When most people imagine buying a business, they have a particular image in mind. It’s hard not to shake the mental picture of a group of absurdly wealthy business tycoons shaking hands and popping corks on expensive champagne bottles to celebrate their newest acquisition. It’s certainly not a picture which features a plucky, young entrepreneur. It’s a picture which features the richest of the rich.
It’s time to change that picture. Contrary to popular opinion, you don’t need to be a multimillionaire investor to buy a business. Buying a business is something which anyone with business acumen can do. It just takes the right know-how.
Do it because you can
Running a business isn’t about being an expert in that particular sector. It’s about knowing how to run a business. If you already run a successful small business, you already have plenty of transferable skills. On the surface, a gym and a vegan cafe are two very different business ventures.
Yet, under the surface, there’s a lot more in common than people realize. Running any business require time management, people management, financial management, understanding of regulation, the ability to sell your product or service, and the ability to market it.
The reason so many startups fail is because they wander into a massively competitive sector and wind up crushed by their rivals’ ability to out price and outmaneuver them. The truth is that the ability to scale one business can be limited. Even giants like Facebook accept this; it’s why Mark Zuckerberg also owns Instagram and WhatsApp.
Growing by acquisition gives you another option. You get to keep your current business and — overnight — you get to be the owner of another successful company as well.
Easier than you think — but not easy
Of course, like anything else in business, there’s no magic bullet here. Growing by acquisition is an overlooked option, but it’s not a cake walk. The process is simple, but it’s not effortless. You’ll have to put in the work, and the vast majority of that work is the process of screening for the right business to buy. Choose the wrong business and you’ll quickly regret it.
You don’t want a business which is too dependent on the owner, for example. You need a business with potential, which is going to grow under your ownership. Beyond that, look for a business owner who really wants to sell. As Pablo Escobar once said: “Everyone has a price.” Even someone who has never considered selling will tell you that price, but this isn’t what you want.
While you need to screen for someone who really wants to sell, make sure that they’re eager to sell for the right reasons. If someone is too eager, it might be a sign that there are deep problems with the business.
It’s for this reason that you should also get a lawyer involved as soon as possible so that you can screen for legal problems. Ideally, it’ll be someone with expertise specifically related to buying and selling businesses. You don’t want to wind up with a business with unpaid tax bills, or one that requires certain licenses you don’t have in order to operate.
The process of screening for the right business and buying that business is the hard part. However, when you own it, you don’t need to be involved in the day-to-day operations. If you find the right business made up of the right group of people, it should run itself. All you need is the funds and the right vision for the general direction of the company.
The right person at the right time
Baby boomers were born into a time of great economic prosperity, but the 1950s were a long time ago and many baby boomers are looking to retire. However, many of the baby boomers who started businesses might not want to give up on the great company they’ve spent their entire working lives building. They’re looking for a safe pair of hands, and this is where you come in.
You can help these people with their exit strategy and promote someone from within the company to actually run it. If you screen for the right business and acquire it at the right time, it can run itself. It all comes down to selection.
Don’t be afraid to get help
When you’re buying a business, help will come in many forms. The first thing you’ll need is money, and help is on hand there. For example, you can leverage the business’ own assets for the acquisition. So, when you go to the bank to get a loan, do it based on that.
If you’re uncomfortable about dealing with a bank, you can always crowdfund for the money. A business with real potential which you can really do great things for will meet a crowdfunding target in no time.
Finally, you’ll need legal advice. You should do this straight away, as it’s an important part of the due diligence process. Ask an accountant to investigate the finances and to value the business, then ask a lawyer to look at licences, registrations, and other legal matters related to the business you’re looking to buy. You should also get a lawyer to check the purchase agreement.
An offer they can’t refuse
All negotiations should be “subject to contract”. The business acquisition market is a lot like the real estate market, so keeping things “subject to contract” is not unusual at all. It’s just good sense to keep your options open.
Even with your accountant’s valuation of the business and the current owner’s valuation of the business, remember that there is no set-in-stone price for any business. A business can be worth anywhere between two and seven times its pre-tax profit. The valuation depends on many things. It’s always in your best interest to buy at the lowest possible price — and it will be in the business owner’s best interest to sell at the highest possible price.
Be prepared to meet somewhere in the middle and do anything you can to sweeten the deal. If it will make the business owner feel comfortable, sign a non-disclosure agreement. Recognize that — to a business owner — it’s not just about the money. It’s about their reputation and their legacy.
Buying a business isn’t a venture to be taken lightly, but it is a lot more achievable than people realize. Yes, it’s much more common for the giants of business — your Pages, Cooks, and Zuckerbergs — to go around acquiring companies than a small-time entrepreneur, but don’t let that stop you. With the right people around you and the right mindset, you can buy a business without being a multimillionaire.
