Finding your next business endeavor is much like the current job market dynamic. It is all about networking and getting in front of the decision makers. Many investors are turning to buying businesses for their return on investment rather than traditional vehicles such as real estate, stock market and bonds. If you are serious about finding a cash rich business I recommend you engage a business broker.
What can you expect from a buy side business broker relationship? Professional Business Brokers do not work for free. However, they stand on their merits and deliver on the search. Before you engage a business broker it is critical that you have a good understanding of what you want while remaining open to other industries. Seven out of ten businesses that are bought are in a different industry than the original search according to Business Broker Network statistics.
Have your financial house in order. You will want to understand how much free cash you have for a down payment and familiar with commercial finance lending parameters. This is especially important for service related businesses which may have low asset valuations. You want to know your buying power before starting negotiations with the seller.
Buy Side Searches Open Doors. Many buy side business searches unlocks doors and motivates sellers to consider negotiations without the business officially on the market. When a business broker notifies sellers that the commission will be paid by the buyer, they are much more eager to test the waters.
Searches are not free and are labor intensive. Finding a business is much more than searching the Internet. Why would you pay someone to do something you can do yourself? A professional buy side business broker will actively work their network of brokers and business contacts to uncover potential businesses. Additionally, they will target specific businesses that meet the buyer’s criteria to entice existing business that are not on the market to open their books and begin discussions.
What you should expect. Depending on the size of the business, you should expect to pay a retainer and monthly search fee. Although these fees are non-refundable, ask that the business broker subtract these fees from the commission at closing. For businesses under $1 million a typical arrangement might be $5000 retainer and $1,000 per month for six months to find a business. Businesses over a million typically command a higher retainer as the complexity of the search is greater.