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Choosing The Right Business

By September 12, 2016 No Comments

Fast Food? Manufacturing? How about distribution? Small mom and pop shop or publicly held corporate spin-off? Choosing a business to acquire is a lot like car buying—lots of models, lots of colors and a litany of price ranges. Fortunately there are some questions you can ask to narrow down the choices.

What is your Budget?

Don’t mistake the amount of money you plan to use, for the value of the business your purchasing. Why? Because most business buyers want to leverage their way into as large and meaningful a business (and cash flow) as possible. SBA and other bank financing, coupled with some seller financing, will make a leveraged deal possible. A quick rule of thumb would be 15-20% down. In other words, if you want to purchase a business worth $500,000, you’ll need at least $75,000 down. You’ll also need some working capital, either from your own pocket or via a line of credit.

What is your Experience?

Although driving today’s cars is rather perfunctory, getting your hands behind the wheel of a business is not. You’ll wear lots of hats and titles. Be certain that the Skillset you bring to the table will benefit the business. Of course you can and should surround yourself with employees and outside professional service providers (like a CPA and Attorney), but make sure you factor the cost of additional help into your proformas. You should also determine what role you will be playing in the day-to-day operations of the business. For example, are you planning to fill the position of general manager or chairman of the Board? Each position demands a different Skillset.

What are your Demographic/Geographic Parameters?

There are businesses for sale in every state, but you’ll want to place a delimiter on your search. Determine in advance what fits in your radar screen. Not only where you want to do business, but also what types of businesses interest you. It’s important for you to actually picture yourself doing what the business does. Sophisticated business brokers can help you find a specific business through a buyer search that will fit the parameters you require.

In the end, only you can determine which business really is a match; fulfilling the requirements that you preset. Also keep in mind that an acquisition should meet your short-term requirements such as cash flow, but provide long-term opportunity to eventually divest the business. Somewhat like an investment portfolio containing short-term returns like bonds, and long-term investments like stocks. Again, like buying a car, if you’ve done the right research you’ll have a business with that new car smell, one that you’ll be proud to show off to your friends and neighbors.

 

Bradley G. Marlor MBA, CBI is a Managing Partner at Utah Business Consultants and a Certified Business Intermediary with the International Business Brokers Association. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.  He can be reached at brad@ubcutah.com.