There's more to buying a business than negotiating a good deal. First you need to make sure you like what you're going to be doing after the business is yours
These days a lot of people see buying a business as their ticket to economic independence, and it may well be one. But if you've never done it before, there's a common mistake you should be careful to avoid. Make sure you don't get sucked into the negotiation process and become fixated on the wrong questions.
Believe me, it happens all the time. People find a business that strikes their fancy and start looking into the terms of the deal. Pretty soon, they're thinking only about acquiring the business at a good price. Meanwhile, they never get around to investigating whether or not the business is going to take them where they want to go.
Let me tell you about my friend Marty, who worked for a card company specializing in invitations and announcements. Every day for 25 years, he went to an office, sat at a desk, and took orders over the phone. He hated it. He was bored out of his mind. He didn't know what to do.
So he began skimming the Business Opportunities section of the Sunday New York Times. He wasn't sure what he was looking for. At almost 50 years of age, he had few business skills. Accounting was a foreign language to him. He figured that if he ever bought a business, it would have to be one that didn't require much specialized knowledge, something that would be relatively easy to manage. A franchise maybe, but he found that the good ones cost too much money.
Then he came across an Italian-bread route for sale. He thought, "How difficult could it be to run a delivery route?" He called the phone number in the ad and spoke with the business broker who was handling the sale.
It turned out that the route was in Queens, not far from where Marty and his wife, Annabelle, lived. It was a one-person operation. The guy who owned it had been doing the route for 20 years and took home about $65,000 a year. He wanted $200,000 for the business, but he was willing to help finance the deal. If Marty would put $60,000 down, he could pay the balance over five years at 10% interest, or about $35,000 a year. That would leave him with an annual income of $30,000 until the debt was paid. Combined with Annabelle's salary, it would be enough to make ends meet. If he worked hard, moreover, he could expect his sales, and his income, to grow by 10% to 15% a year.
It seemed perfect. Marty went to meet with the owner and returned sounding even more enthusiastic. "This is a can't-miss deal," he told Annabelle. "The guy has signed contracts with all the places he delivers to, and none of them is more than 25 miles from here. I could do the entire route in seven hours."
Annabelle wasn't buying. "You're not quitting your job until you talk to Norman," she said. Marty agreed.
She called my wife, Elaine, who arranged for them to come over to the house. Marty brought all his paperwork along. He laid out the terms of the deal in great detail. "What do you think?" he asked.
I said, "Tell me something, Marty. Do you like this business?"
He shrugged. "I can't really say. I haven't tried it yet."
"What's involved in it besides picking up the bread and delivering it to the stores?"
"I'm not sure," he said. "Whatever it is, it can't be that complicated."
"What happens if the truck breaks down?"
"I don't know," he said. "I guess I'll just work it out."
I asked him a series of questions along those lines. Finally, I said, "Listen, Marty. You want to know if this deal makes sense from a financial standpoint. That's easy to check. The guy has income-tax returns, and his sales are verifiable. This isn't a cash business, after all. He sells to delis and supermarkets. They pay by check. We can go over his expense figures and make sure they're realistic, but my guess is that the deal is OK. If you're asking me whether I could negotiate him down a little, the answer is probably yes."
He turned to Annabelle. "See, I told you he'd approve."
I said, "I didn't approve anything. Only you can do that, and you're not ready to."
"What do you mean?" he asked.
"You haven't done your homework," I said. "You don't know what you're actually going to do in this business, and you don't know if you'll be happy doing it."
"How am I going to find that out?"
"It's real simple," I said. "You have two weeks' vacation coming up. Spend them working for this guy. Tell him you want to be his assistant for two weeks and you'll do it for nothing. He can't object. You're a serious buyer. Tell him you need to learn about the business."
Marty took my advice. When he'd finished his two weeks on the bread route, he called me up. "You're right," he said.
"What am I right about?" I asked.
"I hate it," he said. "I can't do this. It's a 15-hour-a-day job. You deliver for 7 hours, and then you have to go back and collect. If you want to add new accounts, you have to go get them yourself--except that you don't have the time. I mean, I hate the job I have now, but this one would have been a disaster. I wouldn't have lasted six months."
The moral, I suppose, is that you have to like what you're going to do. It's easy for people who hate their jobs to think that anything else would be better, but anything else can often turn out to be a lot worse. If you don't believe it, go back and read Drix Niemann's harrowing but eloquent account of the final days of the company he bought in 1989 (" The End of the Story.").
When you buy a business, you're making the biggest investment of your lifetime--and not just in terms of the dollars. It's also going to be your biggest investment in time, energy, and emotion. A house comes in second. You need to spend a little time in the business before you buy it. You need to see how it feels.
Who knows what you'll find? Maybe you'll discover that you don't really want to be in business at all. My friend Marty, for example, decided to go back to school and become a substance-abuse counselor. He moved to Albany and took a job in a hospital. Now he's making half as much money as he earned selling invitations and announcements.
And he's never been happier.
Norm Brodsky is a veteran entrepreneur whose six businesses include a former Inc. 100 company and a three-time Inc. 500 company. This column was coauthored by Bo Burlingham.