Turning a lemon into lemonade

Ever woke up one day and decided you want to be an entrepreneur?  You spent a few days, even weeks looking at businesses for sale, but it seems all businesses are either overpriced, has a problem or is simply junk?  Do you think there are no good opportunities out there?  Well, maybe there is!

The secret is to turn a problem into an opportunity or a solution when buying a business.  There is a lot of websites out there where you can source businesses for sale.  About 70% to 80% of businesses listed don’t sell because it does not have qualified financials, its over-priced or lacking in some other instances.  When you have identified these “problems”, these can be opportunities that you can use during a negotiation.

Let’s take an example:  you found a supermarket that is exactly what you are looking for, but the business is probably about 15% to 25% over-priced in the current market.  Instead of turning your back on the opportunity, speak to your Businesses4Sale broker who has the know-how and experience to use this “problem” to negotiate a favourable deal for you. 

Most business owners would expect a full buy out upon handover. Your broker can negotiate a deal where the seller offers seller financing for the difference between what you are willing to pay and what the seller expects.  This will enable you to stay within your original spending budget with the additionally spent spread over a period, and the seller gets the price that he wants – a win-win scenario for both parties.

Another example:  the business might not have the most complete and to your opinion, reliable financials.   In a lot of smaller businesses, the owner is wearing a lot of hats.  He is the sales manager, HR Manager, accountant, and general manager.  The smaller businesses are often trading as sole proprietors where they need not have formal financials prepared for tax purposes. The result is informal accounting records where accuracy and reliability might be questioned.  The owner might not be neglecting financial management on purpose and it might not be the case that he does not want to keep proper records, or that he is unwilling to do so.  It might be that he is just wearing too many hats and as a result, he does not keep his finger on the pulse in all aspects of the business.  The business might be doing good numbers, but it is not captured formally through accounting software such as Pastel, Quickbooks or Xero.

When you are confident that the numbers are there, and the seller can provide records for due diligence, but you just can’t verify all the numbers because there is a lack of documentation or proper processes through which you can verify the figures, your broker can negotiate a retainer with the seller.  This enables you to lock in the price and off-set some of the risk to the seller.  This enables you to pay a portion of the purchase price in tranches over a 3 to 6-month period, while the seller might hold the assets in the business as surety until the full purchase price is paid. 

Another way to handle this challenge is to structure the deal on an earn-out basis.  This is where an agreement is reached whereby the seller of a business will receive additional payments based on the future performance of the business sold. It is possible to take something in a business that could have been a “problem”, to a win by being a little open-minded during negotiations. At Businesses4Sale our sales associates are qualified and experienced to handle the negotiations on your behalf to negotiate a win-win deal for both parties.

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