There are many tips for business buyers on buying a business. Most business publications have articles that serve as guides so a buyer avoids making costly mistakes. These articles dwell on the various stages or phases when buying a business – making the correct valuation of the business for sale, knowing why the business is being sold, getting information from the seller about the business, reviewing the financial and work records, doing due diligence, seeking legal and financial advice, etc.

Only a few articles touch on the personal or social “fit” a buyer should have with the prospective business. It is not always all about profitability. One big mistake made by buyers is not having the personality and skills to create a harmonious and effective work environment with his or her employees, suppliers and customers. Below are some pointers in avoiding this mistake:

• Select the type of business or industry that plays to your interests, strengths and knowledge. You, the soon-to-be entrepreneur should choose a business that suits your skills and personality, one where you have some experience in – be it in the work you have done in the past, classes you have taken, or special skills you have developed through a hobby. You will struggle more to learn the ropes after you buy a business if you have no knowledge of the industry.  Your employees might not take orders from you if they know or sense this. It may be a mistake to buy a business you know little about – no matter how profitable it is, you may run it to the ground in a few months.

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Individuals who want to buy a business contact business brokers and sellers.  How will the latter know who among these are serious buyers?  Who are the “time wasters”?  If you meet the following list of criteria, you are a serious business buyer.

· You know what you want.  As a serious buyer, you know the type of business you want to get into.  You want one that matches your skills and experience.  You also know where this business should be located.  You are not a “tire kicker” who inquires about businesses for sale and cannot make up your mind on whether to get into sales, retail, service, manufacturing, etc.

· You do not waste time.  You identify target businesses or acquisition prospects, do your research, and you are ready to make contact, set up appointments and visit these companies.  You meet with potential financial partners.  You discuss with the seller or broker important considerations.  You focus on businesses that are suitable for your background.

· You have realistic expectations.  You understand that there is no perfect business for sale and that you have to take on some risk. 

· You are “transparent” to the seller.  You disclose your identity as the buyer.  You are forthcoming about your reasons for wanting to get into the business and your financial situation or capability.  This will lay the foundation for building trust as the transaction proceeds.

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Just Baked, famous for its gourmet cupcakes, recently opened its commissary in Livonia.  It is nearing its target to make 2 million cupcakes this year.  Not only that.  With four retail stores to open in Detroit this month and 5 more middle of 2012, the company is nearing its goal of  20 stores in southeast Michigan.  “You don’t need ovens, mixers or refrigeration,” founder of Just Baked Pam Turkin told AllBusiness.com. “You just need to build a retail storefront.”

While Pam Turkin, founder of Livonia-based Just Baked LLC’s cupcakes, has spent most of her time and energy getting her baked goods into more than 400 stores across Michigan – including Meijer and Spartan Stores – she is now developing a franchise system to grow the brand in Southeast Michigan.

Just Baked, known for its gourmet cupcakes with names like Fat Elvis and Grumpy Cake, has seven retail locations in Southeast Michigan and is set to open four more around metro Detroit by mid-December, three of which will be franchise-owned.

Turkin said she expects to open five more by the middle of next year, for a total of 16. She said she hopes to open 20 stores in the region in all.

“You don’t have to be a baker or have a culinary background to own a Just Baked franchise,” Turkin said. “This model lets people who don’t want to put the time and money and risk into opening a bakery, open a bakery.”

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There should be no surprises after you buy a business if you thoroughly studied and investigated the business.  What you should do now is to smoothly go through the transition phase as the new owner, and with the right decisions and actions, the business will thrive.

After You Buy a Business …

1.  Maintain the status quo for now.  Avoid disruptive changes that may confuse the staff or customers alike.  Gradually introduce changes and see how the employees and customers react. 

2.  Hire the former owner to stay for a pre-determined period during the transition phase as your adviser or consultant.  He or she can guide you through the daily operations of the business.  Observe, listen and ask questions.  The seller can introduce you to the employees, customers, suppliers and the landlord.  The presence of the former owner adds the much-needed stability, especially as far as the employees and suppliers are concerned.

3.  Learn the ins and outs of the business.  Talk to the employees, customers, suppliers and business executives in the same industry.  Know how the company is currently run.  Review the policies and systems in place so you can make amendments or revisions if needed.

4.  Meet with the employees about the future of the business.  Seek their support and assure them of their job security.  Get their feedback and suggestions on how to improve the products or services that the company offers and how to build the business.  They will be more effective workers if you involve them in drafting policies or improvements.  They will feel they have something at stake in the company. Let them get to know you and vice versa.  Be available to answer their concerns.

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Franchises these days are into all kinds of businesses - food, retail, clothing, repairs, salons, spas, services, are more.   The United Franchise Group has over a thousand franchises with a high percentage of success. The Palm Beach Post cites an IFA (International Franchise Association) Educational Foundation report that more than 90% of franchisee contracts are renewed.  This is a much higher success rate compared to start-up businesses that rarely last 5 years.

The advantage of a franchise is not in the variety of options, but the benefit of buying into a company that has an established reputation and customer base.

“Because it’s all been researched and developed,” United Franchise Group CEO Ray Titus said. “It’s being used successfully by people in the business.”

The West Palm Beach-based corporation has 1,400 franchises across five types of businesses and was recently recognized by the governor’s office and Enterprise Florida for business diversification.

More than 90 percent of franchises renew their agreements, the IFA Educational Foundation found.

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A person buying or selling a business needs the temperament and correct negotiation skills to successfully close the deal.  It used to be that people think you are a good negotiator if you push for what you want and you get it.  This mentality is passé.  Today, deals are made by parties willing to find solutions to their differences.  The two parties at the negotiation table are not adversaries.  They do not attack one other, but rather they address the issues at hand. 

Here are some Business Negotiation Strategies:

1.  Prepare in advance.
Prior to beginning negotiations, study the business and the market trends through trade / industry publications, trade events and networks, and consult with those in the same line of business.  Knowing the industry statistics and analysis of the business arms you with information you might need to back up your offer or counter other proposals.  You can demonstrate that you know what you are talking about and you cannot be misled. 

2.  Listen to the other party.
Give the other party your attention and the time to say what is on the their mind.  You should refrain from making assumptions.  You can gauge the other party’s reaction and emotion to key issues so you can later respond accordingly.  The information you gather forms the basis for your questions later. 

3.  Kindness and diplomacy will go a long way.
Be genuinely kind and interested.  As the saying goes, “It is easier to attract bees with honey than with vinegar.”  Kindness is an advantage in business negotiations.  You gain credibility as well as the trust and empathy of the other party when you are reasonable, straight forward, fair and polite.

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You have dreamed of owning a business.  Now that you have found the right one for you, negotiate to buy the business.  You do not want to end up with terms that can ruin your opportunity before you even take over the business.  Negotiations will evolve so you must have an open mind and a “can-do” attitude to produce a deal.  Think about the points to be negotiated, what your position is and what to say to counter the seller’s comments.  Here’s how to make sure you get the best deal when buying a business.

Prepare for the negotiation. 
Study market dynamics, the competition, raw materials market, and industry statistics of comparable businesses that have sold to come up with the proper valuation.  Shop around for interest rates, loan terms, penalties, etc.

Assess your finances and structure payment accordingly. 
Know the maximum price that you are willing to pay for the business.  Offer the minimum amount that you reached through your own valuation.  Provide supporting reasons and proof on how you derived this figure.  Ask “what if …” questions to lower the confidence of the seller regarding his or her asking price. Use market fluctuations and economic factors to your advantage.  If a third party will finance the sale, make sure the sales deal is contingent on obtaining financing. 

Get as close as you can to the seller’s down payment figure but negotiate for some concessions in return.  You can ask for reduced interest on the balance of the purchase amount, a grace period of 3 to 6 months on the first payment, no interest for the first year, no penalties on early payments, and the like.  When you give something to satisfy the seller, you should get something you need in return.

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Valuing a business is a challenging aspect when buying a business.  How can you arrive at the right price for a business for sale?  Will you, the buyer, just rely on the asking price of the seller?  In most cases, the seller wants a price higher than the real price of the business because the former factors in the hard work and number of years he or she invested in the business.  It is up to you to decide if the price accurately reflects what the business is worth.  How will you arrive at a counter offer?  Here are some tips in valuing a business.

1.  You should learn how to read and understand income statements, balance sheets and other important financial records.  From the data reflected in these documents, you can follow the financial status of the business through the years.  These numbers can provide you with the basis in valuing the business.  Is the business growing?  Is it worth more now than last year or previous years?

2.  You can use the Asset Valuation method of valuing a business if you are buying a retail or a manufacturing business.  Calculate the fair market value of tangible assets such as equipment and inventory of the business, or the price to replace them.  If possible, use the replacement costs of the assets in the same or similar condition.  This method is usually used for companies losing money or with flat income.

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Before deciding to buy a business, do your homework.  Your investigation must begin after drawing up a shortlist of potential businesses to buy.  Use the Internet and social media to learn about each business prospect.  Pose the following questions to people involved in the same business:  

• Why is the owner selling the business? 
• What is the reputation of the business? 
• What is the future outlook? 
• Does the company have a sizable market share to remain profitable? 

With some perseverance, follow each information trail, taking notes as you go.  After a preliminary exploration, some businesses may reveal negative reviews.  This narrows down your choice to one.  It is only then, when you think the company will stand up to a deeper investigation, that you meet the owner of the business.  Start the due diligence process with the goal of making sure the company is worth buying.

Here is a checklist for investigating a business for sale:

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Buying a business requires that you, the buyer, make an informed decision before closing the deal.  Researching about the business starts the moment you are thinking about buying a business.  Start making inquiries from your friends and entrepreneurs in the same industry.  You should read trade and industry publications, and search the Internet.  If you like the preliminary information you heard or read from your initial meeting with the seller, make an offer.  If the seller accepts this, he or she will grant you a period of time, usually a month to several months, to access the company’s records and books.  Take this time to know everything about the company you intend to buy. Get a realistic picture of how the business is performing now and how it is likely to perform in the future.  This whole process is known as due diligence.

Why is Due Diligence Important?

· You approximate the value of the business for sale. 
By reviewing the financial, commercial and operational records of the company and analyzing the numbers, you can determine the appropriate price to counteroffer the seller. Make a list of all the assets, particularly everything you want from the business.  Are the company name, product brands and other proprietary assets included in the sale?  You do not want to be the new owner of a company with branded products only to find out that certain trademarks were not included in the sale. 

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With today’s rising unemployment, there is a corresponding rise in the number of prospective buyers looking for businesses for sale.  Most people dream of owning their own business, being the boss, setting the rules, controlling their lives, and earning for themselves.  Starting a business can be difficult.  You have to spend a lot of time and money coming up with an idea or service; testing it; developing its production or operation, marketing and selling it; hiring people; finding a location; sourcing equipment and vendors, and attracting customers.  Many of these start-up frustrations are bypassed when you buy an existing business.  There is no better time than today to pursue your dream of owning your own business.

Why should you buy a business?

1.  The business has immediate cash flow from day one.
You start earning as soon as you sign the purchase contract.

2.  Existing customers are already in place.
Start-up ventures sometimes fail because customers do not come for some time despite the initial investment and the work you put in.  Contrast this with an established business that has a loyal customer base.  You should keep your customers by maintaining the status quo for some time before introducing any changes.

3.  The risk of business failure is lower.
Buying an established business with ongoing cash flow, proven systems, a known brand, existing customers, and a good reputation is less risky than starting a new business.

4.  People know the business brand and logo.
You do not need to introduce the product or service because the public is already familiar with the brand or image of the company. The company name and logo are integral to the value of the business. 

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There are some steps in the business for sale process that benefit both the seller and you, the buyer.  These steps protect the seller from “time-wasting” buyers, and the buyer from acquiring lemons.  One of the most important questions when buying a business is “Can I see your financial statements?”  Numbers provide vital information to help you decide if you should buy a business.  Even if a seller has placed the business on the market, he or she remains reluctant to share highly confidential and sensitive records to any potential buyer.  If the seller thinks you are a credible prospective buyer, he or she will let you sign a business non-disclosure agreement before the company’s proprietary information will be opened to you.

What is a Non Disclosure Agreement?

This is a standard legal agreement presented by the seller to the buyer to protect the former’s business if a potential sales deal falls through.  This agreement gives both parties room for an open and honest atmosphere that may lead to a successful transfer of ownership of the business.  The NDA is solely for the purpose of selling and buying a business, respectively. 

The potential buyer cannot talk about the business to anyone, except to the parties included in the NDA, use gathered information, steal customers and employees of the business, nor use the information for commercial advantage.  The seller can control the flow of information and protect its confidentiality. 

What are the Benefits of a NDA to the Seller?

The seller avoids sharing operating and financial data with any potential buyer.

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There are so many types of businesses for sale. But how do you know what is the right business for you? You, your friends and family have some idea about the type of business that is right for you. Consider the pros and cons. If you make the right choice, you can have fun, fulfillment, control and money at the same time.

Here are a few questions to help you choose the right business for you:

1. What do you want to do? What are you passionate about? For example, if you are into arts, buy a business selling art supplies, paintings, books, art lessons, framing, etc. You can be earning while doing what you enjoy.

2. Will you sell products or offer a service? If you want to sell an existing product, consider how to improve it. Offer the product to a new market or put a unique spin on it. If you want to offer a service, you should know what pleases your customers and how to address their needs, so they keep coming back. The right idea for a business should excite you and your market or customers alike. Find out what they want and give it to them.

3. What do you do best? Get into a business where you can make use of your interest, expertise, previous work experience and training. What are your strengths? Focus on making the business grow rather than on learning a new skill and probably making costly mistakes along the way. Think of your hobbies and what you do in your spare time. Can these be developed and be profitable? For example, if you know a lot about computers, you can sell computer units, peripherals and accessories, or offer repair and programming services.

4. What suits you? What business do you want – retail, manufacturing, service, home-based, online, etc.?

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You had decided to buy a business instead of starting a new one.  You chose the industry after studying the market trends and emerging opportunities for its growth.  Fortunately, it is an industry that matches your skills and one that you are familiar with.  You have looked at businesses for sale and narrowed your choice to the right company. You want to make an offer but you are not sure.  There are so many unknowns.  You read the seller’s preliminary information and you want more in-depth scrutiny of the business.  How will you proceed?

Access to the “real” numbers is crucial when you buy a business.  A business owner is reluctant to share his company records even if he or she has put up the business for sale.  If you put yourself in the seller’s shoes, you will understand.  The seller is contacted by all sorts of strangers who ask for the company’s books and records.  Some just look; others are interested but lack the financial capability. Some may have the money but are unwilling to pay the price the seller is asking. Or worse, a competitor may send someone to check up the business. How will the seller know who the serious buyers are?

You, the prospective buyer, who finds the business promising, should present a written offer to buy the business.  This shows the seller that you are serious about making a deal.  The seller will now see you in a different light and open his books and records for you to study (usually after you sign a confidentiality agreement).  This offer to buy sets the wheels in motion.

Written offers convey you are different from the “lookers” who just inquire about the business.

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It is to the buyer’s advantage to understand the owner of the business for sale.  When the seller believes you are the right person to buy the business, he or she will try to make the deal happen even to the extent of structuring the terms to accommodate you.  Here are some tips on how to purport yourself to the owner of the business that you want to buy:

1.  Put yourself in the seller’s shoe.  Factor in the human element in the negotiations.

The seller may have the same level of anxiety as you do regarding the transaction.  Selling the business is a monumental emotional decision on the seller’s part.  So much is at stake – years of hard work, sacrifice and probably, all or most of the family’s fortune.  Tread with respect. 

2.  First impression is critical.

Do your homework so you are prepared for your initial face-to-face meeting.  This is like the proverbial first date or first job interview. Be on time and properly attired.  Do not be a “difficult” person.  Try to make the discussion a positive experience.

3.  Be sensitive to the owner’s apprehensions.

Gauge the seller’s reaction to key issues.  Nod every now and then and reassure the seller that you understand his or her concerns.  Do not be a cold, rigid and demanding buyer.  The seller may react negatively and throw you out, telling you not to come back.

4.  Understand where the owner is coming from.

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When buying a business, one would think that the pressure is on the seller to complete the sale. This is not the case. A seller is very selective about whom he or she will sell to. After investing many years in the business, struggling to build it up and making it profitable; the seller would want to make sure his or her “baby” will fall into good hands. As such, the pressure is on you, the buyer, to impress the seller that “You’re the one!” You have to let the seller think that you have the ability, the desire, and the commitment to buy the business and build on its success.

First impression is critical
You have to let the seller feel that you can get the deal done. During the initial stage of the business for sale process, you should factor in not just the financial aspect of the process but also the human element in the discussions.

• You must be sensitive to the concerns of the seller. Study the seller. Observe where his or her emotions lie. 
• Be careful how you probe questions and extract the information you need.  Do not be demanding.
• Let negotiations unfold naturally.
• Like in any relationship, establish trust gradually. Build a solid relationship not only with the seller but also with his or her advisers or representatives.

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The number of businesses sold in the market has reportedly grown significantly in the last quarter. Although this may be considered a positive development, this has yet to reverse the slump experienced in the past three years. Buying a business or selling a business these times where the economic conditions are still volatile demands from all parties concerned (the buyer, the seller and the business broker) to re-think their expectations. Everyone must have a firm grip of the market trends during this current unpredictable economic environment.

With many sellers wanting to sell their businesses so they can enjoy the financial rewards of their work and sacrifices or due to their desire to move on to a new venture or challenge, and the new breed of buyers caused by the high unemployment rate (as laid-off employees are now looking to buy a business as an alternative to traditional employment), one would think that the market is more liquid with many businesses sold and bought. But such is not the case.

Seeking and getting approval for capital is tough these days. Traditional lending institutions are cautious in committing to financing small and medium business acquisitions. There are people out there who want to buy a business but their dreams are not realized because of lack of capital due to difficulties in borrowing.

Those selling a business who hope to get paid full in cash are overly optimistic. Getting paid in full at once rarely happens. Usually, buyers make a down payment and pay the remainder in installments for years. The seller should be patient, flexible and creative with the terms of the transaction.

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You must avoid making these mistakes when getting a business appraised as they could cost you your business. Here are the top 7 mistakes when getting a business appraised:

1. Not considering the approaches that you can take when it comes to valuing a business – there are three approaches that you should consider and they are:

• The income approach – This approach is where the value of a business is based on the sum of the current value of likely economic benefits.
• The market approach – This approach is where the value of a business is calculated by comparing it to other similar businesses that have been sold in the area.
• The asset approach – This entails making adjustments to a business’ assets as well as liabilities when it comes to their market values.

2. Not thinking about the discounts that might be applicable – the usual discounts that can be applied when it comes to business valuations are the ones for a lack of control as well as for the lack of marketability.

3. Not knowing the standards of value – for an operating business, the value standards will most likely be one of the following:

• Fair market value – simply put, this is the price which is determined in terms of cash equivalents.
• Fair value – this is used when it comes to issues that range from dissolving marriages to nonconforming shareholder suits.
• Investment value – this is normally used for transactions when the buyer who wants to acquire the business makes a return on investment (ROI) assessment to determine the value of the business.

4. Not knowing the difference between an appraisal and a fairness opinion – an appraisal entails knowing about a business’ industry, economic conditions as well as trends, among others.

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The one common denominator that most millionaires have is that they own their own business. Owning your own business can be a very financially rewarding experience. The thrill of being the boss and having complete control over your own destiny are the primary reasons people leave the work force to operate their own company. Owning your own business can easily turn in to a nightmare if you make mistakes. These mistakes are avoidable if you know what to look for in the business. You have a better chance of becoming a millionaire if you avoid these 5 major mistakes when buying a business.

1) Due Diligence, Due Diligence, Due Diligence
Not everything is as it seems and that is especially true when buying a business. The owner can produce financial statements that show a business is thriving. You need to do due diligence to make sure the information presented to you is valid and shows an accurate picture of the condition of the business.

You want to make sure you know what items the business actually owns, what is leased, what is owed to the business and what the business owes to others. You do not want to buy a business only to find out there is a huge pile of bills that are due and the income you were expecting does not materialize. Doing a solid job of due diligence will help you avoid buying the wrong business or paying too much for the business.

2) Not Having Enough Cash Reserves
Running a business requires capital. Successful businesses are able to generate enough revenue to cover the cost of their expenses. In times when the revenue is less than the expenses then you need cash reserves to cover the shortfall.

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The one trait the majority of all millionaires have in common is that they owned their own business. Every year thousands of people attempt to follow in their footsteps and start their own business. Failure rates are high for new businesses with over half of them out of business within five years. How do you avoid this fate? There are certain things you can do that will let you succeed at your own business. Here are the skills sets that successful business owners say are critical to have if you want to succeed.

Defined Goals
The one thing that separates successful companies from failures is planning. If you want to succeed then you need to have a well-defined plan. This plan should be in writing and it should include step-by-step directions. This plan will be your roadmap that shows the best and quickest way for you company to gain profitability. All actions taken should be measured against your goals to see if they are driving you one step closer to success. Not having a plan is the quickest way to failure.

Initiative
The hardest part of starting a new business is taking that first step. You have to have the initiative to get things started and to keep them moving forward. You will not have a manager telling you what you need to do nor will you have co-workers holding you accountable. It is very easy to procrastinate if something needs to be done or the task appears daunting. If something needs to be accomplished, you will have to step up and make sure it is completed. Nothing happens unless you make it happen.

Hard Work
There is no substitute for hard work when you start your own business. Usually you are the only employee. If things get done and the business succeeds, it is because you put in the time and effort to complete the task. You have to be willing to do whatever it takes to get the job done.

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