One of the most important research tasks for people wanting to buy a SMB is to check out pricing ratios (and sales pitches) on several online venues. Bizbuysell.com is one of many. Use the online venues’ search function to identify what’s for sale within your geographic target area. There may not be many. That’s why it is also important to expand your search to include your entire country.
- Spoiler alert: Don’t be surprised if there are too-few sellers of midsize companies; the online vendors and most brokers won’t have what you seek, and if they do you can expect buyer competition.
Create a table showing the relationships (multiples, etc.) between asking prices and whatever basis seems to be the multiple for those prices. Such as SDE, Seller’s Discretionary Earnings (and similar indicators of “profit”). Make note of the typical sales pitches for each kind of company that interests you. Is there commonality within industries?
- Request my complimentary report: Translation-Business Opp Ads. It helps buyers and advisors interpret the hype.
Keep in mind that the purpose of your initial research is not to locate sellers for immediate evaluation. You, upfront, simply need to know how sellers are pricing and advertising their offering. Later, after you know more about your marketplace, and after you finish all the other tasks to prepare yourself to find the right business to buy, deploy what’s in my book: How to Prepare Yourself and Find the Right Business to Buy. Beware! Prematurely approaching brokers and sellers is a good way to irretrievably give advantages to them. It is not smart to approach business brokers or sellers until buyers have thoroughly researched what’s available for sale.
Expect buyer competition if you try to buy businesses easily discovered by other buyers. Especially the best companies for sale, which nearly every sensible buyer wants to buy.
- Savvy buyers can control competition. Be the most informed and best prepared buyer when you first communicate with brokers and sellers. Show your capabilities to achieve the kind of done deal you seek. My clients and I devote intense attention to how buyers showcase themselves. Done right, business brokers and sellers will give you the first and best shot at doing the deal. Why? They don’t want to cope with unprepared, unqualified or unreasonable “buyers.”
Access the hidden market of unadvertised businesses for sale (or could be for sale if the right buyer inquires the right way). I show clients how to do this: https://partneroncall.com/gateway-to-hidden-market-of-best-businesses-for-sale/.
Here’s an example. Someone looking to buy a certain kind of midsize privately held company told me he could only find a few businesses advertised (all by brokers) for sale that appeared to match his acquisition criteria. He aborted all those “opportunities” after initially screening them (using my quick-screening methodology). And then he thought game over. But it wasn’t. I showed him how to successfully access the hidden market of sellers and potential sellers so he could present himself to dozens of businesses whose profile matches the buyer’s acquisition criteria. Game on!
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Email Ted J. Leverette, The Original Business Buyer Advocate ® Since the 1970s. “Partner” On-Call Network, LLC