Dear Buyers, Socializing With Sellers will Make Your life Easier

Most buyers wrongfully believe that relationships don’t count in business purchase and sale transactions. They think that getting the best possible price and terms is the most important. I personally experienced instances when misunderstandings and lack of communication were responsible for long delays and additional costs to transactions or even the cause of promising deals falling through. In other instances, deals that seemed impossible still happened because sellers and buyers cooperated fully simply because they liked each other!

Most experienced deal makers understand that numbers, while very important, don’t make deals happen but people do. Establishing a relationship with the seller is paramount for a buyer. There are two main reasons why relationships are deal drivers:

  1. We trust people we know and like. The deal making process involves a lot of uncertainty both for buyers and sellers. Uncertainty means perception of risk. If this perception is beyond the risk tolerance threshold then no deal can be made. Human interaction and socializing reduces this perception of risk.
  2. Most people make decisions emotionally and then rationalize them. This is the nature of human beings. Even famous CEO’s of large multinational companies operate the same way. If the seller likes you personally, he/she will find reasons to sell you the business for reasonable price and terms. On the other side, if the seller doesn’t like you, he might change his mind about the whole idea of selling the company just to justify not selling to you.

I frequently come across buyers who justify their lack of social skills by believing and acting as if business results only depended on rational behavior where economic benefits are the only considerations. Time has proven again and again that this is an old theory with a lot of limitations. Business people do act emotionally and managing emotions will always be a success factor in business.

Businesses for Sale in Toronto – Buyers’ Options!

The number of potential business buyers in the city of Toronto outweighs by far the number of potential business sellers by a ratio of 10 to 1 at least. As a result, buying a profitable business can be a real challenge. Below are some options potential business buyers should consider to locate businesses for sale with a good potential that are reasonably priced:

  • International business for sale websites: some of these websites are businessesforsale.com, bizbuysell.com, Mergernetwork.com etc. . These websites are very professionally built and have hundreds of registered buyers who receive new business opportunities as they become available. Most business brokers are registered in these websites and regularity post their own listings, which insures that business listings are reasonably priced.
  • Brokers‘ websites: these are generally Internet savvy brokers specialized in the sale of businesses. Their listings are first listed in their own websites before being listed in other websites, giving a first mover advantage to potential buyers.
  • Business Exchange Magazine: this magazine is published in major cities in Ontario with hundreds of small businesses for sale and can be found in most Real Estate offices. Unfortunately most businesses listed are restaurants, convenience stores, dry cleaning businesses, gas stations, second and third tier new franchises etc. . Buyers interested in other types of businesses will generally not be well served by this magazine.
  • Contacting target businesses directly: this is one of the least effective methods as most small businesses are not for sale at a given time. Some argue that everything is for sale at the right price but my experience has taught me that getting an unwilling unready business owner to sell his/her business can be really painful, time consuming and very costly.
  • Smaller Local Business for Sale Websites: These websites have a much smaller number of listings and most listings are listed by their owners. Since most owners have an inflated perception of what their businesses are worth, most business listings tend to be extremely highly priced.While I strongly believe that a very motivated buyer with enough energy and persistence, will always end up buying a business, I must admit that the odds are simply against most would-be business buyers. Statistically less that 10 % of North American potential buyers actively looking for a business to purchase never buy.
  • Success Story of a Business Buyer in Toronto

    I wrote a post a year ago about a business buyer who had to reluctantly wait 18 months before buying one business I had listed. The post was about Seller’s Remorse and Buyer’s Persistence and how seller’s remorse makes the life of business buyers much more difficult. I have recently received a call from that same buyer and he was extremely happy.

    This buyer has doubled his annual sales in the last 2 years and more than doubled the number of employees. His business is still growing very fast. His profits have also increased dramatically. This buyer had no previous experience in the industry of his newly acquired business, he had no formal business education and his finances were tight at the time he purchased the business. What is his secret?

    While it’s is very difficult to spot the exact reasons for success, I have to admit that I was particularity amazed by this buyer’s sense of purpose, persistence and hard work. At an age over 50, this buyer mortgaged his own house and used the mortgage as a down-payment for the business. He then spent 18 months negotiating with an unready seller who kept changing his mind back and forth about the sale of his business. Most importantly, this buyer has spent the last two years working very long days, starting at 5:00 am in the morning and finishing at 7:00 PM every day for 6 day a week. How many younger and more formally educated people are not willing to work this much?

    What impressed me the most about this buyer is his humility and respect for the previous owner’s work, systems and the way the business was managed over the last 20 years before he takes over the business.This attitude has earned him the respect of the previous owner who agreed to stay involved in the business as an employee long time after the sale. This was paramount in helping the buyer understand the business and make good decisions going forward.

    Finally this buyer’s belief in the potential of his business and in his capabilities to take it to the next level were so strong that he convinced other members of his close family to leave their secure jobs and join him as employees.

    As a business broker, I strongly believe that business buyers with a clear sense of purpose, determination, persistence and hard work have huge chances of realizing their business ownership dreams.

    Buying a Business – First Mover Advantage

    Business buyers generally take a very long period of time to make a decision about making an offer on a business. Most buyers go through an unproductive period of hesitation that makes the decision process even more difficult. Among the common mistakes are:

    • Asking friends and relatives their opinion about buying a particular business. Since 90% of people are not entrepreneurs, 9 out of 10 people will discourage you from buying a business even if it is the best business you can ever buy.
    • Wondering whether starting the same business from scratch is a better move. First, most existing businesses sell for a price lower than the cost of starting the same one from scratch, especially if you take into account the cost of waiting years and years before the business becomes profitable. Second, you will be at a serious disadvantage against competitors and your chances of success are very low unless your have a new idea never tried before. Finally, Most people will do a better job taking over an already existing business and improving it than starting a new one. It take the same level of energy and time to take a business from 0 to $1M in sales than to take it from $1M to $10M in sales. So which scenario do you prefer?
    • Relying on your lawyer and accountant to make the decision to buy the business for you. Accountants and lawyers are valuable professionals that can assist you in making the right decision buy spotting the risks and possible rewards of a business opportunity but they are not business people. If they were, they would not have been professionals. They probably would have been making more money managing their own businesses. These professionals generally advice against buying businesses because it involves risk. It is easier to advice against taking any risk to protect you and themselves from any possible liability.

    A long hesitation time ends up costing a lot of money to most business buyers. As a Business Broker in Toronto, I personally witnessed numerous situations when buyers lost their first mover advantage and ended up in a much weaker negotiating position simply because they delayed the decision to buy the business. This generally translated into a higher price paid to the seller. When a business stays longer in the market it generally attracts more than one buyer’s interest. This creates a multiple bidding situation where the price goes up.

    Furthermore, business sellers frequently choose the buyer they connect better with and who was able to show motivation by rapidly making a offer on their business. It becomes a matter of pride not reason. Buyers who drag their feet before making an offer end-up generally loosing the bidding war.

    Making a decision to buy (or not buy) a business in a reasonable time does provide a first mover advantage and enables a business buyer to pay a more reasonable price and get a better support from the seller. Business buyers should first spend time learning about themselves to know what they are really looking for in a business and lean more about the business purchase process before investigating real business opportunities. They would then be able to make decisions quickly and take advantage of great opportunities in the market.

    Just Laid-off! Should I Buy a Business?

    Hundreds of thousands of perfectly capable employees are been laid-off in the current economic climate. Many are turning to small business ownership as the alternative to the tough current job market. So, is it the right solution? there is certainly no general answer that fits everybody.As a business broker in Toronto, Ontario, I can certainly recognize the growing trend of downsized corporate executives/employees seriously looking to purchase an existing business. Unfortunately recent statistics in North America have shown that despite this enthusiasm, only 10% of potential business buyers buy a business in their lives. The other 90% find job alternatives. This is so unfortunate since the majority of these buyers sincerely believe that will buy a business and devote tremendous time, energy and money to the purchase of a business. While already in a very precarious financial situation, 90% of these potential buyers will have their finances deteriorate even more because of a non adequate wish. The fact is that the purchase of a business requires some risk tolerance capacity that most people don\’t have.  No matter how hard you can try to evaluate a business opportunity, you will never eliminate the risk completely. It is necessary to stop analyzing and take a big leap of faith at some point and the majority of people cannot do it. This is what separates entrepreneurs from employees. It\’s an entrenched personality trait and there isn\’t much you can do about it in the short term.Therefore, if you have been laid-off recently, then seriously consider all your options. Do a serious investigation about your own personality and find out how tolerant you are to risk. Don\’t let ego and proud misguide you. There is nothing wrong in recognizing that you will be better off as a lifetime employee. However, those who manage to take the described “leap of faith” and who do a good job in selecting a reasonably priced business with a viable business model that fits their personality end-up reaping huge rewards. To cite only a few: more control over your destiny, higher income, increased self esteem are among the huge benefits of business ownership.

    Buying a Business – 7 Mistakes to Avoid

    Buying an established business is generally a wise business decision. Businesses with a proven track record of success present a low and manageable risk for the buyer and a high potential to make decent profits right after the purchase. Nevertheless, many business buyers make huge mistakes that cost them a lot of money and sometimes cause them to fail. These are some common mistakes that buyers can avoid with some planning:

    1. Starting the search for a business to purchase prior to arranging proper financing. Buying a business is extremely time and money consuming. Spending your resources and been unable to buy because of insufficient finances is unfair to you and to sellers. Some might argue that this is a great learning experience worth doing anyway. That cannot be further from the truth. If you are enable to purchase, then save yourself the hassle of trying to buy. Recent statistics have shown that only 10% of buyers end up buying a business in their lives. The remaining 90% never buy.
    2. Looking for the absolute best”perfect” deal. This is very frequent and buyers in most cases end up with no deal at all. Potential business buyers must understand that there is no perfect deal. The best possible deal is the deal that can make you money after the purchase, and a business that you enjoy and that makes you happy. Paying a little bit more than you should is almost irrelevant. I have seen buyers overpaying who were very successful after the purchase and I have seen buyers who got a real bargain just to fail miserably after the purchase. Furthermore, if sellers end up with a price they are not happy with, chances are that they will not happily transfer to you all the businesses knowledge so necessary to take over the business. This could have dire consequences on your success.
    3. Taking too much time to purchase the business. I have seen buyers spending years and still been unable to make a decision about buying. This can be devastating morally and financially. I advise against trading your valuable time for little money. Years wasted looking for a business that doesn’t exist are worth a lot of money. Keeping delaying the decision to buy just for the purpose of saving some money on the purchase price is not the way to go.
    4. Hesitating and been vulnerable to the buyer’s remorse. Business buyers should be prepared for buyer’s remorse. It’s normal and happens all the time. When you sign an agreement to purchase a business, it’s not a good idea to discuss your deal with every potential friend, acquaintance of family member. If you do, don’t expect people to encourage you in your decision. Human nature is conservative. We fear the unknown and most of us are not entrepreneur. So most people you will talk to will scare you and probably talk you out of the deal.
    5. Been too suspicious in screening business opportunities and not suspicious enough during due diligence. Paradoxically, business buyers are extremely suspicious when talking to business sellers for the first time but as soon as they establish a personal relationship with sellers they stop investigating the business and refuse to see any red flag about the business. This is very wrong. A buyer should be open minded when inquiring about a business for the first time and should not jump to conclusions about the honesty of the seller or the viability of the business. This excess of premature suspicion can only cause you to miss some good opportunities and doesn’t add any value because it is not fact based. However due diligence is very important when a conditional deal has already been signed in order to protect you from some unscrupulous sellers.
    6. Not respecting the Non-Disclosure Agreement signed with the sellers or their brokers. Some buyers become so excited by a business they have visited that they start talking to friends and relatives about it despite having signed a non disclosure agreement. The word goes out that the business is for sale and the upset seller stops any contact with the buyer. In the best case the seller will forget about the buyer otherwise the buyer might have to deal with a law suite for breach of non disclose agreement.
    7. Using inexperienced advisers. while the use of knowledgeable advisers such as lawyers and accountants can add a lot of value to the deal, sometimes an incompetent adviser can beak a very good deal. It is very important that any adviser used be very experienced in the business purchase and sale. Frequently, an adviser lacking experience in deal making will focus so much on protecting his/her client and becomes so demanding that the other side gets upset and decides to walk away from the deal. A good deal negotiator tries to reach a win-win situation when negotiating a deal or advising the negotiating parties. Business buyers should choose advisers who have a successful track record in similar business deals.

    These are some of the most frequent mistakes that we see repeated again and again with devastating consequences on business buyers.  If you are looking to purchase a business in the near future, please take some time to learn about the business purchase process so you can avoid costly mistakes.

    Good Luck!

    The Business Purchase Process is Not Efficient!

    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 plaguing 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 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.

    Buying a Business Takes Persistence, a Lot of it!

    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!

    Technical assistance with buying a new business

    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.

    Would You Buy a Business in a Recession?

    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.