Where Can I Find a Business For Sale By Owner?
There are a number of websites online where businesses are posted for sale. Most of the postings are done by business brokers. However, these sites also welcome business owners to post their businesses for sale by owner. If the listing contact does not have a company name that sounds like a brokerage firm, it is probably the owner. For an extensive list of places online to find business listings, please read Best Places to Find Businesses for Sale. Also read this article to find businesses that are not listed for sale.
How Do I Buy a Business For Sale By Owner?
Start by researching price ranges for business listings that fit your target. You’ll get a general idea of the value of these businesses so you can speak confidently with sellers and determine if they are realistic with their sale price. A quick 15 minutes of filtered searches on BizBuySell will give you a good valuation range as long as you are comparing similar businesses of a similar size. Also keep in mind that closing prices are on average 10% less than list asking prices on BizBuySell. This is a first step to understanding a reasonable price range for a particular type of business. To determine where a specific business will fall within that range requires further investigation.
If you have a reasonable seller who is motivated to sell and is still listening after you provide your ballpark valuation range, then you can proceed to offer an NDA in good faith in exchange for more information about the business. Additional information includes profit and loss statements and tax returns for the past three years, a current balance sheet, copy of a signed lease and all addenda or a recent appraisal if the real estate is owned by the seller, an overview of employees, customers, suppliers etc.
It is also important to establish chemistry and trust with the Seller. You’ll need to make a connection in order to have a chance at buying the business. The seller needs to have faith in your skills to entrust you with the business, especially if you are asking for seller financing on a portion of the price.
How Do I Approach an Owner About Selling Their Business?
Finding an owner willing to sell their business is a sales effort that requires building a pipeline of prospects. As many successful sales professionals do, you will benefit from a finely tuned script that peaks the owner’s curiosity about an exit. You will then use this script with as many owners as you can, hoping to find a motivated owner at the right time. Here’s one that is direct and to the point.
“Hi Pat, this is an interesting business that you have. I’m looking for a business myself. Have you ever considered selling your business?”
If the owner shows interest, you need to confidently educate the owner on the steps involved in selling the business. His first question might be “what are you thinking of offering me for the business?” The owner needs a rough figure to see if this is worth their time. In many cases, owners have an inflated view of the value of their business or no idea at all. In order to provide a ballpark price range, you’ll need to request a few years of profit data and offer to sign a non-disclosure agreement. You’ll need three full years plus the year-to-date profit and loss statements.
This is just the tip of the iceberg since profit and loss statements can either be clear and accurate or full of holes. If you are not comfortable with financial statements like profit and loss statements and balance sheets, you’ll need to learn before approaching business owners. You could utilize your CPA to help, but this is no substitute for learning the skills required to eventually run the business. You will also need to master the skills required for due diligence.
Search “due diligence checklist” and you will find many thorough M&A checklists. These lists are so comprehensive and detailed that only an experienced professional would know what to do with them. Due diligence for a main street business, one under $1M in revenue, is more straightforward. Nonetheless, for the novice, there is a lot to learn and professional advice is highly recommended.
Read more about How To Approach a Business Owner About Selling Their Business.
What is the Role of a Business Broker?
In most cases, a buyer will not have a business broker represent them. There are a few exceptions where there is a broker representing the buyer and a broker representing the seller. This is common in Florida, or within the CBI (Certified Business Intermediary) community, and sometimes within multi-office brokerages.
Unlike real estate, the majority of business sales are conducted by one broker or intermediary – the listing broker or M&A professional. The broker can bring structure and a process to the transaction. Since the broker is incentivized to get the deal done, they tend to be balanced in their approach with the buyer and seller. However, a buyer should clarify with the intermediary if they represent the seller or both. States that require licensing for business brokers have rules around agency. Learn more in this article about licensing requirements for business brokers.
Can I Buy a Business Without a Business Broker?
It is possible to buy directly from a business owner who sells their business with no intermediary involved. Like real estate, this is called For-Sale-By-Owner or FSBO. Because businesses have a lower success rate of selling than real estate, there are less FSBOs in business sales than in real estate sales. The exception here is smaller online businesses that often sell at low prices on digital marketplaces. Business brokers usually have minimum fees of $10-25,000 making the use of business brokers impractical for owners of very small businesses.
Why Would A Business Owner Want to Sell Without a Broker?
The obvious reason a business owner would consider selling their business by themselves is to save on the broker commission. Another strong consideration is confidentiality, so if an owner has an opportunity to sell privately without listing the business, the owner may consider it. The chances of an owner selling their business by themselves increases significantly if they previously sold a business either by themselves or with a broker.
Why Would A Business Owner Prefer to Sell With a Business Broker?
Many business owners prefer that a broker handle the sale for a few reasons. 1) The owner is unsure of how to sell a business, 2) The owner would prefer to focus on running the business, 3) The owner feels professional representation is preferable for most buyers, or 4) The owner feels more secure with a broker’s guidance, processes and contracts. If a buyer contacts one of these business owners, the owner may contact a business broker for advice. Actually, the most trusted business advisor to a business owner is their CPA. An owner may ask their CPA for advice and the CPA may recommend a business broker.
What Type of Buyer Might Buy a Business For Sale By Owner?
Clearly it takes experience or a personal connection to buy a business for sale by owner without an intermediary. Examples of experienced buyers who may bypass intermediaries include:
- Professional Buyers: Private Equity Group, M&A arm of a company, Family Fund, Search Fund
- Professionals Buying for Their Own Portfolio: Intermediaries, ex-intermediaries
- Accounting professionals experienced with business acquisitions
- Serial Entrepreneurs who have bought and sold businesses
- People Affiliated with Business Owner: friends, family, acquaintances, partners, employees, customers, suppliers
If you are not one of these types of buyers, but you still want to pursue business owners directly, read Essential Tips For Buying a Business and How To Approach a Business Owner About Selling Their Business.