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  • Buying a Business That Makes You Rich

    Oct 1, 2014

    IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by John Martinka of Martinka Consulting:

    You Can’t Buy a Business Until You Find One

    An awakening moment for most business buyers is when they realize there is no Multiple Listing Service of businesses-for-sale. Numerous sources state that as many as 80% of businesses are sold without being advertised or listed.

    A more appropriate comparison is to what it takes to find a job. The statistics are about the same; the outplacement industry tells their clients that up to 90% of management and executive jobs never make it to the Internet job posting sites, or the recruiters.

    And the comparison doesn’t stop with the numbers; it carries on to the methods used to find a business or a job. In a recent edition of Mergers & Acquisitions magazine there was a discussion about how to find businesses. One participant stated that buyers must:

    • Work with intermediaries
    • Network
    • Directly solicit companies

    It’s what I recommend in my book, Buying A Business That Makes You Rich, and is the same strategy job seekers are advised to do (substitute recruiter for intermediary). There’s a reason for this strategy, these are the only three things you can do and when done properly it works.

    So where does the process breakdown? Why do industry sources state that up to 90% of business buyers never buy a business? It’s the same reason surveys of owners and CEOs state for unfulfilled strategies – poor or no implementation.

    The bottom line is that it takes time and work to find and buy a business. Too many buyers don’t know what to do or are not willing to put in the effort to be successful. So they troll the Internet, send a few emails and rarely go as far as picking up the phone.

    Buying a business is a relationship game. The buyer and seller must have rapport. The buyer and the broker must get along.

    Here are five tips for a successful acquisition:

    1. Implement a search strategy that accesses 100% of the market. This means you have to put in time, do things the right way, do those things consistently and constantly because this takes time.

    2. Cash is King, as is cash flow. You need enough money and the business must have the cash flow to make debt payments and grow.

    3. If cash is King then the Queen is relationships and like in chess the Queen is the most powerful piece on the board. Buying a business is a relationship game. The buyer and seller must have rapport. The buyer and the broker must get along. Nobody will buy from or sell to someone they don’t like and you don’t build a relationship via email (with a seller or broker). No seller will share their “secret sauce” with a stranger (which you are at a first meeting).

    4. Know your search and screening criteria. Don’t try to force the square peg (you) into a round hole (the business). If it’s not a match for your skills or you have no interest in it then say no and move on to the next one. Buyers get excited when they see where they can add value so you better know how you’ll make the business better or you’ll end up with a boring job.

    5. The bigger the spreadsheet the less chance of a deal. Don’t get analysis-paralysis during due diligence. Diligence is a time for confirmation of what you’ve been told (you don’t want any surprises). Too much minutia equals no deal as every business has issues. The good ones have learned how to overcome those issues and be profitable.

    John Martinka is know as The Escape Artist® for his work helping executives escape the corporate world and helping owners prepare so they can sell with style, grace and more money. You can reach him at 425-576-1814 or www.martinkaconsulting.com. His books, Buying A Business That Makes You Rich and If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want)? are available in paperback and for the Kindle at www.amazon.com.

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