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How to REALLY buy a business

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Meet Ron Schinik: the creator of a new, innovative online course entitled ‘How to Really Buy a Business’ which aims to demystify and simplify the processes of purchasing a new enterprise.

With 25 years’ experience in business investment and financing, including a decade At Quick International Courier – a global logistics enterprise, where he specialised in acquiring businesses within that industry from all around the globe – Ron is perfectly placed to advise potential buyers. 

More recently Ron has co–founded and served as a Managing Partner and Chief Financial Officer at CrownBrook Capital LLC, which invests and operates in micro-cap companies with an operating cash flow (EBITDA) of $1.5 million to $5 million.

Ron knows business, and he knows how to buy them. Here he bestows some words of wisdom to and any potential business owner in need of a little direction.

What initial advice would you give to someone thinking of buying a business? 

First, try and confer with someone that has already gone through the process.  Ask a lot of questions and try and flesh out what they would have done differently.  What unexpected bumps in the road did they hit?  

The second thing I would do is find a qualified professional team consisting of both an accountant and attorney.  Give them a bit of premier on what you are trying accomplish.  Remember though, they must have extensive experience representing buyers and sellers of businesses.

This is key.     

Why do you think so many people dream of buying a new business, but so few actually go for it? 

Most people have little experience operating a small business – let alone trying to buy one.  The stakes are extremely high when buying a business as many individuals either utilize all of their life savings, borrow money from friends and family or from third party lenders such as a commercial banks.  

As such, failure is a daunting prospect.  Combine this will the fact that buying a business is generally a first time experience for the vast majority of small business buyers and you find that you may have the desire, but the fear of the unknown is somewhat paralyzing.  Call it ‘fear of buying’.  As such, it leaves the potential buyer with an inability to ‘pull the trigger’.    

What inspired you to create the ‘How to Really Buy a Business’ course? 

I was inspired primarily by two distinct things.  The first was my experience as a private equity investor.  I realized, after having acquired numerous businesses, that you are never really sure of what you are purchasing until after the transaction has been consummated.  

I really wanted to share some of the things I learned and provide meaningful, real-world guidance to novice buyers.  I figured that an illustrative program would be much more beneficial than reading a book as there are thousands of books on the subject.  But an intensive course – almost none.  

The second inspiration was all the inquiries I was getting from friends.  I realized that there was a deep yearning out there to learn about buying a business. At some point careers get either terminated, stale or just boring and many people feel trapped.

Buying a business is an excellent way to change course.  But generally speaking, most people are completely dumbfounded by the process.  I wanted to change that. 

One of your course modules is entitled ‘Becoming a Competitively Advantaged Buyer’ – what does this entail? 

The market to acquire good businesses is very competitive.  Therefore you want the business broker to consider you first and foremost when a great business comes along.  In order for this to happen you need a couple of important ingredients 

1) Credibility: the business broker or intermediary must believe that you are a real buyer – that your intention is to actually buy a business and time spent with you is time well spent.  That means being aggressive when it comes to new listings and demonstrating your financial wherewithal.  Don’t fade away if you don’t get a shot at one deal – keep coming back.  

2) Experience: demonstrate that you have some grasp of the acquisition process – no matter how little experience you may have.  The business broker is not in business to educate you and could offer the prospective business to a more experienced buyer who can vet, negotiate and finance a transaction.  

Your course offers advice on understanding the ‘psychology of the seller’. What insights can you give us about this aspect of buying a business? 

The process of buying a business is best seen from two angles – financial and psychological.  On the financial side the seller must be comfortable that the sale amount fairly compensates them for their business – this is obvious. 

What is not so obvious is the consideration given by the seller (whether they are conscious of it or not) to numerous other factors. Given that most sellers are one-time sellers and that they have spent a large portion of their lifetimes operating the business, they’ll want to make sure that they sell to the ‘right’ person.  

So the buyers must be aware that sellers are ‘sizing up’ prospective buyers. The seller is wondering whether the buyer will treat employees with respect, what changes (good or bad) will be instituted and if the buyer will have the ability to operate the business successfully.      

All businesses are different. Given that you have created a course about how to buy a business – how confident are you that your formula work for all purchases? 

It’s not a formula really.  It’s more of a course in the intricacies and nuances of buying a business presented in the most practical manner I could develop.  

The theory, practical examples and discussions are applicable to the acquisition of any business.  It was my intention that the course was meant for any buyer of any business. 

What, in your experience, is the most common mistake prospective business buyers make? 

The most common mistake is not doing enough due diligence – which is lingo for the investigative portion of buying a business.  Many buyers assume that the information they receive from the business broker is either i) enough to make an informed decision or ii) correct.  Assume neither.  

A buyer must understand: 

• Growth prospects for the industry 
• What need does the company address? 
• Company’s competitive advantage 
• Long term viability 
• Supplier and client strengths and weaknesses 
• Employee relationships 

What type of business do you think is good to go for in the current market, and which should buyers avoid? 

Good question.  I can only answer that generally.  Be careful of businesses that have a low barrier to entry.  For instance an internet retailing business where anyone can set up shop and offer a similar product.  

The mitigating factor here might be a branded site with great traffic patterns and some unique products.  Also be mindful of macro changes in the industry – for instance you don’t want to own a fax machine manufacturer at the advent of email.  Of course, the opposite holds true as well.  

What has your life experience so far taught you about buying businesses? 

It’s fairly simple. Every business is different in its own unique manner - and you have to be mindful of understanding how the company operates.  That means understanding key relationships including employees, vendors and clients.  

It also means getting a clear sense of how the business operates – operations, logistics, purchasing, accounting and sales. Success after the acquisition is highly dependent on the time and effort spend prior to making the acquisition. 

If you were going to buy your dream business, what would it be? 

Here is the dream business: 

• Growing industry
• Growing revenue and strong gross profits
• Loyal employees
• Recurring revenue stream
• Highly scalable

I’m not sure it gets better than that! 

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