This article provides tips and tools for finding businesses that are not actively listed for sale, otherwise known as the “hidden market,” or in the M&A world of larger businesses, “proprietary deal flow.” If you are an individual buyer using these tips, you’ll be able to source deals with less competition. However, the competition you do face will be specialists including financial buyers, strategic buyers, serial or repeat buyers, and intermediaries who are all looking for business owners who are ready to sell. If you are searching for smaller main street businesses under $1M in sales, you will have even less competition.
Towards the end of this article, there is a table comparing different strategies for finding off-market businesses for sale. Buying off-market businesses is an advanced technique that requires going it alone without an intermediary. If you have never acquired a business, you’ll want to beware of the challenges in buying off-market businesses and you’ll want to read about essential tips for buying a business.
1. Call Business Brokers For Off-Market Listings
With more experience and successful acquisitions under your belt, it might be possible to find off-market businesses by networking with intermediaries. If you have proven to be a qualified and professional buyer, you will make life easier for intermediaries who will think of you first. Their ability to provide early access to a business depends on the business owner. Some business owners do not want to actively list their business for sale, while others do.
Business Brokers are intermediaries who help people buy and sell businesses. Their job is to assemble lists of Buyers. They often brag about their buyer lists to potential Sellers in order to secure listings. However, their best Buyers are a small subset of the larger list they have accumulated over the years. The subset that matters is the recent, active, and qualified Buyers. If your abilities and finances fit certain businesses in the broker’s pipeline, you may propel yourself to the top of their buyer list.
Brokers develop a pipeline and are often dealing with business owners weeks, months, and sometimes years in advance of a listing. If none of the current pipeline businesses fit your criteria, the broker may or may not develop a buyer profile of you in their database. This depends on how organized or active the broker as, well as how qualified, prepared and persistent the buyer. Take a look at the correspondence I have received from actual buyers and you can see their various approaches.
Occasionally, business owners will tell brokers they don’t want to list their business for sale, but “call back when you have a buyer.” These owners are not highly motivated and are a low priority for brokers. The broker may not even take the time to track these owners, choosing to direct buyers to active listings only or owners in the process of listing. Wile the chances of finding off-market sellers captured in brokers’ databases is low, it’s not out of the question. Buyer’s seeking off-market listings need to be organized, diligent, and efficient in their approach.
2. Tell Friends and Acquaintances You Want to Buy a Business
As a serious business buyer, you have to become comfortable sharing your goals with your sphere of influence. You probably know many business owners. Your friends probably know many more business owners or are business owners themselves. We all utilize home services from small business owners for maintenance, repair, construction, cleaning and landscaping. We patronize auto services and parts stores, child care, pet services, health and beauty services, dry cleaners, restaurants and retail shops. Most of these businesses are owned and operated by small business owners.
Start networking and put the word out. Think about all the groups you are associated with and that’s your sphere of influence. This includes friends, family, memberships, schools, churches, gyms, clubs, kids’ clubs, teams, fellow parents of your kids’ activities, and even co-workers. Do not be a secret shopper. If you prefer to keep your pursuit of a business confidential, you are better off looking at business for sale listings online.
3. Tell CPAs You Want to Buy a Business
CPAs are typically the number one trusted advisor for a business owner. CPAs and their clients often discuss the health of the business and owners often confide in their CPAs when they start thinking about an exit. Also, I have met several CPAs who have businesses themselves or left accounting to go into business.
Let your CPA, tax professional or bookkeeper know about your search to acquire a business. Use that interaction to develop a plan to approach other CPAs and tax professionals. Once you can present yourself as a qualified Buyer, modify and refine your approach to include simple scripts, email lists, and an email campaign.
EXTRA
- Now that you have a more professional approach to accessing the hidden market through CPAs, apply your process to other professionals that work with business owners such as attorneys, insurance brokers, estate planners, and small business consultants.
- Buy and run an accounting practice. A side benefit of such a practice is a steady lead flow of off-market businesses for sale. (CAUTION: This advanced technique is not one I recommend for everyone. It requires you to handle your fiduciary responsibility and manage conflicts of interest. You will inevitably need to bring in intermediaries to value your acquisition targets. You should advise the Seller to seek tax advice on the sale from someone outside your accounting practice.)
4. Join Local Networks To Access Hidden Business for Sale
The Chamber of Commerce is a low cost way to access the business owner community in your area. Professional networking organizations like BNI and LeTip are more expensive to join but may be worthwhile if you already own a business you want to promote. If you don’t already own a business, these organizations welcome guests and many of them incentivize members to bring guests. If you live in a dense metro area with several of these groups, you could potentially rotate as a guest and not hit the same meeting twice for the better part of a year.
Your area may also have networking groups and meetups that are not aligned with a national organization. In all of these groups, some of the key professionals you want to establish relationships with are CPAs and accountants, owners of many businesses, and “super” networkers. Consider an inexpensive business card showing your credentials and types of businesses you are looking to buy.
5. Access the SBDC’s Business for Sale Ecosystem
Small Business Development Centers exist around the country as a resource to help entrepreneurs and small business owners. Their focus is business growth, not business for sale, per se. However, their ecosystem includes the professionals you as a business buyer want to target. These professionals include consultants, CPAs, attorneys, insurance professionals and more. Some SBDC’s are more active than others such as the SBDC at College of the Canyons in north LA County. You may be able to find free events or educational webinars to attend. You may even want to schedule a free meeting with a business counselor to learn about resources to help you down the line when you take over a business. Getting involved in the SBDC “ecosystem” could lead you to a business to buy that is not for sale.
6. Target Hidden Businesses for Sale in Specific Industries
Once you graduate from the “world is my oyster” mindset common to new business buyers, you will narrow your focus to fewer industries or niches. This allows you to go deeper and join the relevant industry associations and/or their forums online. You can get insights from user discussions and you can search forums for business for sale. Find ways to submit evergreen posts (this may boil down to a paid ad for “business wanted”) or periodically submit a post stating your interest in an acquisition. You may reach people who are part of a mastermind group for their industry. These mastermind groups are often well-established with long standing members who know when other members are preparing to retire or exit their businesses.
7. Call Owners Directly About Selling Their Business
If this sounds daunting, keep in mind that this is what many business brokers do and they have a process. There is a way to make it less daunting and do it at scale if you have the ability and willingness to invest in outsourcing this task. The first step is to purchase a targeted list of business owners by industry, niche, geography, size, etc. The second step is to develop a simple script. The third step is to call them, or outsource these calls to a virtual assistant or inside sales / telemarketing service that specializes in these types of calls. These outsourced services can be very effective in lining up appointments directly with owners considering a sale of their business. While you will have to invest hundreds of dollars in a list, as well as hundreds of dollars monthly for these services, there could be a reasonable, although not immediate return on investment. Read more about how to contact business owners directly about selling their business.
8. Email Owners Directly About Selling Their Business
This method is a little less direct than calling business owners. However, it can be a smaller investment and, in my experience, just as effective if not more effective than calling. Again, you would purchase a targeted list, this time requiring valid owner emails from the list provider. If you want to both call and email or at least have that option, you could pay for both phone numbers and emails at the same time for not much extra cost. Selecting the right service to send the emails on an effective schedule with the right messaging is critical. If you can afford it, I recommend outsourced email services over doing it yourself with Constant Contact or MailChimp.
| NOTES on contacting owners about selling their business |
- There is a specific approach to contacting business owners directly about selling their business when they are not listed for sale.
- There are services that will call business owners and other services that will email business owners.
- A side benefit of engaging these services during your search is that you can utilize the same services to obtain customers once you own a business.
9. Post “Business Wanted” Notices Online
If you already have a business or location that gets decent foot traffic, create a simple “Business Wanted” sign with a short description and your contact information. Better yet, harness the power of online marketing. Look for opportunities to post “Business Wanted” listings on Craigslist and the major online markets where businesses are traded like BizBuySell. You can even put a short line or two in your email signature letting everyone you come in contact with know that you are searching.
See the complete list of online marketplaces to Buy a Business. Some of them may facilitate a Buyer Profile for free or for a fee.
10. Use LinkedIn and Dux Soup to Find Businesses for Sale
LinkedIn Sales Navigator allows LinkedIn members to pay for a premium service to reach other members. You can target business owners, as well as your own LinkedIn network, to let them know you are searching for a business to acquire. Dux Soup enables you to turbo-charge your outreach campaign without getting into trouble with LinkedIn rules and potentially losing your LinkedIn account.
11. Hire an M&A Firm to Find Targeted Businesses to Acquire
This technique is typically used by companies looking to grow through acquisition or, in some cases, high net worth individuals. M&A Advisors charge thousands of dollars monthly to engage in a concerted effort to find your target. This type of activity takes dedicated skilled M&A personnel and is not typically done by Business Brokers for main street Buyers.
12. Buy Out Your Business Partner, Boss or Family Member
Clearly you would have thought of these options if they were available to you. Nonetheless, these transactions are part of the hidden market of businesses for sale even though they are being sold “internally.”
Internal sales can be challenging to complete, so there may be opportunities for outsiders to buy these businesses off market.
- Buy-sell agreements between partners often fall short of addressing buyout scenarios.
- Employee buyouts can take on many forms and levels of complexity from individual employees to employee Co-ops or ESOPs.
- Family succession is often difficult due to lack of qualifications, desire, or funds from the next generation or other family members.
Advantages of Buying Businesses Not Listed for Sale
Performance: One of the reasons a business may not be listed is that the business is doing well. Aging owners are less likely to be thinking about selling during good times, even though that is the time they can get more money for their business. Caveat: while an off-market business may have good performance, this is not a guarantee. At some point, you will start connecting with owners who responded to your inquiry for a reason. While you may have unearthed a gem, you may have also reached a business that is not performing well.
Competition: In the hidden market, you won’t be competing with all the other Buyers looking for a business. In general, competition is low and if timing is on your side, none of the other potential Buyers will have contacted your target business at the same time.
You’re Building a Database of Potential Sellers: As you pursue the hidden market of businesses for sale, there will be owners intrigued by your interest, but not quite ready to sell. If you have sufficiently impressed them during your interactions, you may be the first one they call when they are ready to sell. This may not matter if you have already moved on, but a list of potential sellers becomes important if you become a serial Buyer and embrace growth through acquisition.
Read more about how to buy a business directly form the owner.
Disadvantages of Buying Businesses Not Listed for Sale
While there are distinct advantages to uncovering the hidden market of business for sale, it takes commitment and effort to be successful. There are some significant disadvantages depending on your experience level.
Unprepared Owner: An owner who has agreed to discuss selling their business is unlikely to be prepared with all the documentation you need. Information gathering and due diligence could take you much longer than the traditional process of buying a business listed for sale. You will have to perform all the work that a business intermediary typically does, unless you decide to bring in an intermediary with the Seller’s approval. This can be challenging since someone has to pay the intermediary a success fee if the sale goes through or possibly a fixed fee for managing the transaction.
Unrealistic Owner Expectations: The owner may feel his business is worth more than it is. This is very typical unless they tried to sell in the past or received a third party opinion of value. Please note that opinions of value from a CPA or advisor other than an intermediary is less likely to be realistic since intermediaries are the ones actively selling businesses. Businesses listed for sale get valuable market feedback and those owners eventually learn the true market value of their business.
Owner Creates Competition for You: While some owners fear the formal process of listing their business for sale, others may not fear it. For these owners, you may have simply sparked an interest that causes them to contact a business intermediary or other potential buyers.
You Don’t Have a Blueprint for Buying a Business: Unless you have acquired multiple businesses, you may not be familiar with the mechanics, legalities, and perhaps most importantly, the psychology of buying a business.
Summary of Tips to Find Business Not Listed for Sale
Here is a comparison of the best ways to find businesses not actively listed for sale. Each tactic has a likelihood of success that is partially dependent on how the activity resonates with you. You should engage in multiple tactics to increase your chances. I recommend selecting one to three tactics where you feel you can excel.
| Tactic | Monthly Costs | Effort/Time | Effectiveness | Targets<$1M Revenue | Targets>$1M Revenue |
| Call Intermediaries For Off-Market Listings | $0 | Medium | Low | Y | Y |
| Tell Friends and Acquaintances You Want to Buy a Business | $0 | Medium | Low | Y | Y |
| Tell Your CPA You Want to Buy a Business | $0 | Low | Low | Y | Y |
| Join Local Networks To Access Hidden Business for Sale | $50 – $200 | High | Medium | Y | Y |
| Access the SBDC’s Business for Sale Ecosystem | $0 | High | Medium | Y | N |
| Businesses for Sale in Specific Industries | $50 – $200 | Medium | Medium | Y | Y |
| Call Owners About Selling Their Business | $400 – $600 | Low (outsource) | High | Y | Y |
| Email Owners About Selling Their Business | $200 – $300 | Low (outsource) | High | Y | Y |
| Post “Business Wanted” Notices Online | $200 – $300 | Low | Low | Y | Y (directed) |
| Use LinkedIn and Dux Soup | $200 – $300 | High | High | Y | Y |
| Hire an M&A Firm on Retainer | $3,000 – $5,000 | Low | High | N | Y |