Business for Sale Info

When presenting my businesses for sale to some of my potential business buyers, I can sens some frustration. Buyers expect all information about the businesses for sale to be handed to them by email with no efforts of their own. They also expect to receive a list of businesses with all relevant information so that they can sort the info in an organized table, rank the opportunities and pick up the best ones. I noticed that former corporate employees/executives looking to leave the corporate world and become their own bosses have the highest expectations. These buyers are looking for structure where there is very little structure, the small and medium size business for sale market!

The followings are some of the inefficiencies plugging the business purchase process and the reasons for these inefficiencies:

1. Information about the name, location and exact business activity are not provided by email or even over the phone: This is because the sale of a business is confidential, if business employees, customers, suppliers know about the possible sale, the business might suffer and lose some of its value. As a result, business brokers have to qualify potential business buyers and provide specific information only to buyers who are ready, willing and able and only after they have signed a non-disclosure agreement.
2. To receive additional information, buyers have to drive kilometers for a face to face interview with the business broker: Despite all the technological advances, this face to face interview is still required. While this seems old fashioned, it is still a very good way to test the buyer’s motivation about purchasing a business by asking them to spend time and gas before getting information about the business. Furthermore, it’s difficult to imagine how somebody can buy a business over email or phone. A face to face interview is a unique opportunity for the broker to understand the buyer and build a trust relationship that could eventually lead to a sale.
3. Financial information are not always available and rarely reflect the profit numbers claimed by the seller: First, financial statements for small to medium size businesses are prepared mostly for tax purposes and are targeted at minimizing the amount of tax to be paid to the government. They are not meant to show the business at it’s best lights. For this reason, financial statements have to be normalized to reflect the real profit of the business. Second, for obvious confidentiality reasons, most business owners are reluctant to show their financial statements to a potential buyer at the first meeting. They want to sens that the buyer is a genuinely interested in the business before providing the financials. Some owners would even require a conditional offer on the table before providing these financial statements. Finally, some business owners have simply not taken the time to put their businesses in order and prepare financial statements before putting the business for sale. This doesn’t necessary mean that the business is not a good opportunity.

Purchasing a business requires patience from potential business buyers. It is very noticeable how buyers’ expectations and attitudes improve when they spend time investigating the business for sale market and they become more knowledgeable about the process. Understanding the business purchase process will save potential buyers a lot of wasted time and frustrations and will maximize their chances of purchasing the right business.

Most buyers inquiring information about my businesses for sale think that buying a business is like buying a car. You just need money. With more money, you buy a better car. Unfortunately buying a good business is not so easy.

Two years ago, a serious buyer came to my office inquiring about one of my businesses for sale. He seemed such a good fit for that business, so I arranged a meeting for him with the owner. The meeting was excellent and the seller liked him.  We received a reasonable offer from this buyer and after multiple meetings involving the seller’s accountant, lawyer and tax expert as well as the buyer’s lawyer and myself, we agreed on most issues. After the due diligence was satisfactory and the buyer had spent more than $12,000 in legal fees and a few months of negotiation, the seller decided that he would be better-off giving his business to his son instead of selling it, which son he hadn’t seen for the last 10 years because of a family conflict. I asked to talk to the son and learned from the son that he was obliged by his father to take the business over even if he had no interest in it. He even told me that his father said he would disinherit him if he refuses to take over the business. it was an obvious case of seller’s remorse situation that I hoped would be resolved by giving the seller some more time to think about it. I suggested that the seller tests his son for at least 3 months before giving him the business.

As I expected, the son could not manage a business he disliked and the seller contacted me back to sell the business again. Fortunately, the buyer had not purchased a business yet and was still interested in the purchase. A few months down the road the seller got another episode of seller’s remorse and decided to hire a manager for the business instead of selling it. This was a 70 years old seller who had been working his business for the past 40 years and simply could not let go. This was the second time this was happening to the buyer whose legal bill was becoming very high with no result. What amazed me the most in this unique situation is how the buyer was sticking to his desire to purchase this particular business. The buyer didn’t have any particular knowledge of this industry or any special technical skills that could help him in this business but he was incredibly enthusiastic about it. This same buyer kept calling me every other week asking if the seller would reconsider selling again. After a few months, the seller again decided to sell and as expected the buyer was there still trying to purchase the business. Needless to say that the few following months were not easy for the buyer because the seller’s right mind was looking for new reasons not to sell but finally the buyer’s determination ended up winning. The whole process took 18 months and the deal closed. I am still in contact with both the seller and buyer and both seem very happy with this deal.

This story might seem very unusual but it’s not. Most sellers experience some kind of seller’s remorse at some point of the transaction and many deals fall through because of that. Buyers have to keep that in mind when purchasing a business. Unfortunately, buying a business is much more complicated than buying a car!

As the potential purchaser of a new business, you have a lot going on from the moment that you make the decision to purchase an existing business to the moment the “doors open”. Then the real work begins of making that business a success and if you’ve done it before, you know that is going to take a lot of care and nurturing.

So what can be done to help you through the jungle, out the door, and on with your operations? Consider assistance from a technology advisor early in the process BEFORE you complete the deal. For one thing, you want to hit the ground running and know your processes before you step up to the starting line. The operation of your new business is like a young child … it requires a little planning, making sure that things are in place before the baby arrives.

Does your potential new business have any accounts receivable? I once helped the owner of a large company buy a small business that they intended to roll into a larger business. I went with one of the owners family members to examine the computers that contained the accounts receivable. They wanted to be sure the computer was ok, that backups existed, and they wanted to know if the existing system could continue to be used going forward. I discovered quite a bit more than we bargained for by going a little bit beyond the hardware.

Early due diligence and attention to details can save you a lot of grief later. I had some background in university in accounting and had supported accounting systems for several years, so I took a closer look at the data. At first, the names of the advertisers were amusing. Later on, they stopped being amusing as there were so many odd and funny names that it suddenly crossed my mind that it seemed the names were made up. So I started looking at the customer records and started doing a few phone calls. In the end the result was an accounts receivable that was many thousands of dollars lower than advertised. In this case, it was a sales person pushing through ads in the system that didn’t exist. I also noticed that a fairly high number of receivables were more than 90 days. 30 days earlier the receivables looked a lot better.  The real catch was that the receivables looked ok when printed out on paper and scanned by an accountant, but the paper didn’t tell the whole story.  The sale went through but at a significantly reduced price.

Make sure you understand the history of any assets you are purchasing. A few years ago when a company was being purchased, I found out that the systems that were being purchased as part of the existing business were older than advertised and had already been written off to the point that if the new owner also attempted to write them off, she would have been exposing herself to a CRA audit.  In another case, I walked into the offices of a new client and sat down to work on a computer. The computer had an ID tag on it that indicated it belonged to one of my other clients! Turned out the new client was serviced by a consultant who suddenly left the country. That consultant had taken the computer from the first client’s office to the second one and nobody was the wiser.

The lesson here is to get clear ownership identified of all equipment you are inheriting as well as clear documentation about that equipment, when it was bought, how much it cost and whether or not the purchase was capitalized. And don’t forget to check for any existing warranty or service contract that is place, when it expires, what the renewal price might be, and so on.

You also need to clarify ownership of any software on those computers. Whatever software you are getting with a business purchase, you want to make sure that the ownership is transferred properly to you as well as any existing unused support contracts that the previous owner may have signed. There are a number of pitfalls that, unfortunately can cost you a lot of money to correct. I’ve seen business owners who have closed deals to buy a business assuming that the software on the computer was their own since they bought the computer. If this software is in any way unique or critical to the business you may not be able to get a critical update from the vendor without buying the software all over again. I’ve seen a case where the operations software had to be repurchased at a cost of thousands of dollars and this problem came to light when a patch was required from the vendor meaning the owner was penalized not just the costs, but the delay in getting the software working again while the licensing was covered off.

Stewart Francis, the founder of IT Roadmaps Inc, has helped owner-managed companies understand the value of technology processes and provides IT Management experience to small and medium sized businesses.  He can be contacted at 416-574-9675 Copyright 2008 IT Roadmaps, Inc.

In times of uncertainty, making a decision about buying a business becomes difficult. Some Potential buyers continue to screen businesses for sale to find the perfect match but at the time of making an offer on the elected business, indecision becomes overwhelming. These buyers experience an analysis paralysis period when they simply can’t make a decision.

There are obvious reasons to this indecision:

• Some buyers might believe if there is a deep recession prices for businesses will go down. Waiting might be the best decision.
• Some buyers might fear that the economy collapses completely and customers leave after the closing.
• Other buyers might prefer to make safer investments such as bank saving accounts or GIC’s.
• Some are simply paralyzed by the media hype about recession and can’t make any decision.

These reasons should not stop motivated buyers to acquire their dream businesses and change their lives:

First, in times of recession massive corporate layoffs put thousands of corporate executives in their mid forties and fifties out of the job market with a very small likelihood to find other suitable jobs. Buying a business becomes a very good alternative for these corporate victims. As a result there are more potential business buyers in a recession than in very good times. Therefore, prices for small and midsized businesses generally don’t decrease in a recession. Waiting for prices to decrease is obviously not a good idea.

Second, a recession is defined by two consecutive quarters with negative growth. In most recessions in the past, growth was slightly negative during a limited time period (generally 6 months) and then the economy starts growing again. In most cases economic growth slows by no more than 4% on average. This is not a huge number and on average will not dramatically change the prospects of the average business. Naturally, some businesses will continue to grow and be more profitable in times of recession and others will suffer dramatically (much more than average). This simply means that business buyers should look into businesses that will not be dramatically affected by the economic slowdown. Moreover, a good business is a good business irrespective of recession. Warren Buffet, the second richest man in the world, recently declared that his investment strategy will not change despite the recession in the US.

Third, investments perceived to be the safest are generally not so safe and are described frequently as the worse investment one can make over the long term. These investments generally produce very low returns, which after paying taxes end up below inflation rates. Investors are actually losing money when investing in these vehicles. Is losing money and knowing it in advance safe? Absolutely not. Moreover, investing your money doesn’t give you a job. If you are looking to be your own boss and doing something you enjoy doing, putting your money in a saving account will certainly not help you achieve your goals.

Finally, the media hype should not affect our determination to shape our own destiny. The media will continue to present events in a way that attracts people and humans are attracted by dramatic events. So the media has a tendency to dramatize events, especially those that affect our lives such as economic events.

People who are focused on success and have the character and personality to pursue their goals and make them happen will become successful irrespective of the economy.

If you are interested in buying a business in Toronto GTA and nearby areas in Ontario, Please visit our Business for Sale web page for a variety of businesses for sale or visit our business brokers website.

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.

Today’s business buyers are well educated and most of them do their homework before starting their business purchase process. Most of them research and study the subject of purchasing a business on the Internet and read books and publications about this subject. Unfortunately, most of these publications have been written about the US Market and very few address the Canadian particularities. How is the Canadian market for business resale different from the American Market?

1. The seller take back loan is much less predominant in Canada: Most publications about buying existing businesses stress the importance of getting some sort of seller financing before making the purchase. If the seller finances a part of the deal, he/she will be motivated to teach the buyer in the transitional period and help the buyer become successful to pay back the loan. Also, the seller will only take this risk if he/she believes that the buyer has the capabilities to become successful. This is an indication that the business is worth buying. Nobody knows the business more than the seller. Finally, bank financing for small businesses is quite rare and most of the time, seller financing is the only option. Unfortunately, Canadian business sellers are much more conservative than the Americans. In most cases, they prefer to lower the price and get paid cash rather than take the risk of never getting their money back. Furthermore, most of Canadian sellers are not aware that it is very difficult to sell a business with a large component of goodwill for cash.
2. Bank financing for very small businesses is difficult to get: There is no real equivalent of the small business Administration loan program in Canada. The SBA loan in the US could finance up to 90% of a business purchase. In Canada the small business loan can only finance business purchases with a large component of equipment in the purchase price. Goodwill and inventory is in most cases not financed by banks, but they represent most of the value of the small businesses for sale. For these reasons, we strongly discourage business buyers to spend their time looking into a business purchase if they do not have at least 50% of the purchase price. For larger businesses (requiring more than 1M$ loan) it is possible to get some high interest rate loans (more than 12 - 14% annually) if the business has enough sustainable cash flow to pay for itself in 5 years.
3. The Canadian market for business purchase is less liquid: The business sale and purchase market in Canada is much less active and liquid than the American market. As a result it could take more time and energy to find a good match for a purchaser. This requires serious business buyers to commit a lot of their time to the business purchase process. Buyers should not hesitate to talk to business brokers and should prepare themselves to show that they are ready, willing and able to buy a business.

While we recognize that the Canadian market for selling and buying businesses is less liquid than the American market, we also realize that there are some excellent Business opportunities in Canada that would enable persistent buyers to reach their entrepreneurial dreams.

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As usual in the business purchase process, emotions play a huge role in negotiating a purchase price. Sellers are selling their babies and need emotional comfort and conviction that they are not giving them away. Frequently, they discuss the offered price with their accountants and in most cases accountants will not push in the direction of accepting the offered price. While accountants starve to provide an honest professional advice in their clients’ best interest, they have much more to lose than gain from a potential sale of the business. They will probably lose the account after the sale since most buyers will bring their own accountants after the purchase. Buyers must understand that pushing too hard to reduce the purchase price is generally not the best strategy to purchase a business and make it successful. While a seller might accept a price he is unhappy with, he will probably not fully collaborate in the due diligence and/or transition period.

First, in most cases goodwill represents a big chunk of the purchase price of a small/medium size business. This goodwill is built on the relationships between the seller and his/her customers, employees, suppliers, etc. An unhappy seller will not make his/her best efforts to help in transferring these relationships to the buyer. As a result the new buyer will lose a lot of the goodwill he paid for. Second, a seller not fully satisfied with the purchase price he negotiated will likely experience the seller’s remorse during the sale of the business. At some point, he/she might stop collaborating and/or put an end to the sale. This often results in a huge waste of time and loss in accounting and lawyer fees for the buyer.

A business buyer should pay attention to the seller’s emotions during negotiation. If the seller seems too attached to the purchase price he/she is asking for, then the buyer should look for opportunities for negotiation other than the purchase price. Terms or the transition period length are other possible points to negotiate. If the asked price seems too high then the best option might be simply to walk away from the deal.

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A large number of business sellers experience a period of indecision right after receiving an excellent offer for their businesses. When the dream of selling the business is so close to come through, sellers struggle with their emotions. Their businesses are their babies. Separation is very painful.

How to recognize seller’s remorse?

In most cases, sellers start wondering if the price they are getting is too low. The whole idea of selling the business becomes questionable. Maybe I should hang on to the business for a few additional years. I will make this same money in my business without having to sell it. Some sellers start asking for higher prices than those agreed upon or renegotiate terms and other matters already settled.

What is the effect of the seller’s remorse on deals?

It can be devastating. Buyers get very upset and get a sense that they have wasted a huge amount of time on an impossible deal. The tension between buyers and sellers increase and deals dye in most cases.

How to deal with the seller’s remorse?

From the seller’s perspective:

1. Sellers must understand their true motives before putting the business in the market. The reason for sale has to be genuinely stated and understood.
2. Sellers should recognize that they might experience the seller’s remorse at some point when they are close to making a deal. Recognizing it in advance will help to overcome it and all the fear that it entails.
3. Sellers must be involved in the sale process before receiving any offer. Some spending in business valuation, business brokers’ retainer fees or other costs related to selling the business increase the sellers’ commitment.

From the buyer’s perspective:

1. In your first interview with the business seller, ask for the reasons for the sale. If the reasons don’t seem to be clear and genuinely stated, walk away from the business.
2. Test the seller during the negotiation period. Are they constantly coming back to previously negotiated points? If this happen frequently, the seller is probably hesitating about the sale.
3. Have the seller pay some transaction costs early on in the process. Sellers who refuse to incur any costs before the closing are probably uncertain about selling.

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Business brokers specialize in helping business owners sell their businesses. Most business brokers represent the sellers rather than the buyers. As a result, business brokers are responsible for qualifying buyers to weed out “tire kickers” and make sure that only buyers with the motivation and financial resources to purchase a business are presented to sellers. There are two reasons for the need to qualify buyers:

1. Save the broker’s and sellers’ time. Statistics have shown that only 10% of business buyers actively looking to purchase a business end up buying a business. The other 90% never buy a business in their lives.
2. Protect the sellers’ confidentiality. The business could be substantially harmed if the word goes out that the business is for sale. Confidential information should only be given to serious buyers to reduce this risk.

What should a business buyer do to be considered a serious buyer?

1. Spend the necessary time: Buying a business is time and energy consuming. Serious buyers are not afraid to devote their time to research the right business. Business brokers generally require that buyers come to their office for a meeting before providing them with more information. Buyers who negotiate where to meet or require considerable information before meeting are generally considered not very serious about buying a business.
2. Show proof of available financial resources: Brokers only work with buyers who can demonstrate that they have the financial capabilities to purchase the business or borrow the necessary funds. Buyers should not be offended when asked for proof of financial capabilities.
3. Show focus and determination: Asking information about too many unrelated businesses is generally interpreted as lack of focus and discourages brokers from working with buyers. Unfocused buyers are very difficult to work with as brokers cannot identify their needs and as a result cannot help them.

Business brokers can be an excellent source for detecting the right business to purchase. Brokers know the market and can help serious buyers locate and purchase profitable businesses that fit well with buyers’ personalities and goals. However, buyers interested in getting the most value from brokers should be ready for purchasing a business and should prove it.

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When we present our businesses for sale to some of our buyers, we are frequently asked: if this is such a good business, why is it for sale? Why would somebody sell a business that makes money?

While we recognize that some business owners are selling their businesses because they are not making decent income, we also insist that many excellent businesses are for sale for reasons unrelated to profitability. Recent statistics about businesses for sale in North America show that the most frequent reason people sell their businesses is boredom. Business owners are entrepreneurs. When their business becomes successful and only requires repetitive maintenance work, they lose their excitement and become unhappy, looking for new challenges. The only motivation for selling the business is freedom, the freedom to create a new business from scratch. The freedom from the repetitive tasks of managing a mature business.

We always tell our business buyers that our market economy thrives on different needs. The needs of a former corporate executive looking for a profitable business to accomplish his entrepreneurial dreams are very different from the needs of a serial entrepreneur looking to implement his/her new business ideas.

As business brokers in Toronto, We focus on profitable businesses for sale as most of our business buyers are first time buyers and are looking to increase their income through a business acquisition. Most of our sellers are selling for personal reasons, such as health, retirement or other opportunities.

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