Before getting into today’s topic, I want to thank Don Wilson for the comments he posted in response to one reader suggesting: “The seller should absolutely be prepared to have at least 2 years worth of verifiable financials supporting the claims made in the add readily available after signing the non disclosure.” Don, who has purchased several businesses, and is a hugely successful entrepreneur, reinforced the comments I made last week when he stated: “The seller obviously should already have their financials together and be prepared to provide them at the appropriate time, but not before. Just because someone signs a NDA doesn’t mean that you hand them the keys to the store.”
This exchange is indicative of the difference in attitude, strategy and understanding of someone like Don, who is a seasoned buyer, versus someone that has not gone through the buying process, or is simply inflexible. Buying a business is not a black and white procedure. If a buyer sets too many hard rules, and especially if they have zero experience, and they think they will be successful with a “my way or the highway” attitude, they are in for a huge shock, and they are setting themselves up to fail.
10,000 Hours To Success
I am rereading Malcolm Gladwell’s classic book – Outliers for at least the tenth time (Gladwell is the author of The Tipping Point and Blink – read the former if you haven’t). In Outliers, Gladwell examines some fascinating trends and out-of-the-ordinary data points that are common to incredibly successful people. One of his conclusions is that to reach the pinnacle in any field, research indicates that it takes roughly 10,000 hours of practice.
Looking at the greatest artists, athletes and business revolutionaries, he concludes; “Practice isn’t the thing you do once you’re good. It’s the thing you do that makes you good.” I could not have written a better descriptive of what it takes to be a successful business buyer. I have long believed there is one single ingredient that separates the superb buyers like Don Wilson, from the others who will always remain “lookers” and that is the ability to spot and take advantage of an opportunity when it surfaces. To do so takes practice – lots of practice. And when buying a business, knowledge is the platform upon which you can practice.
Buying a business is NOT a numbers game! It is not simply a matter of spending time looking, unless your time is productive. You are not going to find the right business as a result of spending hours searching through thousands of business for sale listings. Sure, you may come across the odd decent prospect, but that is just a matter of luck. But luck has no place in the business-buying process. An ancient philosopher – Roman Seneca said: “Luck is what happens when preparation meets opportunity.” In other words, be prepared so you will know immediately when a good opportunity surfaces, and you can pounce on it.
Knowing how to identify a good opportunity is critical and the only way to do that is by being well prepared for each component of the business-buying process. This skill can only be acquired as a result of knowledge. With knowledge, you can practice effectively.
Get Ready – Opportunity Comes In A Flash and It’s Gone In A Second
Regardless of the economy, good businesses sell fast. If you are not ready when the right business comes around, someone else will take advantage of it.
Most buyers remind me of my son’s pet hamster – George. He gets on the wheel in his cage and he runs full steam for hours. But at the end of the day, he hasn’t gone anywhere. “George the Business Buyer”, searches a ton of business for sale ads, but after a month, or two, or six, he’s still in the same spot. Don’t be like George.
Preparation is fundamental in this process. It is the cure to spinning your wheels. It requires you to do a bit of work upfront but the results will be phenomenal. Preparation means acquiring all of the knowledge you can get your hands on first, so it’s right at your fingertips throughout the buying process.
With the right preparation you will know what type of business makes sense for you, what questions to ask the seller/broker, how to research the industry, investigate the competition, arrange financing, compile an accurate valuation, how to negotiate all the key issues to put together a great deal, and finally, proper preparation allows you to uncover the hidden problems in any business before you buy it.
Regardless of the economy, the market is always flooded with people looking to get into their own business. In fact, industry statistics indicate that are fifteen buyers (or at least people actively looking to buy a business) for every seller. Most will never buy a business but they do create havoc. They bombard sellers and brokers with inquiries. Preparation is the only way for you to stand out from all of the “lookers”. If you’re not prepared, you probably won’t even get a response from any inquiries that you send in for advertised businesses.
Knowledge is Everything
Buying a business is no different from any other major undertaking except for just one thing: it is likely that you have never bought a business before and so without having all the knowledge you need at your fingertips, without having an expert or mentor to help, you will bounce all over the place with limited success, if any at all.
With the right knowledge, you will be poised to take advantage of the perfect opportunity when it surfaces. If not, you won’t even recognize it even if it’s staring you in the face.
It’s Just Common Sense.
Buying a business is a major decision. You have to get it right the first time.
Don’t leave anything to chance. You can try to figure it out as you go, but with that strategy you won’t go far.
If you want to completely avoid all the pitfalls that most people make, and instead buy a good business with a solid future where you can make a lot of money, then there is no escaping the fact that you have to learn before you can earn. Be sure to pick up a copy of our guide How To Buy A Good Business At A Great Price – it’s 10,000 hours of business buyer practice that you can learn instantly.
Have a great week!