This is the second in a series of posts about buying a small business and how we purchased our first one. If you are catching this series mid-stream, I recommend you start at the beginning with Buying a Small Business: Overview.
In the first post in this series, I covered the benefits and downsides of buying an existing small business. I also mentioned the fishing lure business that I found for my wife (that strangely, she was unenthusiastic about purchasing) and that one week later, she found the perfect business to buy. So, let’s continue our story.
Now that we’ve covered the basics of why you might want to purchase a small business, the next question is, how do you find one that is for sale?
There are basically three ways to find a business for sale:
- Searching an online directory
- Working with business brokers
- Contacting business owners directly
They are not mutually exclusive and many people will pursue all three approaches at once.
Searching an Online Directory to Find a Business for Sale
Using an online directory is probably the easiest way to find a business for sale, especially for the smaller ones. There are several sites that specialize in listing businesses for sale. The one we used to purchase our first business and continue to check from time to time is BizBuySell. They bill themselves as “The Internet’s Largest Business for Sale Marketplace,” and they just might be right. They have tens of thousands of businesses listed for sale at any time.
Caveat: If you have any interest in buying a business, you will lose several hours of your life browsing through their database and daydreaming about all of the wonderful businesses you could own. Consider yourself warned.
The site is awesome and a wealth of information. Even if you are not thinking about buying a business, it’s fun to poke around and see what people are selling. When you are done, you might actually be thinking of buying one!
I would recommend setting up a free account and profile in their system. You can then setup filtering criteria and BizBuySell will automatically notify you via email whenever a new business for sale is listed that fits your criteria. Easy peasy.
That being said, in my experience, BizBuySell is great at listing brick and mortar businesses along with some e-commerce sites. If you are interested in buying a straight up website or blog, there are other sites that specialize in listing these types of businesses for sale and providing valuation services as well.
I have not spent much time on the website specific sites, so I can’t necessarily recommend one, but just Google “websites for sale” and you’ll find several big ones. The reason that I have not focused on buying websites relates to financing, but I’ll talk about that more in a later post.
Three website specific listing sites that I did check out were: Flippa, EmpireFlippers and FEInternational. They appear to be popular and reputable, but I would recommend that you do your own due diligence before using them. If you are interested in buying a website, these will have a lot more selection than BizBuySell.
Working with Business Brokers to Find a Business for Sale
Business brokers are very much like real estate brokers. Most commonly, they represent the business seller and are compensated by the seller at closing with a percentage of the sale price. If the business doesn’t sell, they don’t get paid.
It’s important to remember that no matter how well you hit it off with the broker and no matter how much it seems like they are working for you, they are not. They are representing the seller and the seller’s interests, so don’t say anything to the broker that you don’t want the seller to know. Enough about that.
A broker is interested in closing deals because that’s how they get paid. Consequently, a good broker will do a little due diligence before listing a business for sale. They will likely only list companies that they feel will be easy to sell, and they will put together a “package” of material to present to interested buyers. If there are obvious issues with a business, it is unlikely that a broker will list that business for sale.
It’s also important to know that they make no representations or warranties with respect to the information provided by the seller. They just take what the seller gives them and then package it up nicely and show it to you. If the information is misleading or even fraudulent, the broker is not liable. It’s your job to confirm everything before you close on the deal.
In my experience, most brokers will list their businesses for sale on BizBuySell, in addition to their own websites in order to advertise them. You probably don’t need to worry about trying to find a broker to work with as you will come in contact with many brokers via your inquiries on BizBuySell.
Contacting Business Owners Directly to Find a Business for Sale
This third approach is a legitimate strategy, but I have never tried it myself. Here’s the strategy. You subscribe to a database or directory service that provides information on private businesses. The information might include: estimated sales, employees, line of work, location, etc… You then use whatever criteria you have established for yourself to sift through the data to identify businesses that you might be interested in learning more about. Then the cold calling begins.
This method could take a long time, as most owners will not even have been thinking about putting their business for sale and you may have to convince them. Or, maybe they were thinking about it, but never really thought it through entirely.
On the positive side, if you can find someone who is willing to sell their business and the deal works out, perhaps you get a better price because no broker commission was involved or maybe the owner does not fully appreciate the market value of their business. Who knows?
On the negative side, finding a willing seller may be difficult and time-consuming. At least if you work with a broker, it’s likely the seller is ready to actually sell the business. From the research I have done, one of the biggest problems with buying a small business is that the owner often gets cold feet when it gets close to closing time.
Once you start looking at businesses for sale, you’ll have to determine which ones warrant further examination. Otherwise, you’ll be like a kid in a candy store, jumping from one business to another and you won’t be able to focus! You might be surprised how quickly you can narrow it down.
For our first business, we wanted something that my wife could run from home to supplement our income, but that would still allow her to devote 90% of her time to the kids.
Here was our selection criteria:
- Home-based business (local to us or relocatable)
- No employees
- History of steady income
- History of repeat customers
- No in-depth industry knowledge required
So why didn’t we buy the fishing lure business that you heard about in the first post? That’s always been my question! Oh, because of the last criteria, which I failed to list, which is that it had to be something that my wife actually had SOME type of an interest in! Bummer.
With that list of selection criteria, you can see why I was so surprised to see her charging down the stairs only one week after she had started looking for a business in earnest, claiming to have found the P-E-R-F-E-C-T business!
What We Did
How did we find it? Through BizBuySell. It was a small business listed for sale by the owner (not a broker) and based out of Kansas City – we are in Philadelphia. We used our filtering criteria to look for businesses that might be a good fit for us. Then, the final criteria was up to my wife. Was it a business that she had some interest in and could see herself running part time from home? And in this case, yes, it was!
Once you’ve found a business that you are interested in, you’ll have to request additional information, conduct some due diligence and ultimately close on the deal. But before we talk about those topics, we should take a moment to talk about financing. You’ll need to think about this from the very start and then all the way through to the end.
See the third post in this series at, Buying a Small Business: Debt Financing.
Did you know that businesses were listed for sale, just like houses? Did you browse any of the listings? Anything look interesting?