Question:
I have been looking to buy a business for about 8 months now and very seriously in the last 2-3 months. I have sent in at least ten inquiries to business brokers recently and some owner sellers, and can’t even get a reply. In every email I have been so clear. All I have asked is that they forward me the financials to back up what they have put on these websites before we even go to step two? I would think they’d want to get the financials to as many people as possible if they really want to sell the business. What am I missing here?
Answer:
Sorry, but step one is not about asking for financials, ?it’s not even step two in this process. It may not even be step three.
Step One:
The first thing to do in your initial contact, whether dealing with a business broker or seller directly, is to execute a non disclosure agreement.
Your communication with them should outline this, and nothing else. For example, your email can be: “I am interested in this business. Can you please forward me the necessary confidentiality agreement (or Non Disclosure Agreement) so that we can discuss it further.” By the way, these agreements are almost all standard and straightforward. As long as you keep the information confidential, and do not circumvent the broker, there’s nothing to worry about. If you’d like, have them viewed by an attorney.
Step Two: After signing the NDA have a casual conversation with the broker or seller to discuss the business in general terms, get a good overview of the business, and ask your initial questions.
Step Three: Digest the information, do your initial research, set up a face to face meeting to go through the business in greater detail and ask any additional questions.
Step Four (may be Step 3 in some cases): Review the preliminary numbers.
Although the process may be slightly different in some cases, the stages of the business buying timelines will generally follow a specific path. One of the biggest reasons why reviewing the financials at the first stage does not make sense in addition to the confidentiality issue, is because you absolutely need to know first and foremost what is the actual business, how it operates, how long it’s been in business, is it growing, does it fit your strengths, and a whole host of other questions. The initial financial review will take care of itself.
Numbers don’t lie and making sure that the business you buy fits your skill-set is actually more important than the financials.
To put it another way, if the numbers are great but you’re the wrong owner, the numbers will be heading downhill pretty fast.
If you focus all of your attention on the past numbers, you are sure to bypass the business that ultimately is right for you; and that should be your top priority!
On the other hand, if you find a business that fits your greatest strengths, then the financials will become part of the equation, but not the entire basis for your ultimate decision whether to buy it or not.