Buying or Selling a business can be a daunting task. The following questions may help explain some topics that are on your mind.
How are businesses valued?
Most of the businesses for sale with us are valued on the following;
- The amount of money they earn.
- The desirability of the industry.
- The associated risk factor.
Higher prices will be paid for businesses in more desirable industries that are operating in a market perceived as low risk. These types of businesses are in strong demand. Therefore the value of the business will be greater than for one in a less sought after industry and perceived to have a higher risk factor attached to it, despite the fact that both businesses may make the same amount of money.
Most small owner-operated businesses are valued according to the cash surplus available to the owner. Depending on the industry this will vary. The amount will depend on factors such as the industry, location and length of time in business.
Larger businesses are valued on either a return on investment (ROI) or a price to earnings ratio (PE). Once again this will vary depending on the industry and the amount of net profit generated by the business.
When you have your first meeting with one of LINK business brokers they will give you an overview of values of businesses within the industry sectors of interest to you.
What is LINK's 9 step sales process?
How can I be advised of any new businesses available as soon as they are listed?
Some industries are very sought after and newly listed businesses sell quickly. To ensure you are aware of new listings we provide a unique service by sending you an automatic email with details of any new listings that match the criteria you have pre-selected when registering for this exclusive service.
LINK business brokers can register you or you can do it online through the Register toolbar.
Many of the businesses we list are sold before they are advertised. By registering to buy a business you will receive priority notification of all appropriate new listings from any one of Link’s team of brokers, not just from the broker you have initially met with.
How do I find out about businesses for sale I'm interested in?
If you are serious about buying a business you should make an appointment with one of Link’s specialist business brokers who is knowledgeable in the industry sector that interests you. Link business brokers specialise in the sale of businesses in which they have prior industry experience thus giving you access to industry-specific knowledge. Your broker will ask specific questions in order to find the business that is best suited to your requirements. And don’t forget to search for businesses for sale by using the Link search bar.
You will be asked to sign a Deed of Confidentiality before receiving confidential information on any business you are contemplating buying. This protects the owner of the business by ensuring information you receive will be treated as confidential and not passed on to other parties. Business owners want to be assured that the information given out to a pre-qualified buyer will be treated in confidence.
Once you have decided to buy a business you will benefit from an initial meeting with one of Link’s Business brokers and they will have your name in mind when any new business becomes available.
How do I know that what I have been told about the business is true?
When you initially look at a business certain information will be supplied. However in some cases the owner of the business will be reluctant to reveal too much about the business until an offer is made. Many aspects in the operation of a business are commercially sensitive and confidential, thus a business owner would not be wise to disclose all until a prospective purchaser has indicated a serious intention to purchase by making a conditional offer.
A conditional offer is normally subject to the purchaser performing due diligence, a process whereby you as the purchaser requests, for scrutiny, specific information on the operation of the business. The owner will supply this information under due diligence. The buyer must maintain the strictest of confidentiality through this process and must not disclose any information to other parties with the exception of any professional advisors they are using in the process.
The due diligence process is for the benefit of the purchaser, giving you time to complete the verification process. If satisfied with the end result the agreement proceeds and you become the proud owner of your new business. If however you are not satisfied with the results of the due diligence, then the owner is advised accordingly and the agreement comes to an end. The deposit money held in trust is refunded in full.
What happens when I find a business for sale I wish to buy?
Once again, buying a business through a broker will help you in this process. The business broker will explain the process to you and guide you through it.
The business broker will prepare the sale and purchase agreement for you. This is the document used for making an offer to purchase the business and needs to include special conditions to protect you throughout the process. Likewise the owner of the business will want to know that the confidentiality of his business is protected through this process.
The agreement used is an Auckland District Law Society Sale and Purchase agreement (or equivalent territorial document) and contains conditions that protect you, the purchaser and also the owner of the business. The document details information regarding the business along with the price you are offering and the special conditions relative to the offer. At this stage you will also need to pay a deposit. If you are buying through a licenced Real Estate company such as LINK the deposit is held in a trust account until the agreement becomes unconditional. If the conditions upon which you are prepared to buy the business are not met then your deposit is refunded in full without any deductions. The trust account is audited and operated under very strict legal requirements.
Before signing the agreement it may be advisable to have your lawyer review the agreement. When choosing a lawyer it is important to use one familiar with the process of buying a business. Business brokers are not qualified to give legal advice and likewise lawyers are not experienced in selling businesses. Your lawyer will be looking after your interests just as the lawyer for the seller will be doing for their client, and the agreement must be workable for both parties. Ultimately the lawyer works for you and you must have a say in everything that is done.
Once you have signed the agreement it is then presented to the business owner who will either accept it or make the necessary alterations before returning the agreement to you for your acceptance or further alteration. This is called negotiation and the agreement may go back and forth several times until both parties are in agreement. This is the work of the business broker who will liaise between both parties and often, through experience, bring solutions that can result in both parties reaching agreement.
What initial information do I need to gather?
Gathering all the information you need to make an informed decision should start with the basics.
Price – is the business within your budget and can you fund the purchase?
Location – is the business suitable for you and is it in a good area for this type of business?
Lease – how long is the lease and are there rights of renewal (ROR)?
Rent – how much is the rent and other associated outgoings?
Staff – how many employees (full-time or part-time)?
Income – how much money will you earn? How long has the business been operating?
What is the ideal business?
We are often asked what the perfect business is. There is no perfect business as each business and industry has its own unique set of challenges for the owner. It is important to buy a business in an industry that you relate to and believe you can learn and be comfortable with. We have sold businesses where the owners have moved into an industry with no past experience but they could relate well to that industry. Look to buy a business with an eye towards what you can do with it, how you can improve it and how you can use your ideas and enthusiasm to make it more profitable and productive.
A new owner can sometimes see potential in a business that the current owner can’t see simply because of the new owner’s skills. Whatever the type of business, make sure that it will be fun for you and you will enjoy what you do.
What type of business broker should I use?
It is important to have a business broker who is knowledgeable in the industry you want to buy into. Link Business brokers specialise in business categories that they have experience in, thus giving you a business broker knowledgeable in that industry and experienced in the process of buying and selling a business.
Please use the search bar on the top right hand side to find that special business you are looking for, and/or Register with us for regular email updates. If you would like an Advanced Search click here. You can also contact a Link Broker directly and enhance the probability of finding the right business for you.
When you make contact with LINK company, ask for the broker who specialises in the type of business you are seeking to buy. At any one time Link has over 250 businesses for sale.
When can I inspect the business?
Once again, confidentiality is paramount and your business broker will arrange a time with the business owner for you to inspect the business.
A physical inspection of the business should come at a time when you have considered the financial information given to you, are satisfied with this and wish to proceed further. Remember however, that the owner of a business will be very sensitive about your visit. On the one hand they will want to provide you with all the information you require, yet on the other hand they will not want staff to know why you are really there. Please respect this sensitivity and have the courtesy not to embarrass the owner.
Why should I pay someone to buy a business when I could start one up?
There are four main reasons:
- There is a large failure rate in new business start-ups whereas an existing business has already shown that there is a need for that product or service.
- Financial records on the business are available so you can see if it is making a profit and what spare cash you should have to live off and pay your financial commitments.
- The existing owner of the business will in most cases stay on for a period of time to train you. This enables you to learn a new industry and to share their knowledge and experience.
- It may be easier to borrow money as the business has an established track record to cover debt servicing costs.
Why should I use a business broker?
A professional business broker can provide you with many different business opportunities including some that you may never have considered. Frequently we have people buying businesses they had never considered buying until the business broker explained how this business could be suited to them. All Link Business brokers have owned their own businesses, understand and relate to the process you as a buyer are going through and can provide you with helpful information on the business you are considering buying.
An experienced specialist business broker has industry knowledge that can assist you when considering buying a business and will normally have a selection of businesses for you to compare. Link Business brokers have prepared the necessary information, gathered financial documentation and compiled it in an information memorandum for you to review.
There is no cost to you in buying through a business broker; their fee is paid by the seller.