According to industry statistics provided by business brokers and industry publications, only 1 in 15 prospective small business buyers ever complete a transaction. While this is a sobering statistic, when you dig deeper, the dismal numbers are understandable.
The Majority Of Businesses Listed For Sale Are Garbage
There are numerous business for sale databases offering thousands of businesses, yet only about one-third of them will ever sell. Most often, these businesses are either (a) not ready to be put on the market but are still offered, or (b) there are so many problems with them that nobody wants to buy them. The latter is a good thing – at least you will not get stuck with a loser.
If you spend time searching for a business you will likely find that the initial financials represented cannot be proven, there are major customer concentration issues, leases cannot be renewed or a host of other problems that make it obvious to a buyer they cannot purchase it.
The key of course is to find the ones that are worth purchasing. So with that in mind, why is the success rate still so poor?
Most Buyers Don’t Know What Type Of Business Is Right For Them
This is the single biggest reason why individual buyers fail to complete a transaction. The key is to determine the type of business that a buyer is absolutely suited to operate. You need to ask yourself what is it exactly that you do best? Is it sales, operations, marketing, logistics, planning, etc. Do not confuse experience with experience.
Likewise, what is it that you do not do well? Make sure that any business you buy does not need the skills you do not have. Do not try to be something you are not. This is not the time to learn on the job. Sure, you will have to learn the unique aspects of the business, but you have to go into ownership already possessing the necessary skills to operate and grow it. Whatever it is that you do best has to be the single most important driver of the sales and profits of the entity.
Heading to failure
Nobody Is Handing Out Money For You To Buy The Business
Buying a business is not like buying property. Often, hard assets are limited and so collateralizing a loan must be done personally. Banks are not waiting with their vaults open for you to walk in for a business acquisition loan. While there are some excellent government backed programs, take the time to learn the criteria before you start your hunt.
Further, in small business sales, seller financing represents most of the lending so pursue that route and do not be afraid to walk from a deal where the seller refuses a balance of sale. After all, that alone dictates the seller’s lack of confidence in the business’ future or you as they buyer; or both.
The “Perfect” Business….
You want to buy the perfect business? The only one is a toll booth. All others have risk and warts. If you obsess with finding the perfect business, you will never buy one. The key is to determine the level of risk and uncertainty you are prepared to accept. That is what entrepreneurs do.
The Right Price For a Good Business
Be prepared to pay a premium for a good business and understand that a garbage business can never be purchased cheap enough. Of course, you want to negotiate the best deal possible, but you have to pay for value.
If you want to buy a good business with rock solid fundamentals that will transaction well and can grow under your ownership, then be prepared to pay a premium. It is worth it.
And the # 1 Reason Over 90% Fail Is….
The vast majority of prospective small business buyers are first timers. They have never gone through the process. While they may have the acumen to operate the business, they have zero experience in the buying process.
They spend hours searching endless business for sale listings trying to figure out which one may be right. They are not prepared to properly question the seller, know what research to do, how to compile an accurate valuation, or conduct a flawless due diligence.
They wrongly believe they can rely on a business broker, or attorney, or accountant to do their work and that simply never pans out.
Buying a business is a massive decision that brings enormous potential upside when done right and horrific downside when done wrong. You cannot guess your way ahead. The successful business buyer takes time to educate themselves and to have an experienced and unbiased mentor assist them. They determine what business is right for their skills.
If you follow that path, you will not only beat the statistics, you will acquire a business that will thrive under your ownership.