Finding the Perfect Match: How to Identify the Right Business to Buy

Photo by Jorge Urosa

 

As Valentine’s Day approaches, love is in the air, and the idea of finding the perfect match is top of mind for many. But this season of romance isn’t just about personal relationships—it’s also a great time to think about making a meaningful connection with your professional ambitions. Much like finding your ideal partner, choosing the right business to buy requires careful consideration of your own needs and wants, identification of a compatible opportunity and some diligence to ensure that you are making a good decision before you tie the knot.

 

Know yourself

 

Before starting your search, it’s essential to have a clear idea of what you’re looking for. To build your buyer profile, ask yourself to following questions:

 

  • What am I looking for and why? Are you looking for a job that you are in control of? Is the potential for growth important to you? Do you have a strategic reason (expansion, additional related product line, skilled employees) for purchasing a business?
  • What are my skills and interests? Identify industries, niches or roles for which you have a passion.  Think creatively.  Someone who has a love of the outdoors, basic mechanical aptitude and logistics experience might ultimately have interest in a landscaping/outdoor maintenance company.  Also, consider licensing requirements.  If you do not currently hold a required license how long would it take you to qualify?  This is especially important in main street and micro businesses where the owner holds the license (and the technical experience).
  • What are my financial goals? Determine the level of profitability you need to achieve your desired return on investment.  Are you replacing a current job where you make $100k and have a generous benefit package?  Will you be able to afford to leave your job? 
  • What is my risk tolerance? Be honest about how much risk you’re willing to take. If you have a spouse or partner I would encourage you to determine their risk tolerance as well.  
  • What lifestyle do I want? Consider the time commitment and operational involvement the business will require.

 

Remember that a business is supposed to serve the needs of the owner so knowing what you want and need is critical! Having these priorities outlined will help you focus your search and help you recognize a potential match when you review the online profile.  More importantly it will help you eliminate opportunities that are not a good match.

 

Early Dating: Evaluate Operations and Financial Performance

 

Once you have identified a target you will “swipe right” by reaching out to the owner or broker.  If they are professional, you will sign a Non-Disclosure Agreement (NDA) and get more detailed information about your potential match.  

 

At this stage, you are testing to see if the business is really a match for the criteria that you have set. Usually, you will be offered some financial information and enough information to begin your diligence to determine if you want to continue the conversation.  

 

Questions you should get answers to at this stage include financial health, some operational details like the number of employees, the role of the owner, and some idea of how the products/services are delivered.  You should get enough information at this stage to make the statement…if all of this is true then I would buy the business.

 

  • Revenue and profit trends: Look for consistent growth or areas for improvement.
  • Expenses: Understand fixed and variable costs.
  • Cash flow: Ensure the business generates sufficient cash to cover operational needs and provide a return on investment.
  • Debt obligations: Check for liabilities that could impact profitability.

 

This is also the stage where you would conduct thorough market research to understand the market landscape is a critical step in finding the right business. Research trends in your target industries and evaluate the competitive environment. Are there opportunities for growth, or is the market saturated? Knowing the market dynamics can help you identify businesses that meet your criteria for potential growth and risk.

 

This stage usually involves document review, asking questions, and reviewing information provided in response.  Generally, you can expect at least one meeting with the Seller where you can get to know each other and the business in more detail.  

 

The point of this stage is to identify deal killers so you can decide if you want to make an offer.

 

The Proposal 

 

Regardless of whether you use a letter of intent (LOI) or a conditional Asset Purchase Agreement.  If you want the business you will lay out your proposal to the Seller.  Coming to terms and signing an offer is the beginning of diligence.  

 

Diligence is the stage where you will VERIFY all of the information that you have been provided by the Seller and generally, you can still terminate the deal if you don’t like what you find.  Think of this as a detailed background check.

 

Buying a business isn’t just about the numbers; it’s also about fit. Diligence is your opportunity to take a deeper dive into:

  • Culture: Does the company’s culture align with your values and leadership style?
  • Processes: Are the operational systems efficient and scalable?
  • Employees: Evaluate the team’s skills and experience.
  • Customer base: Assess the loyalty and diversity of the customer base.

 

Then there are the other technical issues that should be verified:

 

  • Legal compliance and licenses
  • Intellectual property rights
  • Contracts and agreements
  • Supplier and vendor relationships

 

We recommend strongly that Buyers Consider hiring an experienced accountant to review the financial aspects of the business and a lawyer (especially if there contracts, intellectual property rights and legal compliance issues.  Diligence can be very simple for a main street business but as you move upmarket you should expect the complexity and amount of detail to increase as well.

 

Work with a Business Broker

 

Business brokers are invaluable allies in the buying process. They have access to a wide range of businesses for sale and can match you with opportunities that meet your criteria. Their expertise can save you time and help you avoid costly mistakes.

 

Trust Your Instincts

 

Finally, trust your instincts. If something feels off, take a step back and reassess. The right business will not only meet your criteria but will also feel like the right fit for you personally.

 

Finding the perfect business to buy is a journey that requires careful planning, research, and professional guidance. By defining your goals, working with experts, and conducting thorough evaluations, you can identify a business that aligns with your vision and sets you up for long-term success. Remember, this is not just a financial investment—it’s an investment in your future.