Most of my students and subscribers want to buy a business fast. This is for obvious reasons. Mainly that time is money, money is what they need and the sooner they close a deal the more money they will start collecting. I believe this is why people get sucked into buying very small companies such as main street stores, convenience stores, gas stations, dry cleaners, pizza restaurants etc. Essentially most of these very small businesses will generate a modest living and you may well be able to squeeze yourself into one with a bare minimum of investment, say$20,000 to $100,000. The deals can be closed fast, in as little as 30 days. All you need to do is plunk down about half the price and let the owner take the rest in paper. But the rub is that it isn’t so easy to squeeze a salary out of these companies much less a big salary, it isn’t easy to grow them and it isn’t easy to get a vacation. You will probably be the primary operator and driver of the company and you will be stuck with it until you can unload it to someone who actually doesn’t mind the work.
Every week I stop by my local pizza shop where the owner has been working 12 hour days for about thirty years. His family works there as did the previous generation. To me that is the next best thing to forced labor. Eventually, after a generation, they started a second restaurant in the chain so the empire is still being built. I cannot do it that way, that is not my idea of being an entrepreneur. So, ok, let’s say we want something a bit big bigger and able to actually make me some money, what can I do, how long will it take and how can I cut down the time to own it? In other words, how can I buy a business fast?
So my answer has to presume the deal has got some size otherwise the answer is “how fast can you get the money?”. The small leveraged buyouts we do require some finesse an some financing. So there are more ingredients to the process than there are for main street businesses. Yes, some of the process is the same, we need to look at some deals, talk to the sellers and get a lawyer to close it. But the complexities of a “real business,” or one which has some marketing reach and critical mass, require more attention, sophisticated financial skills and personal interaction with the parties.
1. First of all we need to understand what’s out there. There may be a million tiny businesses that aren’t worth looking at but we want to find the one’s that are a cut above and generating at least a $1.0-$2.0 Million in sales and we want to identify them fast. This means combing through deal sites, sending out direct emails and reaching out to as many people as possible to get deal flow. If you have gone though a 30 day period without seeing at least five deals with complete financials, then you need to work at it some more.
2. Second, we need to understand how to make the offers fast and screen the deal. An offer not made is time wasted. You have nothing to lose and every to gain by making offers. The offers we do are non-binding and will screen out the seller and broker very quickly. Moreover you will gain fast experience and learn the market as you go.
3. Third, we need to understand the Seller and his needs. Make sure you spend time with the sellers, either by phone or in person and preferably both. The more time you spend with the seller the faster the deal will go and the more you will understand what he needs to sell the company to you. At the same time the seller will be more comfortable with you and will be less likely to go elsewhere to market his company.
4. Fourth we need to know how to arrange the financing. You need to source out many lenders to find the right one for a particular deal. Waiting until you have an LOI signed is one option but you want to find the lender that closes the fastest. Some lenders close in days, banks close in months. Know your lenders, what their terms are, what their approval criteria are and how long it takes for their typical closing to happen.
5. Fifth, we need to know what is needed to close the deal. Closings can happen lightning fast or lightning slow. The simpler the deal the faster the close. The more professionals you have lined up ahead of time the faster the closing. The simpler the financing package the faster the close. The more cash you can arrange to fund the deal the faster the close. It’s quite simple really. Take away the obstacles to closing and the deal will close fast. The only area out of your control is the whims of the seller which is why you need to concentrate on number 3 above.
Bringing deals in house and looking at them, analyzing them and offering for them is the first order of business. You need enough deal action to eventually get to the doable deal. When you have five offers out you will ask yourself how you are going to close all these deals? But trust me you aren’t going overboard and it will all come down to identifying the one deal you can do – and do with the least amount of hassle.
Now here is the interesting thing. When you actually have a signed letter of intent things will change dramatically. It means both parties want to close and close fast. You may not even get to that point without some fear setting in because the ball is now in your court to perform and get the money. Once the LOI is signed, the mad dash for the closing occurs and you will be in overdrive. You will have a million things to do to close and a time frame will start to loom in front of you. This is the exciting and the scary part. But it can condense an otherwise lengthy process into a real finish line in a fast time frame. The key thing is to get the ducks in a row ahead of time so you can remove all the closing obstacles once the LOI is signed.
