make a business work.
posted by ovvl at 6:42 PM on February 7, 2011
Really, you oughtta pick a line of business which you are curious about, and apply for a bottom rung job as an employee to learn the process. If the process makes sense to you, then you'll be more informed about investing in this field.
I am young and eager and have little desire to work for someone else for a living.
If you want to own a successful business, then working for someone else first is really good experience in how to make a business work.
posted by ovvl at 6:42 PM on February 7, 2011
If you have web marketing savvy, I recommend checking out Flippa.com, which is an auction site for websites and domains. Spend a month or two perusing listings before bidding to become familiar with the system, types of posts, and common scams (there are a lot).
Once you figure it out though, you can find some good deals on there for all price ranges (including <$500). I am in the middle of purchasing an ecomm business right now that needs some development work, but I sense good value in it and it was <$10k. You really need to know how to research websites and businesses well to make smart decisions there otherwise you'll get scammed hard.
posted by Elminster24 at 12:29 AM on February 8, 2011
Once you figure it out though, you can find some good deals on there for all price ranges (including <$500). I am in the middle of purchasing an ecomm business right now that needs some development work, but I sense good value in it and it was <$10k. You really need to know how to research websites and businesses well to make smart decisions there otherwise you'll get scammed hard.
posted by Elminster24 at 12:29 AM on February 8, 2011
Check out http://www.bizbuysell.com/
posted by Spyder's Game at 12:51 PM on February 8, 2011
posted by Spyder's Game at 12:51 PM on February 8, 2011
This thread is closed to new comments.
posted by the mad poster! at 3:30 PM on February 7, 2011 [1 favorite]