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For Sale by Owner …Tips for Potential Buyers

Guest post by: Alan Brind

Article Overview: The “for sale by owner” approach to selling valuable property is less commonly used for sale of commercial real estate and businesses than it is even used for residential real estate. From the buyer’s point of view, this usually would be more risky than buying a business when the seller is represented by a business broker.

For Sale by Owner …Tips for Potential Buyers

The “for sale by owner” approach to selling valuable property is less commonly used for sale of commercial real estate and businesses than it is even used for residential real estate. From the buyer’s point of view, this usually would be more risky than buying a business when the seller is represented by a business broker.

Why could it be more risky to deal directly with the seller? There are a number of possible reasons:

- Seller does not want to spend the money to receive advice that is needed.

- A seller may think he or she may be more persuasive than a broker.

- Seller may want not to disclose certain aspects of the business. These may be

matters of regulatory compliance, tax compliance or other issues…

- A broker if retained may insist on preparation of proper financial statements or

other customary transaction steps and the seller may not want to be bothered.

So in the situation where a sale is conducted by the business owner, the buyer should exercise a much higher degree of caution. In such cases a seller, by definition cannot be neutral and may not want to be subjected to the normal processes of buyer due diligence. In addition, this type of seller is less likely to have prepared the business for sale in a manner that would reveal the true worth of the business. The drawback to buying a business being sold in this manner is not just that the business may be poorly managed; it’s that there usually is no easy way of knowing the true business potential. Under these circumstances buying a for sale by owner business can be very risky.

It’s a Tough Challenge, Buying a “For Sale by Owner Business”

It’s not just that a business owner may deliberately attempt to overstate his or her business profits, but with poor bookkeeping or a cash based business it can be difficult to determine and understand the true earnings. As a buyer, you certainly do not want to pay money for an unprofitable business or buy one that you thought was profitable, only to later find that poor accounting was creating the “profits”. When buying a business that is for sale by owner, the owner may have the best of intentions, but might be truly unaware of the real circumstances and value of his business. Consequently, in such cases you would likely end up paying too much, which is not a good way to start off. Further, and a very big caution: your own good negotiating skills could help lead you to buy a business that you would never knowingly want to buy. So obviously there are better ways to proceed…

Intermediary and Businesses for Sale By Owner

You should use an intermediary such as a business broker to assist you. An intermediary can provide strategic information regarding market timing, market conditions, market price, financing options, transaction structures and other relevant information that is critical for both buyers and sellers. You need an experienced business broker to help you see what you are not seeing, or that which is hidden from your point of view. And the business broker would guide you on what to do about it the situation. Simply put, most of us need a guide dog or a guard dog when we are travelling unfamiliar territory. Buying a business is a very time consuming task for all parties and it can take countless hours of dedicated time. For a modest price thatbusiness brokerscharge, there are many advantages from providing to you protection to saving you time and unnecessary frustration.

Why You Should Not Be Without the Services of a Business Broker

Using effective representation can make the difference between closing and losing the right deal, or alternatively walking safely away from a deal that you would never knowingly want to do. A business broker has established relationships with the many professional organizations, which are required to appropriately complete the transfer of business ownership. These relationships prove to be invaluable to sellers and buyers alike.

There are a number of skill sets that a professional business broker uses to ensure that the transaction is managed smoothly, thus benefiting both buyer and seller. Evaluation experience, market awareness, achieving proper representation of financial condition, and use of creative deal structures are a few of these skills. A business broker operates in the marketplace daily and is current with overall business supply and demand, the types and availability of financing, etc. No other professional is in this position.

Abusiness brokercan help find attractive businesses in which you might want to invest. In addition, business brokers usually have experience with determining the fair market value for sale by owner businesses and can help estimate the fairness of the initial offer. When issues need the attention of other experts like a forensic accountant, valuation expert, or deal savvy attorney, the business broker knows how and with whom to strengthen your team.

Lastly, a business broker often has considerable experience in dealing with the type of the businesses you are seeking. You should never allow yourself to be persuaded that you do not need a business broker because the seller does not have one. Ideally, you should look forbusiness brokerswho have already dealt with a particular industry or industries you are targeting. Not always, but in certain situations, it is advisable to seek a localbusiness broker.

Obtain Assistance Responsibly – Ask for Certifications & Qualifications

The industry certification of a business broker is very important when making an important decision to purchase a business that is for sale by owner, as a considerable amount of experience is necessary to achieve success in this situation.

Certification serves as one of the possible ways to measure the reliability and trustworthiness of a particularbusiness broker.The International Association of Business Brokers certifies business brokers and awards the Certified Business Intermediary (CBI) to brokers who have successfully undergone rigorous training and examination. The designation demonstrates their knowledge and experience.

Your choice of a business broker can make or break your attempt to buy a business that is for sale by owner. You are encouraged to pay attention to the experience and qualifications of the particular business broker whose services you are about to use. With this in mind, purchasing a for sale by owner business with competent due diligence and under the right terms and conditions can be a rewarding and lucrative decision.

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  Business Financing: Using Business Seller Financing
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  I'm Selling my Business... But What do Buyers Want?
  What is a Business Broker?
  BUSINESS ACQUISITION CASE STUDY: Clear as Mud
  Why Small Business Owners Are Valuing Their Own Business and Avoiding Business Brokers
  Business Brokers - How to Deal With Them As a Buyer?
  Buying Businesses for Sale by Owner: Disadvantages and Precautions
  How to sell your business in a down economy!
  How to Sell A Existing Franchise Business:
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  How to Write an Effective Business for Sale Advertisement
  Successfully Advertising A Business For Sale

Article Tags: business broker, buying a business, commercial real estate, FSBO, point of view, residential real estate



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Business Tips - How about: Tips for managers to handle employees more effectively? Tips on how to deal with difficult customers? Tips on how to deal more effectively with suppliers? The only three I have in mind right now, but will try to come up with something else. Chris
Job titles - [quote:3shpwvxj]In fact, I've had friends tell me that "Founder" is better than "Owner" since it's less possessive.[/quote:3shpwvxj] For myself, I don't care for the term "Founder" [i:3shpwvxj]because [/i:3shpwvxj]it's not possessive. You can be the founder of a company and have sold it - so it no longer belongs to you. However, if you call yourself "Owner" - people know the company is still in your hands. But I don't like Owner, either. I'd prefer President or Director, because one can be an absentee owner, whereas if one is a President or Director, people assume you're involved in the day to day activities. Manager, on the other hand, wouldn't work if its your business, because (to me, anyway) that implies that you "manage" for someone else - like at a restaurant.
Re: What's in a Name? - Sale or promotion relies a lot in name chosen for product/business.
Seeking advice on working procedure of Convenience Store Fra - I have some queries about the working of the franchises. How does the relationship between the Store Owner, Suppliers and Corporate works exactly? How does the store owners get reimbursed when they sell commodities like coke in fewer prices than others?
Re: Are You Complying with the FTC? - A lot online marketers will run to Cyprus and other Islands to do their businesses. FTC rule or no rule the Internet is a global thing and still a wild wild west. Buyers should be careful and do due diligent before buying anything online


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