Business for Sale Info

Many business owners think that selling a business is like selling a house. They put a price on the business that they think it is worth, they increase it to have room for negotiation and they start looking for buyers. If a buyer comes with an offer, they negotiate to the last penny to get the maximum price. A motivated buyer facing a lack of information on the business is tempted to reluctantly accept any price and put a conditional offer on the business that satisfies all the seller’s demands. The buyer’s reluctance creates some negative emotions early in the relationship. Naturally, the buyer will put a very broad condition on the offer to protect him/herself. Such Conditions include satisfactory due diligence, buyer satisfaction with the business financial records, tax fillings, profitability, level of sales at his/her own discretion. The buyer is willing to pay the price asked for only if the business matches the perfect image painted by the seller. This very rarely happens. Most businesses are imperfect and most sellers overstate the magnificence of their businesses.

Unfortunately, when the buyer starts his/her due diligence, they discover the imperfections and start having second thoughts. The negative emotions initially developed flourish and the relationship comes to an end. At the end, the seller has wasted tremendous time and effort explaining his/her business to the buyer, the market interprets this failure as a negative signal about the business, which makes it a very hard sell in the future. This is a scenario I have seen frequently as a business broker and I believe it could be avoided.

Selling a business is definitely not like selling a house. After a buyer has seen a house, he/she knows a lot about it, a simple home inspection and some lawyer due diligence can easily show imperfections, so buyers make informed decisions when putting offers. Houses sell much more easily than businesses and don’t stay as long in the market. Businesses on the other hand are much harder to sell and finding the matching buyer takes longer. Furthermore, business buyers are in the dark when they make offers. Because of confidentiality reasons, sellers won’t give away much information about the business before the buyer shows his/her seriousness by putting an offer. For these reasons, negotiating the purchase price for a business should not be very tight. Buyers and sellers should both feel they made a good deal with no hard feelings from any party. This is because the actual sale doesn’t happen at the time of the offer negotiation but happens only after due diligence

When the previous mistakes are made, the result is almost certain: the deal doesn’t close. The seller and buyer have wasted their time, effort, money on lawyers and accountants and the business is not sellable anymore.

Therefore, to be successful in selling your business:

1. Put a reasonable price on it.
2. Find the right business broker that your can trust.
3. Agree with the broker on a commission everybody feels is fair.
4. Be willing to negotiate with the buyer and understand their perspective.
5. Give the buyer a realistic picture of your business with no over statement.
6. Be very cooperative during the due diligence period and help the buyer make the right decision.
7. Most importantly, be very honest because when selling a business you just can’t fool a buyer.

One of the first questions my clients frequently ask me is the types of businesses that are for sale in the market. I personally see two distinct categories:

Liquid businesses for sale: by liquid, I mean businesses who sell very frequently. Supply and demand for this type of businesses is high. It is generally easier for a potential business buyer to locate and purchase such businesses. This category includes restaurants, fast food businesses, Laundromats, dry cleaning businesses, gas stations etc.
These businesses are generally in high demand because they represent a very good alternative to the job market for new immigrants. Most these business do not require extensive language skills and are perceived to be easy to manage. Moreover, business buyers can employ their whole family including younger children which will not only save them a lot of money on wages but will also make it easier to control the business; it is always easier to trust family members than complete outsiders.

While having some real advantages, this type of businesses has some serious disadvantages:

1. Relatively higher price than other businesses (or lower returns): Because these businesses are easier to sell and buy, they are generally sold at higher prices. The increasing immigration numbers and the need for new immigrants to make a living, increases demand for this type of businesses and increases prices as a consequence.
2. Longer working hours: most of these businesses are in retail, they lack processes to control prices, inventory, and costs, and have a large cash sales ratio. As a consequence, these businesses require owners to be constantly present to avoid theft and other loses.
3. Difficulty to grow: because of the owner’s need to constantly supervise the work, these businesses are difficult grow. Growth needs even more supervision and there is only so much the owner can do in a day.
4. Extreme competition and lower profits: Most of these businesses have very low barrier to entry, which increases competition, lowers prices and decreases profits. The owner end up working more and more for less and less profits.

Unique businesses rarely for sale: Most other businesses require specific skills to manage. As a result, there is a very limited pool of business buyers who can purchase them and manage them. These businesses are not generally in the market because owners realize that it will be difficult to find a buyer that will be a perfect match. Owners end up either selling to one of their employees or family members or shutting the business down when they want to retire. The recent development of the business brokerage profession in Canada is providing an alternative to these business owners by enabling them to search for the “perfect buyer”.

For a potential business buyer looking to buy a business, this type of businesses presents huge advantages:

1. This type of businesses will be generally less expensive to purchase and will provide higher returns to the right buyers: because of the limited number of buyers who will be a good fit, demand for these businesses is lower and prices are lower as a consequence.
2. These businesses are more profitable and have lower competition: Because these businesses require specific skills, it is harder for competitors to imitate the business and as a consequence competition is lower and margins are higher.
3. Lower risk: because these businesses have lower competition, the risk of losing customers after the purchase is much lower.
4. More interesting work: These businesses are all unique in some sense and require permanent thinking and learning. Every day is different, every customer and every project are different. It is challenging and interesting.
5. Bigger potential for growth: Because they are unique, these businesses offer some real value to their customers and can grow dramatically with the market growth.

This type of businesses has however some disadvantages for the business buyer:

1. The business purchase process is lengthy, difficult and requires a lot of persistence: Business owners understand that they are selling their business at a relatively low price and might have second thoughts about selling many times during the process. This makes it a hard experience for buyers. After spending plenty of time and money (accountant and lawyer fees) deals might not go through and buyers might need to start looking for another business to purchase.
2. The risk of not been able to understand the business and fail to reproduce the past business model: Because this type of businesses is based on the specific skills of the previous business owner, the buyer might not be able to continue to present the same value to customers and the business might fail after the purchase.

For more information on how to purchase a business, you can check our Business Buying Process. If you are interested in buying a business in Toronto GTA and other surrounding areas in Ontario, Canada, please check our businesses for sale:

Liquid Businesses: Restaurant in Toronto, Fast Food Franchise, Convenience and Variety Store

Unique Businesses: Structural Metal Fabricating, Snow Plowing Business, Tire Recycling, Event Decor, Health Food Retail, Senior Clothing Concept, Transportation and Trucking, Manufacturing Promotional Items, Custom Machine Shop, Belly Dancing and Fitness.