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Two main reasons buyers fail to acquire a business

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After living through a year fueled by uncertainty and uncomfortable change, now more than ever, business professionals feel the need for fulfilment—they want to be excited for the future, connect to their careers, pursue a balanced work-life lifestyle and breakthrough their reservations to finally secure their dream position. 

New investors are taking the steps towards reaching their desired entrepreneurial paths. Investors are seeking alternative paths to diversify their portfolio, looking to entrepreneurship to fulfill both of their itches; an exit from the corporate world, a reason to utilize managerial expertise and an avenue to grow personal capital.

For many, the solution is to jump into business ownership through the acquisition of a pre-existing business. Yet, embarking on the journey without fully realizing what it takes to get to the destination hinders many buyers’ success in acquisition of a business.

There are two primary factors that prevent buyers from reaching the point of acquisition and transaction. These circumstances occur at the beginning of the business acquisition process when buyers search for businesses to purchase and cause a plateau in the journey to acquisition

  • Buyers lack specific search criteria: Many buyers don’t realize that defining search criteria is an essential part in the journey to actually acquire.
  • Buyers lack the ability to search effectively: A number of buyers never make it beyond the search phase because they don't have the capacity to manage a thorough search, nor are they aware of the breadth of tools and methods utilized in the search.

Here’s why defining your search criteria and knowing how to effectively search for businesses is fundamental to your achievements as a business buyer.

Defining your search criteria 

As a buyer of a business, you have to figure out what exactly you’re looking for in a business, ultimately, to find the business that is the best match for you, both financially, ethically and conceptually. 

You may have a vision in mind of the overall type of business that you want to work towards acquiring. The vision could be crystal clear, or it could be hazy, representing a general idea of what a desired business might look like and a concept of how your future within it will play out.

Whether your vision of the ideal business acquisition is crisp, or, conversely, cloudy, before taking the step to seek out business acquisition opportunities, it is essential to define your search criteria. 

The more you understand what type of business fits your search, the better chance you have of finding a business that checks all the boxes for you.

Think about it. The economic market is incredibly diverse; businesses branch throughout numerous fields and industries. It could be in your interest to pursue a business outside of your domain. With no specific education or knowledge in the industry that the prospective business serves, you need to identify the clear factors  that determine why that business is the right choice such as acknowledging the skills and expertise that you will bring to the business in order to be a thriving owner, advisor, investor, employee or CEO. 

Buyers often believe that being open to any potential business opportunity is the best plan for action. If someone were to look for a house without touchstones in mind, they would face an unnecessarily strenuous and confusing course. Likewise, buying a business is a major decision that requires responsibility and due diligence. 

It’s useful to note that business advisors who work with sellers are constantly approached by people looking to buy businesses. When a buyer is unduly open to any industry, it does not set that buyer apart from other buyers. In truth, overt openness doesn’t convey that a buyer is serious about acquiring. 

You can be open as a buyer, but when discussing your search with industry players, the more specific you are, the more serious they will take you.

So, how then, do you go about defining your criteria?

Start by identifying the basics: what is your desired business’ industry, location and value? Consider the rate of return you want your future business to obtain. Reflect on how you feel your skills align with and impact the potential business. 

Remember these five elements when designing and refining your search criteria for your desired business:

  • Personal drivers (What motivates you to buy the business?)
  • Financial ability (Is the business financially accessible to you?)
  • Business compatibility (Do you bring a specific expertise or character to this business?)
  • Market Value (Is this business valuable to the market and community?)
  • Expansion Potential (What will you bring to the business to influence its new growth?)

While you may be undecided on some of your criteria, it’s certainly not ideal to be unsure. By carefully considering the personal drivers, financial ability, business compatibility, market value and expansion potential, and how they align with your target goals, you narrow and strengthen your search. 

Knowing the specifics of what you’re looking for and clearly outlining requirements at the beginning of your journey to acquisition, will greatly benefit the process. Taking the time to do this research will make you prepared to represent yourself to buyers, communicate with advisors, and it will significantly speed up the time it takes to finalize a transaction.

The Importance of an effective search 

Once buyers have determined specific criteria for the token of their search, they wonder: where can I find interesting small businesses for sale? 

As the BDC expresses, finding businesses available for acquisition is not a happenstance process; it’s not as simple as coming across an asset with a for sale sign. The vexing condition of the search process is the fact that, unlike for real estate, there is no central MLS for business listings.

There are a handful of open-access business for sale marketplaces online that provide basic, primarily location-based, information about new business listings. But, business listings are customarily anonymous to protect the business’ privacy; therefore, without proper guidance, it can limit the ability to gather adequate information about potential opportunities beyond the location, industry and general cost. 

Plenty of independent buyers cycle through a maze of search engine quests and never stop—perpetually feeding their curiosity to know what’s out there. Even though these buyers have an understanding of what they’re looking for, they haven’t realized what it takes to actually source and manifest their desires. 

A buyer’s search to find the right business is more efficient when they know the approach that they are going to take, and when they are educated about the tools and resources that are in their reach.

No matter how long the search to identify a business that matches your criteria takes, keep focused and determined. 

How do you determine an efficient approach? Ask yourself these questions:

  • How will I investigate opportunities? There are two avenues that buyers generally take: looking for businesses already on sale, or by approaching businesses that are not yet on the market. Realizing which avenue is correct for your journey will determine the resources that you utilize.
  • Who will I communicate with to investigate opportunities? Typically, buyers search available businesses by reaching out to their networks, contacting bankers and commercial realtors, getting word from lawyers and accountants, and utilizing business brokers. Alternatively, investing in an active search with an advisory group will help you seek businesses that are not on the open market.
  • How will I communicate with advisors? Advisors put you in contact with sellers, and sellers want to know that you are a serious and educated buyer. When communicating with advisors, be sure to demonstrate your knowledge and familiarity with your criteria. Articulate that you're an earnest buyer who is motivated and ready to move quickly on the right business acquisition. Developing genuine relationships with advisors early on is favourable as advisors are crucial in the offer and transaction phases of acquisition.
  • Will I rely solely on business brokers and merger and acquisition specialists to conduct my search? While M&A specialists and business brokers are a direct line to access information about businesses for sale and sellers’ information, keep in mind that they often represent multiple buyers and sellers at once. Finding a diverse set of resources is principal to ensure an effective approach.

Even when independent buyers have focused, determined and knowledgeable search approaches in place, complicated and onerous factors of the overall business acquisition process overwhelm buyers, trapping them in a limbo stage. 

Platforms like Village Wellth assist buyers through the sticky and stagnant stages of searching for a desired business. Village Wellth offers buyers access to a holistic buyer education. Working as an advocate for you, Village Wellth assists in defining your search criteria and connects you directly with the legal advisors who suit your needs. For motivated buyers, custom search programs and individualized guidance is also available.

Creating a community space for buyers to easily access deal flow, Village Wellth aids in the difficult search. With focused guidance and perseverance throughout the initial search phase, you’ll successfully acquire and make a transaction. Left with excitement and gratification, you’ll feel confident knowing that this thorough and researched-process will lead you to your goal of attaining a balanced life and a profitable profession.

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June 1, 2021
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