Business ownership is a big step. The question you may be asking is, "how do I get started?"
The process for buying a business can be long and arduous. It isn't for the faint of heart. If you are
committed to making this dream come true, proper preparation can shorten the time to find a suitable business as well as eliminate a lot of the frustration working with professionals in the industry, such as business brokers, M&A Advisors and Bankers. Here are my four steps for properly preparing to buy a business:
1. Get your paperwork in order
To help find you the right business, brokers and advisors will want to know all about you. Specifically, they will want to know what skills and experiences you bring to the table and how much capital and credit is available for you to buy.
Update your resume
Your skills and experiences should allow a broker or advisor to focus you in on businesses you are capable of owning and often managing on a day-to-day basis.
Complete a Personal Financial Statement
A broker or advisor will need to know how much liquid capital you have to support a down payment and fund the required working capital after the transaction. This information can be easily discerned from a Personal Financial Statement. Their are many statements on the internet, but the SBA (Small Business Administration) has one that is frequently used by lenders to assess your financial health. It can be downloaded here:
https://www.sba.gov/sites/default/files/forms/SBA_Form_413_7a-504-SBG.pdf
Having a resume and Personal Financial Statement ready to share with a broker or advisor will help them immensely in focusing your search.
2. Find a broker or advisor you are comfortable with
There is a plethora of business brokers and M&A Advisors to choose from. Finding one who is willing to work with you to find a business isn't always as easy as you would imagine.
Size matters
The size of the deal is very important. A business broker generally isn't capable of handling a deal over $2MM. A large M&A advisory firm isn't likely to be interested in deals under $25MM. There are a select group of small M&A firms like Edison Avenue who specialize in the lower middle-market firms between $2MM and $25MM as well as being able to assist you with firms under $2MM.
Experience matters
Finding a broker or advisor with experience buying businesses in the industries that interest you is very important. It is likely a broker or advisor already has numerous contacts in their industry of expertise who are already selling or contemplating a sale of their business. Many brokers and advisors are credentialed. For example, both principles in our firm are Certified Mergers & Acquisitions Professionals (CMAP) and Certified Business Intermediaries (CBI). Not only have we completed a large number of transactions, we have kept up to date with the latest processes, methods and tools in the industry.
3. Obtain pre-approval for financing
Unless you are a cash buyer, selecting a banker who is willing to lend is an important step in preparing to buy a business. If you do not have a banker you are comfortable with, or your banker does not have a business acquisition loan program, your broker or advisor should be able to direct you to competent lenders. Loans under $5MM are most often handled through the Small Business Administration Loan program. Loans over $5MM may come from banks or private lenders.
4. Complete your team of advisors
After selecting a broker/advisor and a banker, you will need other individuals or firms to help you buy a business. Finding individuals or firms with experience in your target industries will keep you from making mistakes and help you maximize the return on your investment. You will likely need the following expertise:
- CPA/Accountant for review of the financials
- Business Attorney for review of contracts
- Industry Consultant for review of operations
- Other experts to ensure a thorough review of the business prior to acquisition
If you are contemplating buying a business, we are always happy to help you discover your options.
For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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