How to Buy a Good Business at a Great Price
I received an email a few weeks ago from fellow business-broker-M&A-blogger Richard Parker. He had some kind words to say about my writing which I appreciated coming from someone in the industry. I had previously found his blog and thought it was the best of its kind. Well, except for mine of course.
I think we admire each other’s work because we try to tell it like it is, and we’ve both gotten some heat from other business advisors for some of the things we’ve written. Richard’s blog can be found here:
Richard also markets a program called, "How to Buy a Good Business at a Great Price". He offered to send me a copy of his program and I told him I would review it and post the results on my blog. I was a little nervous, because I like the guy and what if I thought his program sucks? Luckily, Richard has used his experience as a business broker and his honest writing style to create a well-grounded program that genuinely offers valuable guidance to a business buyer.
Even the title has a lesson in it. Richard doesn’t want you to buy a great business, but a good business that you can make great. I couldn’t agree more. Buy something that you can add value to. For example, I represent a company that has $3.5 million in sales but doesn’t have a website. I like that! It is something tangible that a buyer can easily improve. But I was trying to explain that to a buyer who remained unimpressed that a website didn’t exist.
Richard definitely tells it like it is. For example, Richard addresses the issue of dual agency, where a business broker represents both the buyer and seller. Although commonly done, a buyer HAS to understand he is not truly and completely represented by such a broker. I’ve operated as a dual agent before, and I found myself trying hard to bring the parties together to a position I considered to be fair and reasonable. Although I consider myself to be a fair and reasonable man, I also understand it is a little strange, and not quite right, that I be in the sole position to determine what is fair and reasonable for both parties. Remember also that I am being paid a commission as a percentage of the selling price. Never forget that. While I make it a point to always make sure a buyer is buying within his means, my job is also to maximize the seller price while doing so. (Its not a simple issue, one time I forced myself into a pseudo dual agency position because the buyer’s agent was a real estate agent that was just plain incapable of guiding her client. I was convinced I could help protect the buyer better than she could, and I demanded and received the ability to talk to the buyer directly so I could more fully explain the business and help him with a cash flow forecast).
Richard knows this problem well, and that most brokers represent sellers. So Richard, along with selling his program, only represents business buyers, not sellers. You can be quite certain that Richard represents your interests in the transaction.
When business buyers call up looking for a business, I recommend that they spend the time themselves looking for a business (monitoring the web sites, getting email broadcasts, etc.), and when they find one they should use the services of a broker that represents them. Using a buyers-only broker like Richard is even better.
I’ll provide more information on Richard’s program in the next few weeks.
