Every business buyer wants a great broker by their side during the business transaction process because it makes the whole process more successful overall. What you don’t want is a bad business broker who communicates only by email and infrequently at best. One easy way to judge whether or not you’ve found a good broker is to see what kinds of questions they are asking you. Let’s talk about the types of questions any good broker (like us) will ask you and why.
1. The Money
Your broker is going to ask you about your money. They need to know exactly how much money you have to invest in a business, and they are going to need to see some kind of financial statement to back up that number.
If you were planning on getting some kind of third-party financing, like a bank loan, don’t count on it. Although most lending institutions are beginning to change their attitude about lending after the economic collapse, it is still incredibly difficult to get third-party financing. If you have enough for a significant down payment, then you always have the option of finding a business whose seller is offering seller financing.
Either way, your broker will need to know the number on the bottom line. When you ultimately buy a business, you will have to share your financial information and prove the ability to pay what you’ve offered, as well as proving to a future landlord that you have the capital to keep the doors to the business open for the lease you are about to sign.
If you are someone who refuses to reveal this kind of information about yourself, you will have a hard time finding a good broker to work with you. It is also incredibly important that you be honest about your financial situation from the start. If you try to deceive the other parties in your transaction, the truth will ultimately come to light when you can’t write the check you’ve promised.
Be honest. Even if you will be using some kind of seller financing, you will need enough capital to qualify for a lease, and you will need to be forthcoming with that information.
2. Your Experience
Your broker will also want to discuss your experience with you and your experience within the industry that you wish to enter.
While it is not absolutely necessary to have owned the exact same type of business as the one you are seeking, you will need to have some practical experience with the type and size of business you are looking to buy. If you are currently a business owner, then you should look for a similar sized business or one that is modestly bigger. For example, if you currently own a small sandwich shop, it is probably not advisable for you to jump into a huge 250 seat restaurant and bar.
If you have never owned a business, you should have some practical experience or knowledge of your desired industry from working within that industry. The key here is to listen to the advice you are getting from someone (your broker) who has seen countless people buy a bar with zero restaurant industry experience only to end up running it into the ground.
A great broker doesn’t want to set you up to fail, they want you to succeed in the hopes that you will sell your successful business again down the road.
Your broker should have a discussion with you about your experience and help to guide you into a business that will actually work for you.
3. Your Expectations
A great broker will also be very interested in finding out what your expectations are with regard to the business you want to buy.
Are you looking for a business that has all of the numbers laid out in black and white on tax returns? Would you be willing to purchase a business whose income is more cash-based and what’s called “owner-to-prove”? How would you like the income to be derived for a business you own?
A great broker is not going to send you the past three years of tax returns and a current P&L (Profit & Loss statement) and leave you to figure out the rest for yourself. Businesses are generally very complex when it comes to determining what the numbers actually mean in terms of the return an owner gets on their investment. A good broker is going to walk you through the numbers so you get a really good idea of how the business is performing, as well as pointing out the areas where there is room for growth.
For example, a business may show a loss on paper, but when you add back in the salaries taken by owners, vehicles paid for by the business, etc., the business is actually quite profitable.
A great broker will also ask you about what you would ultimately like your work day to look like. How many hours are you looking to spend at your business a week? Are you looking for a major role, say as the head chef, or more of a managerial position?
These are important details when deciding what kind of business you are looking for, and a good broker will make sure your expectations align with the businesses you are considering.
The Bottom Line
We, as business brokers, are here to help you find a business that works for you. Finding and developing a good relationship with a great broker will be instrumental in your success finding and purchasing a business. If all you’ve done so far to vet brokers is shoot out a dozen emails, take the time to get a few brokers on the phone. Their questions will speak volumes about their ability to guide you through this process and reach your goals.
Are you a business buyer who hasn’t been asked any of these questions? Do you have questions of your own about what financial information you would need to buy a business, what industry would be right for you, or what your expectations should be? Ask us! Leave us a comment or question here, and we will be happy to help answer all of your business buying questions.