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Both Bloomberg Businessweek and BizBuySell, the leading online marketplace for businesses for sale, recently conducted   surveys answering the following questions:  Who are the Business Buyers? and What are they looking for?

First, why do people want to own or start their own business?

According to Businessweek, when prospective buyers were asked, “Why do you prefer working independently?”  the responses were:

• Like to have control over work
• Like to control when and how projects get done
• Dislike working with teammates who don’t do their share
• Recognition is important to me
• Difficult to reach consensus in a team setting
• People who work independently get ahead

When BizBuySell asked, “What are the primary reasons you are looking to purchase a business?” the responses were:

• “Better income opportunity” (55%)
• “Be my own boss”
• “Better lifestyle”
• “Currently own and looking to expand”
• “Want a side business”

The survey from BizBuySell.com also produced answers to some of the other questions asked about who the buyer is.  For example:

• 75% stated that they were looking for businesses priced under $500,000
• 33% of those searching the website for businesses were 18 to 34 years old; 42% were 35 to 49 years old and 21% were 50 years old plus.
• 43% percent were female, 57% were male.
• Interestingly, 45% had previously purchased a business and 48% currently owned a business.
• When asked what type of business they were interested in and instructed to check any that apply, the results were as follows:  Established Business 93% | Pre-Owned Franchise 28% | New Franchise 17% | Start-up/Website 17%

The following search breakdown by type of business in order of interest (restaurants being first) is based on almost 850,000 searches.  (Only the top 16 are listed.)

1. Restaurants
2. Gas Stations
3. Convenience Stores
4. Liquor Stores
5. Bars/Taverns
6. Dry Cleaning/Laundries
7. Hotels & Other Lodging Places
8. Other Eating & Drinking Places
9. Beauty Salons, Barber Shops
10. Auto Repair, Parts & Services
11. Internet Businesses
12. Health, Medical, & Dental
13. Manufacturing
14. Retailing Businesses
15. Supermarkets
16. Vending Machines

And finally, a very telling comment from the Bloomberg Businessweek article, concerning job loyalty:

I’d rather know that I’m going to lay myself off than get BLINDSIDED by a boss and have security lead me out of the building.

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Eventually the founder’s children decided that they wanted to sell the business since they were close to retirement age.  For some years the business has been operating on a break-even basis and sales were not increasing.  A professional business broker was retained to sell the business.  He contacted as many of the larger bakeries as possible hoping to find a suitable acquirer.  There was very little interest.  The business broker continued his search to find a good buyer for the business.  after a lot of work, he finally found a successful businessman who offered a price equal to 50 percent of sales – a generous offer.  The business broker presented the offer to the five children – all equal partners.  Little did he know that he had walked into the proverbial “hornet’s nest”.  A huge family argument ensued, and finally the business broker was asked to leave the room so the five siblings could decide what to do.

The offer was turned down flat.  There was no counter-proposal or even any negotiation on price, terms, or conditions.  The offer was dead.  The business broker had worked on trying to find the right buyer, figured he had, all to no avail – six months wasted.

It turns out that the major obstacle was concern that the operators of the business might lose their jobs even though the prospective buyer assured the sellers that he would keep the current operators on.  Remember, the operators were third generation, related in one way or another to the five owners.

Flash forward some 20 years.  The bakery is still in business with very little growth and still operating on a break-even basis.  the five owners are now in their 70′s; they have never received anything for their equity and have very little hope that they ever will.

The above is a true story.  It shows how a family can own a business and become completely dysfunctional when it comes time to sell the family-owned business.  Although the bakery is still in business (barely), its story also shows that the proposed deal could have satisfied all of the owners’ goals and made that their retirement years a lot more comfortable.

Family-owned businesses make up a lot of the non-public companies in this country and according to published reports, many of them will be up for sale in the near future.

It is important, if the family-owned business is owned by more than one person, that a meeting is held with all of the family owners prior to electing to sell it, unless a strong buy-sell agreement has already been agreed to.  This agreement should establish specific guidelines about what happens if one family member wants out of the business.

The company attorney and accountant should be in attendance along with a business broker.  The reason for the broker is that brokers know what the pitfalls are, what buyer concerns will be and what should be done prior to going to market.

One of the major problems when there is more that one owner is communication.  What about when the one owner who is active in the business decides that he needs a new expensive car and that the company should pay for it?  Strict guidelines should also be in writing concerning salaries, benefits, etc.  When one family member is ready to cash out or another spends a lot of money furnishing his/her office – it is too late to have an agreement drawn up to cover the issues.  The time is now!

Here is an example:
A man talking about selling his business purchases a $700,000 piece of publishing equipment.  He believes that revenues will rise and more clients will come on board because of the new capabilities.  The problem is nothing can be proven yet.  All we have to go on are the actual numbers from the past three years.  These numbers do not support the increase in price that the seller is considering, and our recommendation is to wait to sell his business until he has proven the new publishing equipment is going to have a significant impact on the bottom line.  If he decides to move forward, he will probably end up taking a loss on the capital expense if he wants to sell now.

A better way to have handled this would have been to recommend the machine and potential results to a prospective buyer.  There are many ways that the prospective buyer could have funded the purchase of the equipment instead of taking on the debt.  The seller was debt free when this decision was made.

Before you make a major decision, be sure to talk to your broker about the impact on business value and sale strategy as well as timing.

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