Today's independent business marketplace attracts a wide variety of buyers eager for a piece of ownership action. Buyers of small businesses are most likely replacing lost jobs or searching for a happier alternative to corporate life. Buyers of mid-sized and large operations are, typically, private investment companies seeking businesses to build and eventually sell for a profit.
Statistics reveal that out of about 15 would-be business buyers, only one will actually buy a business. It is important that potential sellers be knowledgeable on what buyers go through to actually become business owners. This is especially true for those who have started their own business or have forgotten what they went thorough prior to buying their business.
If you are considering entering the world of franchising, an important consideration is assessing the value of the business. All of the following factors either affect or help determine valuations of typical franchise operations.
Before answering the question, it makes sense to first ask why people want to be in business for themselves. What are their motives? There have been many surveys addressing this question. The words may be different, but the idea behind them and the order in which they are listed are almost always the same.
In many cases, the buyer and seller reach a tentative agreement on the sale of the business, only to have it fall apart. There are reasons this happens, and, once understood, many of the worst deal-smashers can be avoided.
The following is some basic information for anyone considering purchasing a business. Is may also be of interest to anyone thinking of selling their business. The more information and knowledge both sides have about buying and selling a business, the easier the process will become.
Selling one's business can be a traumatic and emotional event. In fact, "seller's remorse" is one of the major reasons that deals don't close.
Why does it take so long to sell a business? Price and terms are the biggest reasons.
Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as small business itself has become more sophisticated, the people interested in buying them have also become more divergent and complex.
Buyers buy a business for many of the same reasons that sellers sell businesses. It is important that the buyer is as serious as the seller when it comes time to purchase a business. Here are just a few of the reasons that buyers buy businesses:
How does someone else, for example, a potential buyer, rate your business on the issues listed below? Rate your business and yourself on the time-honored “A” to “F” scale. You can even use a plus or minus. What’s your average? Too many business owners operate on gut feel or “from the heart.” Nothing wrong with that; many people start or buy their own business and operate it successfully with nothing more tangible than this kind of factor. But, every now and then, perhaps once a year, seize the moment and take a more realistic look at your business. Grade yourself, using the following business report card as yardstick:
1. Difficulty or the lack of competitive entry 2. Stature of the business or product . . . exciting/glamorous 3. Perceived level of required expertise – or licensing 4. Ability of the business to secure funding -- seller carry-back 5. Volatility of business/customer loyalty 6. Diversity of customers and/or suppliers. Exclusives? 7. Length of business – history 8. Reliability or fuzziness of financial records 9. Key-man syndrome 10. Severity of business seasonality 11. The people factor 12. Hours of operation 13. Hazardous work, work place, products, or neighborhoods 14. Bad lease – no lease 15. Owner to stay 16. Trend or erratic numbers –non recurring 17. Goodwill (Blue Sky) as percentage of price 18. Sparkling physical appearance or needing upgrade 19. Regular or home office 20. Remote location 21. Contemporary and ship-shape equipment 22. Franchised or Independent 23. Visible expansion opportunity 24. Loyal key employees in place 25. Broker involved with deal 26. Potential 27. Name and reputation