Buying a Business

1. Can I buy a business?
2. How do I know if the business I am buying is a business worth buying?
3. How can I analyze and model a business to buy?
4. Who would I talk with for help to buy a business?
5. How do I determine what the business I am buying is really worth?
6. Where can I get experienced help buying a business?
7. What are the main risks when I buy a business?
8. What type of business works best for me?
9. and many more...

How Do I Find A Business To Buy?

The fact is every business eventually sells or dies...

This means every business you come across will eventually have to face this reality.

Another fact: for businesses that are worth buying there are MORE Buyers than Sellers. Very few Buyers want to buy a business that is potentially headed for disaster or is having a “tough go”. Most Buyers search high and low for a business that has strong history, a great market presence with a unique niche, great staff, the who's who of clients, and year after year of reliable profits. Nice idea but to date no one we know has found one, let alone convinced the Owner to sell that business.

As you make the decision to buy a business, it would do you well to complete real soul searching to develop a sense of the type of business you would like to buy. Is it retail, or manufacturing? Do you need people to run the business for you, or are you an expert in the sector you are searching? And almost countless more questions... Take the time, it will be worth it in the long run!

Strategic considerations when Buying the family business

Think about this; Statistically 75% failure rate for second generation owners. However, you will most likely know this business better than any other business you would consider buying.

To initiate the process all parties should come to an agreement on the value of the family business. We strongly recommend you invest in an independent third part valuation from a Chartered Business Valuator. This eliminates the “best guess” and the “I feel it should be worth this much because we spent so many years building it...” estimates. While the list of factors is quite long, when considering buying your family business you have to determine how you will fund the transaction, how much is outside financing, how much is family financing, and the consequences of both kinds of payments on cash flows over the payout period. You need to carefully consider the potential risks of the loss of the business before you have fully paid out your family and the impact of that reality on both you and your families future. It is critical you work through the process of coming to agreement on what your roll will be after you all sign off on the deal, and how family members will exit the day to day operations of the business. This process has to include risk mitigation issues like your name being placed on guarantees, security agreements etc.. MAXIMA has an effective process to work with all parties to establish a formal mutually agreeable business model to complete the buying the family business model.

Strategic considerations when Buying the Business you work for - Management Buyouts

It is not unusual for existing personnel to be interested in taking over and buying the business they are part of. Your plan for buying a business should include a number of logical steps, calculations, and homework. While every company is somewhat the same they are also somewhat different. Your process to buy a business should include:

1. Having an independent Business Valuation completed to clearly and fairly state the Fair Market Value of the business. This eliminates room for miss-understandings and “best guesses” or “I feel, because...”. When the business owner and the management see an independent business valuation document, all parties are working with the same facts. There is still room for some tweaking adjustments like working capital, cash purchase verses some vendor carry however the business valuation will demonstrate a clear range of value.
2. Another key concern when buying a business from your employer is the process of determining where does the funding to pay out the owner come from. Buying a business from your boss typically includes determining how much financing the boss is willing to carry for some future payout. As the person buying the business you need to understand this creates increased RISK for the Owner. It is important to understand and be prepared to work with the fact the owner will need to have ability to protect his investment if the business starts to wander from the course it has been built on. Management buy outs definitely can work, however both sides need to be well prepared for the challenges and time frames to complete the process. In the end both sides have to agree to a win-win model or the deal for buying the business will create significant grief for both the Buyer and the seller.

Strategic considerations when Buying a Business from a Competitor

As a competitor you have several choices for how to pursue and successfully complete the process of buying your competitors business. As business people we all like to think that everything is available for purchase for the “right price”. The truth is there are some cases where you do not want to buy your competitors business for any price. Competition inevitably means one party wins and one party looses. If there is a strong history of antagonism between the Buyer and Seller, there is only a very small chance a successful deal can be negotiated. Even the initial discussion can lead to venting the hard feelings over clients “stolen or bought” away, ideas for competitive advantage that seem to have mysteriously been discovered before the roll out, or staff that has been “chicken hawked” away. The successful process to buying your competitors business must consider both sides of the transaction.

The truth is when your Competitor is Selling his business to you, a Competitor, the process is full of dangers to that business and typically has almost no consequence to the Buyer. As the intelligent Buyer you should consider the real meaning of that challenge. Before you say yes, here is the check, they have to show you everything about what they do and how they do it. Many people underestimate the RISK associated with this solution for buying your competitors business. By the end of the Due Diligence process you will know your Competitors clients, staff, profit margins, their “secret herbs and spices”, their future upside, and you still have the ability to walk from the deal. This all spells MAJOR RISK to your competitor. When buying your competitors business an intelligent Buyer must find deliberate ways to reduce that risk to increase the chances of successfully completing the deal. MAXIMA has worked through this process a number of times and has developed proven processes to reduce that risk by keeping the playing field level.

Strategic considerations when Buying a Business from a private Owner

While a business worth buying may be the challenging to find, their are a number of ways to successfully work through the process of buying a business from a private owner. First priority is to become aware of opportunities. This may include:

1. Letting your network know your looking. While people rarely take out a full page add to say I have had enough, I want to sell my business, they do talk with their friends.
2. Work through the WWW and work your way through the many forms of data listing services, brokerage listings etc. While this can be frustrating and time consuming, the process is all part of becoming more aware of what is going on in the marketplace.
3. Talk to different Business Brokerages. Typically they will be listed in the Yellow Pages and easily searched out on WWW.
4. Be prepared to answer some qualifying questions. Brokerages get calls everyday from someone looking for the perfect business for sale. When the Broker asks what sector of industry your interested in, if you say “oh, don't know” or “oh, don't care as long as it makes money”, you will be moved to the “flake section” of the data base and don't hold your breath waiting for a call back. When the Broker asks you about the dollar value of a deal your looking for, you should know how much cash you have, how much access you have to a credit facility, and a rough estimate of the deal size. To save all the discussion on EBITDA or NET or Normalized Adjusted NPBT for another day, simply have an basic idea of your target range. i.e.: a transaction value of $2M or less. While it is safe to assume the target business should have some self financing capabilities, this early in the process the Broker wants to know what radar screen your on.
5. Ask the Broker what radar screen the their firm typically work on. If 5 of the last 6 deals the brokerage completed were less than $1M, regardless of the one deal for $2M, you know what radar screen they are on. If the last 5 deals were over $20M you know who your talking with. The last 5 deals MAXIMA has completed were between $2M and $8M which is our radar screen. We have built a deal in the $30M range however that is not our typical deal size. We proved we can get those deals done, however, more importantly we have proved we are really good at our radar screen.
6. Another strategy is to engage a firm like MAXIMA to locate a business that fits your target profile. For a Work Fee to cover the time it takes to complete all the research and leg work, and a Success Fee on closing, MAXIMA will save you literally HUNDREDS of hours and complete the modeling, cold calling, qualifying, introductions, and will locate a business worth buying.

Buyer verses Seller

Every situation has two sides. What is the difference between the Seller and the Buyer?

It’s this simple:

Buyer’s priority: To get the best deal possible (lowest price with longest payout).

Seller’s priority: To get the best deal possible (highest price with fastest payout).

MAXIMA’s goals for helping you Buy a Business

#1 Goal: We are your Champion through the process of successfully helping you buy a business in a timely and effective professional manner.

#2 Goal: To make best use of proven “Best Practice” processes and strategies to successfully help you buy a business.

#3 Goal: At MAXIMA we operate with highest level of integrity in all our Client and Marketplace interactions.

MAXIMA will only represent one side of any deal!

MAXIMA will act on the BUYERS behalf or the SELLERS behalf; but never both.

At MAXIMA we manage the process of helping you Buy a Business. We do this through a strategic process developed since 2002 which includes:

1. MAXIMA takes the time to develop an understanding of what your target business profile for your perfect Business to Buy looks like.
2. We strategically apply that profile to a master database of incorporated Businesses by sector to develop a targeted short list for your review.
3. This means MAXIMA spends many hours researching the marketplace to identify Buyers that fit your target profile.
4. MAXIMA develops the script and literally direct contacts the target list, not by blanket emails or spam mail, but personally. The script is designed to protect your confidentiality, measure the potential targets interest in selling their business, and confirming the target is a worth buying.
5. MAXIMA acts as Gatekeeper to keep the potential Sellers who do NOT match your target from consuming your times and resources.
6. MAXIMA employs a strategy to work within the risk models associated with each target.
7. Once we are ready to move forward towards buying a business, MAXIMA assists you through processing and completion of the multilevels of financials, historical data, and corporate documents required to complete the process buying a business.
8. MAXIMA helps you work through the Business Valuations process to establish a defendable range of current fair market value as part of the negotiation process.
9. We assist you with negotiations and structuring of the sale of the business to maximize the overall benefit to you, the Buyer.
10. MAXIMA then works with you, your accounting adviser, tax adviser, and lawyer to complete the paperwork and documentation required to complete the deal.