An Executive’s Strategic Guide to Buying a Business (Part 2 of 4)

Where to begin?

Obtain a solid and realistic understanding of the businesses-for-sale marketplace and how to think about your search.

Understand the Landscape

There is a substantial imbalance in the acquisition marketplace; there are many more buyers looking for a good business to buy than there are sellers looking to sell. Even with higher interest rates challenging recent years’ valuations, it is still a sellers’ market. Private Equity dollars looking for a home is one driver impacting the inventory of businesses to buy; PE is buying smaller and smaller companies and outcompeting individual buyers for cash-flowing businesses with solid infrastructure.   

An individual buyer’s opportunity will likely be an underperforming business. Do not be dismayed; this can be a great opportunity. Even with some fixing to do, there are some customers/revenue in place, and some of the start-up climb behind you. Often, a buyer can buy such a business for less – sometimes much less – than what it would cost to launch it from ground zero.  A buyer of an underperforming business may achieve the best ROI; buy low, right the ship with some added capital and sweat equity, and enjoy tax-advantaged income while building an asset with greater future resale value.

Identify Low Hanging Fruit

You’ll want to identify the immediate changes and improvements to be made quickly upon acquiring a business that will positively impact profitability and growth. The seller should be able to speak to this and give a reasonable explanation as to why s/he is not already implementing them. There are numerous legitimate reasons a seller is ready to sell their business and not pushing growth; age, losing steam, health, life changes, ready for a new challenge, lack of capital are all common motivations and can present an excellent opportunity for a buyer.

If your acquisition of interest is part of a franchise brand, also talk with the franchise HQ field operations coaches responsible for the region where the selling franchisee is located. They can offer added insights into the immediate changes and improvements to be made to get the franchise you’re acquiring on track. Similarly, conversations with other franchisees (beyond the seller) can provide excellent insight into how a high-performing franchise should operate and how you could get there if you acquire the existing outlet.

Active Involvement: The Reality Check

There is nothing “passive” about buying an existing small business. Too often, buyers have substantial misperceptions about what will be required of them when taking over ownership. You must be prepared to immediately invest a lot of time into the business you buy. It already has active customers, employees, and cultural dynamics in play; all eyes are on you, the new owner, to roll up your sleeves and be involved.

With proper involvement, investment, and planning, a purchased business can grow into a cash-flowing asset, requiring less and less of your day-to-day involvement. But it will not be this when you first acquire it.

Adopt a Productive Mindset

Too often, buyers start looking for opportunities in specific industries based on their perceptions of those industries. Instead, think about your business skills. Are you talented in sales? Marketing? Project management? Team leadership? Talent development?  Use your transferable skills as a primary search criterion and look for businesses that can benefit from the skills you already know you have and enjoy using. This approach opens the door to a broader array of options for you to consider. Most buyers are surprised by the type of business they are ultimately excited about; often, it is not an industry they initially envisioned themselves being drawn to.

Even in the most favorable circumstances, you will kiss many frogs in your business search before finding your right fit. Don’t make it more complicated for yourself by being too particular about the types of businesses you’d be open to owning.

Consider Trends

The best businesses to buy are boring. They sell services/products with known demand to a known customer base that will continue to need them. Be wary of business categories with short histories. One course instructor gave the example of artisan breweries: "They were hot, now they’re not.” Consumers are fickle, so consider whether the services provided by the business you are buying represent an enduring want or need.

Think about customer segments on the rise. The Millennial generation (larger than the Baby Boomers) is the largest demographic of home buyers and parents of young children. The need for childcare and youth enrichment/activities is not going anywhere. Same for many varietals of home maintenance, repair, and improvement. Pet ownership and pet spending are expected to continue to trend upward.  Entrepreneurship continues to grow as a viable and attractive career path spanning the multi-generational workforce. The growing number of new small businesses have enduring marketing, talent, and technology needs.

This 4-part series summarizes the content covered in the University of Georgia’s Small Business Development Center course “How to Buy a Business.”

Leslie Kuban is a nationally recognized franchise industry thought leader, CFE (Certified Franchise Executive) and advisory firm owner serving business executives exploring franchise ownership. Her consultant team has helped over 500 corporate leaders and their families strategically choose a business opportunity to start or acquire via a thorough alignment process. Leslie is frequently invited into EMBA and MBA classrooms to educate business leaders about the franchising entrepreneurship business model at top tier universities such as Emory University, Duke University, The University of Georgia and Kennesaw State University. Prior to franchise advisory, Leslie's career and family history consists of franchised and non-franchised small businesses in pack-and-ship logistics, real estate, sign manufacturing, and one-hour photo finishing.