March 15, 2005

Investment Corner

By DM (Doug) Robbins

FCBI

Want to buy a business? Be prepared with a plan

“I’m not sure what I want, but I’ll know it when I see it.” At Robbinex we receive more than 3,000 buyer inquiries per year and this is a fairly common statement.

The reality is, they have no clear understanding of what to buy, how to value a business, how to structure or finance a transaction, how to conduct due diligence, or even where to find that right business.

If you are seriously thinking about buying a business, there are a number of things you should take into consideration before starting out:

1. Know yourself: Take the time to identify your strengths and weaknesses.

Your personality — Are you quiet and shy, or extroverted and outgoing? What are your likes and dislikes? At Robbinex, we use an industrial psychologist to help our clients and prospective purchasers to establish their personal profiles.

Does your family support your plan, both financially (mortgaging the family home to buy the business), and personally (understanding the need to work 60-75 hours per week operating the business)?

Are you really prepared to make the personal sacrifices that all business owners make when they first start out (little time for friends, social activities, vacations, a drop in personal income, etc.).

What is your business acumen? For example, are you a salesperson, an administrator, an accountant, a technical person, a worker or a manager? No one is perfect, and it is necessary to surround yourself with people who can fulfill the tasks that are your weaknesses.

2. Finances: Do you know how much money you have to invest? How much will a financial institution lend you? Do you have other sources of financial support? If yes, how much, and under what terms and conditions?

3. Establish the location: Where should the business be? Will you move to another city for the right opportunity? Does your family (don’t forget that your children have friends too) support the relocation? The greater your flexibility in location, the greater the chance you will have of acquiring a business.

4. Find the opportunity: Sometimes, you have to make your own opportunities. With clearly established criteria, you would be surprised at the potential number of businesses that are available. For example, in Ontario, there are approximately 3,570 building contractors listed in the Yellow Pages. Most people own businesses for between five and 35 years. Most business owners think about selling for one to three years before they sell. If we look at the 3,570 contractors, and based on ownership of 25 years, and two years to consider selling, then it is reasonable to consider that 280 of these firms are considering selling at any one point in time.

5. Develop an acquisition Team: Once you have established the area in which you’d like to be, the type of business you’d like, the support of your family, your downpayment, your strengths and weaknesses, the time has come to establish your acquisition team.

— Accountant: This person needs to be a businessperson first and an accountant second. They need to be a mentor; a confidante who is capable of telling you “that’s a stupid idea,” if it really is.

— Banker: You need a competent individual who understands business, can share your vision, and has confidence in your ability to be.

— Business lawyer (not criminal, divorce, real estate, litigation or generalist): This person should have a lot of experience, incorporating 20 to 25 businesses per year, and spending 90 per cent of their time doing business transactions.

— Intermediary: Having a business intermediary on your front line can elevate you from being a tire kicker to a serious buyer in the eyes of the seller.

At Robbinex, we are impressed when we see two or three advisors called in to round out this acquisition team — people with experience in the field of the business you are trying to acquire — perhaps a sales type, a marketing person, a person with extraordinary product knowledge or with technical skills.

There are more than 20,000 different types of businesses, with more being added every day.

If you are really sure you want to be in business, a well-orchestrated acquisition search program will help you achieve your goal.

Doug Robbins is president of Robbinex Inc., specialists in the sale of privately-owned business.

He may be reached at 1-888-ROBBINEX, or www.robbinex.com.

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