One of the best growth strategies for your current business—or to expand your investment portfolio—may be to buy another established, thriving business. This approach can help you expand your market, extend your reach, access new capabilities, overcome capacity constraints, or fold in critical parts of your supply chain for efficiencies and cost savings.
Lots of owners who are interested in this approach look for businesses through brokerage websites. They sometimes spend months or years looking for a business that’s stable and profitable and matches their business objectives. Too often, their searches for businesses come up short. Here’s why: The listings they find aren’t the perfect match that they’d hoped for, and those that are nearly perfect often have a pool of interested buyers eager to buy the business.
Instead of waiting for the right business to list and vying to be the first to make an offer, consider this workaround. Buy a business that isn’t for sale.
Is this a smart play?
It can be. Follow this step-by-step guide to explore your options and decide if this style of acquisition is right for you:
Determine what you’re looking for.
If you’re a current business owner, you may consider businesses that could help you expand your offerings, reach new customers, or save on inputs or distribution costs. Home in on the factors that are most important to you. Then, use them to set the parameters of your search.
Explore your options.
Identify the categories of businesses that meet your criteria. Then, look for ways to connect with people who are affiliated with them. For instance, you might reach out to vendors, wholesalers, salespeople, route drivers, and others who may know which of their customer-owners are ready to retire and may be interested in an offer for their business.
You could also look into some businesses that exist in your local market and meet your criteria. If you have a specific kind of business in mind, you might expand your search to other regions to find a business that’s precisely what you’re looking for.
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Research your picks.
Develop a shortlist of opportunities and take time to learn how each one operates and competes in its market. Study industry information by contacting local business groups and relevant associations. Then, try to make informed predictions about that kind of business’s sales volumes, cash flows, and revenue numbers based on their location, tenure in the market, and other industry-specific factors. With this information, you should be able to make reasonable estimates of what an owner may want to earn from the sale of the business.
Create a buyer’s resume.
Prepare a document that describes your background, relevant education and experience, and financial capacity to buy the business. To demonstrate your financial capacity, you could either document the assets you plan to use to complete the acquisition or explain your plans to access financing.
Your buyer’s resume should help you demonstrate that you have an earnest desire to buy the business. It’ll also show that you’ve done the research that’s required to make an informed offer.
Develop your pitch.
How could you position your offer to appeal to the owner? Beyond offering a fair price for the business, you might pitch other key benefits. One might be to sell to a ready-and-able buyer without paying broker fees. Another could be selling in a way that avoids exposing their confidential business information to undiscerning buyers. You could also offer to pay for lawyer-drafted agreements, escrow, and filing fees to make the deal more attractive to the owner.
Consider your approach.
Think about how the prospective seller would prefer to be approached with an offer. If you don’t know the owner personally, try this. Write a formal letter or use an intermediary who’s familiar with the owner as your initial point of connection.
You could approach the owner directly, but this isn’t recommended unless you’ve already established a relationship with the owner. Direct inquiry makes many owners feel like they’re being put on the spot. Few will respond favorably under pressure, even if they’re interested in pursuing the idea.
Connect with the owner.
Present your offer, and give the owner time to consider and respond to it. Disinterested owners tend to ignore offers, though some will communicate that they aren’t interested in a sale. Others will accept readily or signal that they’re interested in discussions. If an agreement can be reached, you can take steps to close the deal and take ownership of your new business.
These steps can help you find the precise kind of business you’re looking for without waiting for the opportunity to present itself or navigating through a field of competitors who will drive up the final price of the business.
Interested other growth strategies to buy a business?
Check out these options:
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