Business Opportunities - Businesses For Sale
Ask Bob

Ask Bob About Businesses For Sale

?Can I assume that, like people selling a house, business sellers never expect to get the asking price, but something fairly close to it?

Most people selling a business have a very inflated idea of what it is worth and this view is often reflected in the asking price. Few small businesses sell for anywhere near the asking price, and selling prices at half or even less are quite common. This is especially true when hard assets such as real estate are not a major factor. Remember, a business is a much less liquid asset than a house. In other words, relatively few people are interested in buying a particular type, size, and location of business.

?How much can I rely on information provided by a business broker?

Basically—not at all! The broker makes money only if the sale goes through, and this is almost always in the form of a commission. So, the higher the price you pay, the more money the broker makes. And, more importantly, the broker’s source of information is typically the seller!

?I am close to making an offer on a profitable small service business. The business is only fourteen months old but the owner is selling because he is pursuing a terrific opportunity in an unrelated field. What do you think?

Don’t do it. Other than hard assets, when you purchase a business you are buying goodwill and forward momentum from an established pattern of doing business. Even if the business really is profitable, the owner couldn’t have created much goodwill or developed an established market position in such a short period of time. Furthermore, I’d always worry about the real reason the business is being sold so quickly—if the new opportunity looks terrific to the seller, then his current business, obviously, looks less terrific. In addition, with a service business, you need to ascertain how much of the business’ success has been due to the personal characteristics or contacts of the proprietor.

?I am negotiating to buy a packaging company. Should I be concerned that after the deal is consummated the seller may start a competing business?

Absolutely! An aggressive person can regain market position overnight in a new business through personal contacts, industry reputation, and market knowledge. You should at least have the seller agree to sign a non-compete clause. If you are really concerned, you should also consider paying for the business in partial payments over a period of time.

After I negotiated to purchase a magazine from the Harvard Business School, a former licensee announced that it was going to compete with me despite a non-compete agreement. I persuaded Harvard Business School to pay the related legal fees and retain title during my first year of operation to ensure the validity of the non-compete agreement.