I love to fish. It is one of my true joys and passions. I mainly fly fish for trout these days. But I also crappie fish on our reservoir right up the road. There are many different types of fishing. If you don’t want to fly fish, then you can spin-cast, jig fish, drag worms, fish a bobber, crappie fish with a cane pole, bass fish, brim fish, fish with a harpoon, spear fish, use nets, use fish traps, and a lot of other stuff.
You must know where to start to get started.
This is certainly the truth for an acquisition search. The hardest part about looking for a business to buy is knowing where to start. And there is not necessarily a cookie cutter template of the “right way” to do it.
There are two cliches, listed below in no order of importance, that can provide excellent guidance in this endeavor.
1. Use the KISS Method - Keep It Simple, Stupid.
2. The journey of 1,000 miles starts with one step.
Looking for a business to buy can be as simple as going to a website, such as dealstream.com[1], and searching for a business for sale that fits what you are looking for. Search by industry, type, location - there are variety of ways to search online for a business to acquire.
This type of search is fairly easy to conduct. Go online, find a platform, and scroll through the listings. There should be contact information included on every listing. Find one of interest, obtain the contact information for that listing, then call or email your interest.
But what if there are no opportunities that are appealing or meet needs? At this point, the acquirer must conduct a targeted acquisition search. Why? Because the business you want to buy is not for sale.
Be Focused - Keep It Simple. This is a process. Identify motivation.
Why are you looking to buy a business?
Even if the buyer has inquired on a particular listing, I ask that question. It has been my experience buyers are often open-minded to opportunities, but also a bit unsure, or vague, in what they are looking for and why. Tip #1 on conducting a successful acquisition search is to be focused and keep it simple.
Being focused does not necessarily mean knowing what you want to buy, or, even knowing what industry you want to buy in. Being focused applies to understanding your motivation and need for wanting to acquire a business.
Being focused is completely understanding your why.
For example, when asked why they want to purchase a business a buyer may say, “To be my own boss.” Another common reason, “To control my own financial future.” Both are very human reasons to buy a business. Both show motivation and need. But these answers do not help in an acquisition search. While showing true motivation, they are not focused answers. And that’s okay.
The acquisition search is a process. Think of it as a crock-pot process rather than a microwave process. It can take time to get good results. Part of that process is forming an understanding of what the buyer is looking for.
Being focused and understanding motivation and need when it comes to acquiring a business starts with understanding what the buyer’s financial needs are from the business. This will identify the goal for the business. An acquirer needs to be detailed in what they need or desire out of the acquisition.
Is it a life-change, where the buyer is buying a job? The goal is to support you and your family. What’s the replacement salary need to be? Can the business afford your current lifestyle? What can you live on to support your lifestyle and family?
Or is this an add-on to an existing business? The goal is growth. Acquisitions are the fastest way to grow your business and make more money.
Is this an investment? The goal is ROI, in which money is not necessarily needed to be taken from the business on a monthly or yearly basis. The focus is more on return on investment over a certain period.
Being focused on one’s motivation and need helps keep the search focused on the right direction. According to the SBA’s Office of Advocacy, there are 33,185,550 small businesses in the United States.[2]Any acquisition search is bound to turn up businesses!
It is easy to get overwhelmed, distracted, sidetracked, and frustrated. But this is where the KISS (Keep It Simple, Stupid) method is applied. The KISS method focuses on the path of least resistance.
The Journey Starts with One Step
Once a buyer understands their why, the next step is to start the actual search itself.
In fishing you need a body of water to catch fish. There must be a pool of water. But there are many pools of water, so a fisherman must pick one and go to it. Likewise, in any search you need a pool to search from. Where are you going to start looking? This also ties into the acquirer’s motivations, needs & goals.
Perhaps geography is not a big deal. Okay, great - then what is? What are we looking for? Where are we going to start fishing?
If the buyer is acquiring a job and making a lifestyle change, then decide first if you want to relocate from your current residence. If not, then how far are you willing to drive to work? That is a big first step. Many steps will spring forth from that answer.
If an investor, what part of the country do you like? If another business, what market do you want to expand into?Geography is a big part of any acquisition search and a good place to start. It is also the easiest place to start.
Privately held companies and closely held small businesses do not have to publicly disclose financial information, number of employees, and other similar items like publicly traded companies are required to do. Consequently, revenue and cash flow numbers of small businesses are nearly impossible to find without obtaining the actual company financials.
Often buyers want to search for a certain sized revenue and/or cash flow. Yet in the practical matter of searching for businesses they are very difficult pieces of information to obtain with any degree of accuracy. Cast a wide net first by using geography, then narrow down with those types of qualification questions once prospects identify themselves.
This is a process. Identify motivation. Identify location.
Geography is a tangible place to start one’s search. There is relatively accurate locations and address data easily available on privately held companies. Look for the fishing hole that fits precisely what you want from a location perspective. This is a great place to take the first step and begin the journey.
When I arrive at my trout stream, I begin getting ready to enter the water. It’s a process. I put on my waders, get my net, tie my fly, make sure my line is smooth, make sure the reel works properly - all the good stuff. I prepare to begin fishing.
When I conduct an acquisition search for a client, I do the same thing. We prepare our line and bait. In short, we form the list first. Once we form the list, we reach out to every business owner on the list. We do so through a variety of ways, including, but not limited to;
• 3 rounds of Direct Mail
• Email Campaigns
• Social Media Outreach
• Cold Calls
It is not rocket science. To find a business for sale, one has to contact the business owner to see if they are interested in selling. There are a variety of ways to connect with people, and once the business owner has been identified, then he/she/they need to be contacted. There are strategic ways to do so, and each method listed above has its own strategy.
This is a process. Identify motivation. Identify location. Identify businesses. Contact owners.
Once the owner has been contacted and expressed an interest in selling, then consider that a fish in the net. The next question is, do you keep it or throw it back?
In a very real sense, a successful acquisition search is a numbers game, like fishing. The more fish you get in the net, the higher likelihood of catching that monster fish. The same with a business search. The more business owners you talk to, the more likely you are to find that right business.
Knowing the why and keeping it simple is critical at this juncture. As one encounters interested sellers, ask the pertinent questions based on what the motivations, goals and needs are discussed above.
Keep the initial analysis simple. Screen businesses based on your criteria.
For example, if you are buying yourself a job and not relocating, then your search has been local.
Upon successfully getting an interested seller on the hook, then begin next level qualification (cash flow, employees, years in operation, etc.) by asking the pertinent questions. Conversations with the seller initially can be directed at a high level to obtain ballpark numbers.
If, upon further discovery, the business produces $100,000 of cash flow after debt service, but you need $150,000 to support your family, then move on. Keep it simple. That business does not fit your needs. Do not try to fit a round peg into a square hole. Throw it back and go catch another one. This is a process.
Identify motivation. Identify location. Identify businesses. Identify owners. Contact Owners. Screen business. Is it a keeper?
If it’s to be, and the business is a keeper, then the search is finalized. Now the acquisition search turns into an acquisition negotiation, followed by due diligence. That’s a different game. It’s more like football than fishing.
If it’s not to be, then the search continues. Move on to the next candidate. Rinse, wash & repeat. A good acquisition search is a process that follows a plan and has a model but is still flexible enough to remain open to any possibility. The plan and model should be one which can be applied and reapplied for any acquisition search, for any type of business, for any type of buyer, anywhere in the world.
The foundation of this plan and model are best grounded in the simple concepts of being focused, keeping things simple, and taking action. Do this, and the odds are in your favor.
Good luck.
FOOTNOTES
[1] https://dealstream.com/wanted
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