This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
Dispelling Three Business Buyer Myths:
What Do They Really Want and Why?
by Tom West
Myth Number One It's a
faulty assumption that prospective business buyers know from the
outset the exact kind of business they want to buy. Experienced
business brokers and intermediaries have learned that most business
buyers end up with what is sometimes a far cry from what first captured
Take, for example, the old story of the buyer
who saw (and probably smelled) a doughnut shop in his dreams. This
was the business he was sure he wanted to buy--until he found out
that someone, most likely him, had to get up at 2 a.m. to make the
doughnuts a reality. It is important that, before falling in love
with a business dream, prospective buyers understand the realities
and think hard about their own personalities--what they like and
hate to do. Obviously, if one likes a good night's sleep, the doughnut
shop is not a good business to go into.
In discovering the right business for the right
personality, here are some of the crucial questions a prospective
business buyer might ask himself or herself:
Does the business look exciting and interesting
to me? Do I feel that I can improve the business? Would the business
offer me "pride of ownership"? Would I feel comfortable
operating the business?
Myth Number Two Another old chestnut is that buyers
will always choose the known versus the unknown. And it's true that
some buyers may think they want the familiarity that comes with
buying a business similar to the company they just left. However,
the following real-life examples show what interesting turns the
road to buying a business can take:
A former General Manager for one of the area's
largest computer companies purchased a Learning Express retail store
franchise. He's leaving gigabites behind to become an expert on
children's educational toys and games.
An attorney who was formerly General Counsel for
a large investment banking firm purchased the rights to Mad Science.
With his purchase of this franchise, the attorney has switched from
high finance to the advancement of children's appreciation of science
through hands-on experiments for schools, scouting events, and other
A Human Resources manager for a large investment
firm acquired the Connecticut and Rhode Island franchise rights
for a retail concept offering gift items (e.g., unique gift baskets,
cards, and flowers). In addition, this former manager will also
be opening his own retail store for the sale of these items.
And finally, for something completely different
. . . consider the former Manager for a Fortune 500 manufacturer
who purchased a Langenwalter Carpet Dyeing franchise! This final
example also points to another false assumption: that former big-business
managers can't shake off the craving for status or image. In fact,
surveys show that victims of corporate downsizing are willing to
"get their hands dirty" and that they do not necessarily
need to be a company's CEO.
Myth Number Three Another wrong theory about buyers
is that money is the key motivator in their seeking to own their
own business. In fact, if money is a buyer's main reason for desiring
to own a business, a wrong-move alarm should go off before things
go any further. Most studies indicate that money is somewhere below
the midway point of the list of reasons people are interested in
a self-owned business. Those who go into business for themselves
and/or buy a business want to run their own show, be their own boss
and build something for themselves. Money is the by-product (hopefully)
of having the opportunity to achieve business success on their own
A recent newsletter from a franchise consulting
company contains comments from people who have just purchased franchises.
These people provide resounding proof that money is not a major
motivator. With franchises, they point out, money can't be an issue,
because a new franchise has no income, only the promise of it.
If money doesn't provide the driving force behind
buying a business--what does? The following survey shows the real
reasons for wanting to be a part of the independent business scene:
1. Pride in service or product 2. Control 3. Freedom
4. Flexibility 5. Self-reliance 6. Customer contact 7. Income 8.
Employee contact 9. Recognition 10. Privacy 11. Security 12. Status
No matter what the reason for buying a business
and regardless of the type of business desired, savvy prospective
buyers seek help from a business intermediary throughout the buying
process. Although business brokers generally represent the seller,
the buyer also reaps the benefits of expert guidance. The business
broker will show the buyer businesses that fit the profile of the
buyer's dream, but the broker will also introduce the buyer to new
territory--and new possibilities.
And what about the buyer who dreamed of
doughnuts? He is purportedly now content, testing the wares in the
mattress section of his franchise furniture store.
About the Author
||Mr. Tom West is the editor/publisher of The Business Broker, a monthly newsletter for the business brokerage field. He has written or co-written numerous books including the The Business Reference and Pricing Guide and The Resource Handbook for Business Brokers. He is a founder, past president, and former executive director of the International Business Brokers Association (IBBA). He is a frequent lecturer and seminar leader on all aspects of buying, selling, or appraising a business. Mr. West is probably the most knowledgeable individual in the country today concerning the issues of buying or selling small to mid-sized businesses.
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Strategies for Successfully Buying or Selling a Business is our bestselling book. It has been recommended by Kiplingers Personal Finance Magazine, the BottomLine Personal Newsletter, and has been awarded the Best Business Book of the Year Award from the North American Bookdealers Exchange (NABE). Learn more about it...
Anatomy of a Business Purchase Offer provides you with all of the practical hands-on knowledge you need to make a successful purchase offer to buy a business. The author uses an actual Purchase Offer form to show you exactly what needs to be written and why! He details all of his recommendations in a line-by-line format for each and every aspect of the purchase offer. Learn more about it...
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