How to Deal with Business Brokers

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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Business Buyers’ Myth: Only Bad Businesses are for Sale

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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The Necessary Leap of Faith to Buy a Business

Statistics about the sale of businesses in North America have shown that 90% of people actively looking to buy a business never buy any business in their lives. This represents tremendous waste in time and effort. These people not only waste their own time and money but also brokers’ and sellers’ time.

Business buyers generally need to gather as much information as they can about the business to make an informed decision. This could become a never ending process as the more information is accumulated the more issues and concerns are raised. In their effort to eliminate risk, business buyers end up looking for the ideal business that could only exist on paper.

The decision to buy a business is not a mathematical decision where all parameters are known. Business is full of uncertainty and the risk can never be completely eliminated. Due diligence and analytical thinking can help reduce the risk but not eliminate it. A leap of faith is necessary when the time comes to make a final decision about the purchase of a business.

We find that the leap of faith is even more important for former corporate executives looking to purchase a business. Large Corporations use very strict business decision processes. While costly and time consuming, these processes are justified for multimillion dollar investments. Are they justified for small business acquisitions?

In our relationship with potential business buyers, we find that a majority of buyers spend more than a year looking for the perfect opportunity. Is it worth the time? Would buyers be better-off spending this time improving a “non perfect” business rather than looking for the perfect one?

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Emotions While Selling or Buying a Business!

Most business buyers underestimate how emotions can impact the business purchase process. A lot of money, time and effort is repeatedly wasted on business transactions where buyers and sellers fail to deal with each others’ emotions.

From the seller’s perspective: Business owners have spent a lot of time and energy building their business and when the time comes to sell it, they are generally not emotionally prepared. As often described in business language, their business is their “baby”. They want it to be in the right hands. They want the perfect buyer; the one that will pay the right price, will take care of employees and treat them the same way they were treated before the sale, will grow the business, will honor the seller’s previous engagement, etc. Obviously, this ideal buyer doesn’t exist. As sellers start to realise that the buyer is not ideal, hesitations start coming. Other hesitations usually haunt sellers: What if they are not satisfied with the after sale life? What if they feel lonely, lose their power and status in society?

From the buyer’s perspective: Buying a small business is closer to buying a job than to a purely financial investment. Buyers must love the business to be successful in it. Unlike simply taking a new job, buying a business is irreversible. For these reasons, business buyers live a long period of hesitation before signing the purchase and sale agreement. They are not really sure whether they see themselves managing the business. What if the day to day activity is not what they expected it to be?

It is crucial that business buyers and sellers spend the necessary time to understand each other’s emotions when contemplating a deal. All efforts must be made to nurture a healthy relationship from the beginning to the end. Buyers must understand that business owners are selling their babies and sellers must understand that buyers are making an irrevocable life changing move.

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Baby Boomers Looking for Successors.

In our marketing efforts to find new business listings, we find that baby boomers in the retirement age represent a large percentage of business sellers. In most cases, selling their business is the only remaining option. Their children are often not interested in taking over the business for multiple reasons:

  1. Children are seeking more independence from their parents and do not share the values and strategies the parents are following in their businesses.
  2. Children do not necessarily have the entrepreneurial spirit that has driven their parents to start and take the business to its current level of success. Their life goals might not be similar to those of their parents.
  3. Parents are bright entrepreneurs but not necessarily good managers. They have hard time sharing information with the children and delegating tasks. This incapacity to delegate often frustrates children.

This situation creates great opportunities for business buyers. A lot of excellent businesses for sale will be coming to the market in the next few years as more and more baby boomers will come to the retirement age. Recent statistics have shown that every year, 20% of the existing businesses will be for sale.

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Buy an Exiting Business or Start a New One?

The skills and personality traits necessary to start a new small business and make it successful are much different from the skills necessary to take over an existing business and grow it . A small business start up needs an entrepreneur who has a vision and is passionate about his/her idea. The entrepreneur will work in a chaotic environment where idea generation and learning are the real engine for growth. This is a high risk transitional period when the entrepreneur should expect a high rate of failure and when failure should be used as a learning opportunity.

Most people are not very comfortable living in this chaotic environment since most people fear uncertainty. This explains why few people have the entrepreneurial personality necessary to create very successful companies from scratch.

Buying an existing business requires a completely different mindset. Management capabilities, organization skills and hard work are paramount. The owner needs to control the key parameters that make the company successful. This is more of a consolidation period and less of an experimentation period. The business owner can use the past results to predict the near future and make decisions concerning managing the company.

Before deciding whether you should start a new company or buy an existing one, you should dig deeply into your own personality to understand what your personality traits are. In what category of people, from the categories described above, do you fit the most?

For more information please visit our Toronto Business Broker website.

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How to Value a Small Business?

The most frequently used method in valuing a small business is Seller Discretionary Income (SDI) multiple. The SDI for the business is calculated by using the income statement and correcting it by adding back to the profit figure all perks and benefits that the owner receives from the business. Then, a multiple (generally between 1 and 2.5) is multiplied by the SDI to arrive to an approximate value. Please keep in mind that this method only gives an approximation of the asking price the seller can require for their business. The market will ultimately determine the real price as a result of supply and demand interactions. For more precise information about how to price a business for sale, please visit How to sell your business?

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Business for Sale Listings

Business buyers are constantly looking for new business for sale listings. Some spend long hours looking in different newspapers and magazines. Others rely mostly on networking, asking everybody they know about business opportunities on the market. Accountants and lawyers are also considered a source of information about new businesses for sale.

While these sources will certainly produce results over the long term, the process is very time consuming. The Internet emerged in recent years as a growing source of business for sale listings. Many new websites appeared in the last 10 years and some have gained high popularity. Some sites are international and have a decent number of listings, especially in large cities in North America. An excellent way to see these listings is to search for the term “business for sale” in Google and to visit these sites one by one. Most of these sites provide a geographical business search. Another effective way of searching for listings in your area is to search for “business for sale” + “your area”. This search will also provide websites for top business brokers in the region, who can also assist in finding business listings that match your preferences.

Please Check this business for sale Ontario web site for profitable business listings in Ontario, Canada.

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