My recent column about the travails of Bob and Sandy McNary trying to sell their little Indiana manufacturing company, a task that 28 years of running the firm left them ill prepared for, brought many reader e-mails from would-be buyers feeling similarly frustrated.
"It so happens I've been on the other side of that issue the last six months or so in that I'm trying to buy a small business," wrote Jim Slagter, 45 years old, of Wayne, N.J. "Unlike real estate or many other markets, there seems to be no clear way to find out what is available."
Indeed, the market for buying and selling smaller companies is treacherously inefficient, lacking a single source for listings and any authoritative guide to what a business is worth. What's more, many sellers are overly secretive and unrealistic about the value of their business. And, plainly stated, there is a lot of junk for sale.
That means that buyers who take the time to carefully investigate a purchase -- the prospects of the industry, financing options, the results and reputation of the individual company -- stand a better chance of success than those who wing it. So, a few guidelines:
Commit enough time to the search. Clicking through online listings after work while you're also watching a ballgame isn't going to get it done. Dave Garrett of Evansville, Ind., recently left his job at -- and sold his stake in -- a construction firm and now devotes all his working hours to the search for a company to buy. He and a partner hope to buy one or two manufacturing concerns, with sales between $1 million and $8 million, strong cash flow and management that wants to stay on.
Mr. Garrett, 43, is using business brokers for leads, personally searches online listings and has offered a $10,000 finder's fee to anyone who provides him a lead that results in his purchase of a company. He and his partner have already bid on two businesses, though they didn't end up buying either. "This is all we do," Mr. Garrett says.
If you're looking to buy a company but are still employed, ask yourself: Can I spend the equivalent of one full day a week committed to the search? It's going to take a lot of looking, reading, analyzing and conferring to find your business.
Don't do it alone. So many would-be buyers lack experience in acquisitions or even in the industry they're targeting for a purchase. They're flying blind. But fortunately, many seasoned entrepreneurs are generous people, willing to show the ropes to a younger person. Don't be afraid to ask for help. Small-business owners are often flattered when someone shows an interest in what they've built. A seller might not be your mentor, but an established entrepreneur who doesn't directly compete with a business you're interested in might help out. Many have bought and sold businesses and can explain the process. Also, find an accountant and a lawyer who are experienced in advising purchasers of companies, before you make an offer.
Every business is for sale. Or nearly so. That means you don't have to limit your search to companies with a "for sale" sign out front. Mr. Slagter has many years of experience selling stock research to investment firms and would like to buy a business that also sells its product or service to other businesses. But he finds mostly consumer businesses for sale online and through brokers.
So, here's a place to look: the Small Business Administration's Web site, www.sba.gov. Go to the "frequently requested services" drop-down, click on "PRO-Net" and then click on "search database." This is a list of thousands of small companies that have registered to sell their products or services to the government, searchable by location, industry, size, and other factors. They're not necessarily for sale, but it's a huge list of business-to-business firms, usually with the chief executive's name and phone number included, and a great source of ideas.
Let brokers earn your trust. Be explicit about what you want. And if they bring you crummy leads, find another broker. There are thousands of them. Look under business brokers in the yellow pages, plug the same term into a search engine, or try www.ibba.org, the International Business Brokers Association. Remember: they'resalespeople, not your advisers.
Match what you search for to your personality. In addition to location, size, industry and such, your search should aim to find a business that fits your appetite for risk and your lifestyle plans.
Mike Mikolajczyk, 51, a telecommunications veteran, recently left a formerly highflying consulting firm, DiamondCluster International Inc., that has seen its stock plunge, and now wants to buy a small firm that he can run himself. "I like growth," he says. "But especially in situations where I'm putting out my own capital, I don't need growth potential like that."
John Disney owns a small business, brokering used private jets, and makes a nice living. But at 50, he'd like to run something that occasionally could run without him. At his jet brokerage, Contrial Aviation, in Baltimore, "if I go away for a month to Acapulco to water ski, which I'd like to do, they call and the phone rings and they figure, he's out of business."