Both the buyer and seller want a fair deal during the transaction of selling a small business. How do you ensure that you, as the buyer, get the best deal possible? Well, let’s be honest, you’re going to have to do the dance. The dance is negotiating, and a business rarely sells for the selling price right off the bat. There’s always a little dickering back and forth, and it’s a sport for some people.
Evaluate the value of the business.
You’re probably going to need a professional to help you do this. You’ll need to have them look over the business’s financials. That means they’ll look over the expenses, how much they’re bringing in, and all that money stuff. You need to know how much money the business is making so you can make an educated offer for the business.
It’s possible that you can do all of this yourself if you have the skills. You’ll have to factor in how much the location of the business is worth and all the equipment. If you’re dealing with a business with a lot of moving pieces, there will be quite a bit of stuff that you’ll need to factor in to determine its value.
Perform thorough market research
Market research is key to determining where you think the business is headed in the future. It also gives you insight as to what you can expect in the near future. If you’re buying a franchise that is currently on a downswing, it’s probably safe to say that the trend downward will continue.
Researching the market also means you need to take a look at your competitors. See how well they’re doing, and try to determine how long they’ve been in business. It doesn’t hurt to take a stroll in their business and have a look around to determine the health of the business. If you’re thinking about buying a coffee shop, go to your competitors, have a cup, and pay close attention to how many customers they get and what the average order size is. All of this information will be useful to help you understand what type of market you’re getting into.
Have a number in mind before you begin negotiating
You don’t want to plop down at the negotiating table without an amount in mind that you’re willing to pay for the business. When you buy a small business, it’s important that you have a number that you can work with, or the owner will try to take advantage of you.
If you know the business is worth half a million dollars, you don’t start off with that amount because the owner is going to go above that. The amount you begin with should be around four hundred thousand dollars or a tad lower, so you have a way to work it up.
Meeting someone in the middle makes both parties feel good, and that’s what you’re trying to achieve. Even though you’re willing to pay half a million dollars, you don’t start with that amount because you’ll end up paying much more. The owner will then go down to three-quarters of a million dollars, and you’ll have to dance around that number until you settle for something closer to what you want. Start low, work your way up, and you can end up paying a price that doesn’t make you pucker up like you’ve just eaten a lemon.
Come to terms with the deal after you’ve determined the price
The terms refer to how you’re going to pay for the business. Are you going to make payments? Maybe you’ll pay it all at one time, and that will be it. It’s entirely possible that the owner of the business will allow you to make the payments until you’re clear. Don’t count on such a deal because a lot of business owners want to settle the deal and get it over with.
The terms will also include when you take over the business. You’ll need a little bit of a transition time so that you’re able to work out the kinks before they completely hand over the keys to you. If you’re buying a retail establishment, you’ll need to learn how to operate things like the cash register and any other equipment that’s necessary to run the business.
Conclusion
Don’t get screwed. That’s being a little blunt, but it’s easy to get screwed when you’re buying a small business. If the seller isn’t willing to come down to the price you want to pay, walk away from the deal. Don’t pay more for a business than what it’s worth just because you love the place. You’re in this to be profitable, not to own a business that’s going to bleed you dry.
