Most articles I see focus on providing information and guidance to those who want to sell their business, but not as much on those who are first time buyers of a business. If you were looking to buy a larger business, you should engage a Mergers & Acquisitions professional who will work on your behalf for a fee and help you in assessing whether a business you want to buy is worth what the owner’s asking price. Unfortunately for smaller businesses, there is not that much help available, as in most cases the focus of most business brokers is working on behalf of the seller. Business brokers are governed by the real estate board and typically help smaller businesses find buyers for their business. There are some that will work for the buyer, but in many cases buyers are not prepared to pay someone for this function, so the main focus is on selling.
If you are dealing with a business broker as a buyer and have been contacted by a business broker on behalf of the seller, as with a real estate transaction, they are not working for you, they are working for the seller, so it is up to you to make sure that you do your due diligence. Just because a business is listed at a price, it does not mean that the business is worth that price, so it is up to you as the buyer to understand what you are getting into. As with a real estate transaction, the business broker wants to sell his/her client’s business as high as possible as in most cases, their fee is a percentage of what they get for the seller, depending on what other services they provided the owner.
What Is The Value of The Business I Am Buying?
There are professionals that are Business Valuators (Chartered Business Valuator, CBV))who can be hired to come in and assess what a business is worth, and if you are buying a business that is over a a few hundred thousand dollars, it would be highly recommended that you engage their services. You are going to pay a few thousand dollars in most cases, but if you are going to make that large of a purchase, it is well worth the money and peace of mind. If you choose not to go that route, here are just a few things that you need to look at and find out about the business before you sign on the dotted line:
Though you can get a valuation of a business, at the end of the day, a business is worth whatever the buyer is willing to pay. Current owners almost always overvalue their business. Most buying decisions are emotional and do not always focus on the true valuation at the time, but you want to make sure that you know what you are getting into and do not sign an agreement to purchase before you have done some level of due diligence.
You want to engage the right professionals to help you make the right decisions and make sure that you have individuals working for you and are not taking the word of the owner or business broker who is working on behalf of the seller.
RK Fischer & Associates