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.

Your operation processes are critical parts of your business. Processes are designed to be repeatable in order to make people more efficient. They can be used by an intelligent but less knowledgeable employee to solve problems for your customers that the owner or a higher priced employee might otherwise have to do and that frees the more experienced people in your business to work on other issues that require their expertise.

If you are acquiring a business that you already know well and are simply integrating the business value into an existing business, the process changes don’t necessarily happen overnight. I have spent years analyzing and understanding business processes in companies and one thing I learned early on is that existing processes can unnecessarily be complex, convoluted, obtuse, and hard to understand. By simplifying processes more people can easily use them.

Look for experienced technical help in the form an experienced consultant who can catch you before you fall. If you have a solid business plan then you already have an idea about your operational needs and you should look for help before making large purchases.  An experienced advisor can recommend technology vendors, services and products for your needs.  Getting the  right vendors and partners can make your road a lot less bumpy for your business. For example, if you want a wireless network instead of wired network, discuss the pros and cons of those two options.  Should you buy Windows XP or Windows Vista. How about Apple Mac OSX or Linux? Does your business have unique requirements?  Which marketing software will suit your particular business the most?  I’ve seen several instances where a company chooses a piece of software because of neat features they don’t really need and ends up with software that doesn’t do a good job covering the processes they need the most.  complex, convoluted, obtuse, and hard to understand, but if they are simplified more people can easily use them.

When you acquire a business it is possible to build into the transaction a lot of value if you can get proper documentation and even training on the existing processes. Even if your intention is to change those processes - refine them, improve them or even completely replace them - you may not be able to do that day one, especially if you are inheriting existing employees in the purchase of the business.

You will need to carefully and thoughtfully evaluate your existing staff. Make sure that if you want to keep those people in your company that you make them feel comfortable with the new ownership and make them feel appreciated. I’ve seen both sides of this - companies running roughshod over existing employees and in the process losing the talented people they should have kept, ending up with the weak employees driving those important processes to the detriment of your bottom line. I’ve also seen it done right where changes are done to processes very carefully and with a lot of input from the most knowledgeable people.

In one instance, I helped a larger company integrate a new business of 15 employees, but the new business had better processes. Over about a year those new processes were carefully integrated into the existing larger business with significant value added to the bottom line.

Create a plan and a budget going forward for at least the first year. Make sure the systems you will be using to support your critical operations processes are adequate for the task and that you know who to call when something fails.  You don’t want to be figuring those details out at the moment you have a critical problem.  There are a lot of available options so do some research before spending and don’t sign long term contracts, especially in areas like telephone services where the price 3 years from now will likely be less than it is today.  If you are buying an existing business make sure that you have carefully reviewed any existing contracts and that you carefully record the date the contract expires as well as whether or not the contract automatically renews.  Gather the right information now and you can save yourself a lot of money and grief later.

You may want to consider outsourcing some of your IT services. Do you want to keep your IT expenses as low as possible so that you can focus on the core business? There are ways to keep your IT staff at a minimum or even zero while minimizing your monthly costs. You can hire someone for 45-70k to look after your computers, but I can guarantee that a year from now a risk assessment will identify a lot of problems, especially if you have servers in order to run your software. An experienced IT person can smoothly move your IT infrastructure into a hosted environment and cut your spending by 25% or more.

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.

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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!

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.

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.

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.

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.

What should business do to make the “after sale” experience better?

1. Know themselves and make sure they have good reasons to sell their business.
2. Have a meaningful goal and make a clear plan and start implementing it in the few weeks before the sale.
3. Be aware of their feelings and recognize the emotions that might come after the sale.
4. Have a coach and discuss with them their motives, plans and advancement.
5. Negotiate a smooth transition with the business buyer so the separation from their companies is smooth and less painful.

1. Boredom or need for change: This is the most frequent reason (statistically). After starting their businesses from scratch and spending countless hours exploring their ideas and implementing them, business owners simply lose interest in their companies. While this seems hard to believe, most entrepreneurs are more excited in launching a new business than in managing it once it becomes established. Managerial tasks such as accounting, managing people and solving daily problems are not as rewarding as implementing new strategies and growing the business. Many of my clients want to sell their business simply because they want to do something different.
2. Succession planning/Retiring: The majority of small businesses are heavily dependent on their owners. If something happens to the owner, in most cases the businesses will not survive. When owners approach their retirement age, they need to find successors. While transferring the business to their children seems like the natural decision, this is not always possible for the following reasons:
   1. Children have other interests than their parent’s business
   2. There is no consensus in the family about who among the children should take over the business.
   3. Children don’t have the qualifications, expertise or the talent to manage the business.
3. The business needs capital for a new strategic direction: This happens more frequently in consolidating industries. In some mature industries, huge economies of scale are necessary to keep the business afloat. The business could simply not survive in its current size. Ideally, a larger corporation/business would buy the business, merge it with its current operations, suppress some redundant costs and make it more profitable.
4. Partnership disputes: Divorces and business partnership disputes are common and could be the reason for selling a profitable business with a lot of potential.
5. The business is unprofitable and the owner is not able to turn it around: This is generally not a good reason to sell a business since most business buyers are looking for an income source and very few will look at unprofitable businesses. However, some business people with solid turnaround skills and management expertise are constantly looking for turnaround opportunities. The seller has to prove that the business has potential to become profitable.

It is very important that business owners contemplating selling their businesses spend some time understanding their own motives. Most buyers will become very suspicious if the business seller cannot clearly explain their reasons. If you are considering selling your business, visit our business brokerage website for more information about the business sale process.