Russell Robb - Buying Your Own Business: *Identify Opportunities,*Analyze True Value,*Negotiate the Best Terms,*Close the Deal

BUYING YOUR
OWN BUSINESS

Second Edition

Identify Opportunities Analyze Todays
Markets Negotiate the Best Terms
Close the Deal

Russell Robb

Copyright 2008, 1995, by Russell Robb
All rights reserved.
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made for brief excerpts used in published reviews.

Published by Adams Business, an imprint of
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ISBN 10: 1-59869-705-6
ISBN 13: 978-59869-705-6
eISBN: 978-1-44051-566-8

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Contents

Acknowledgments

A number of years ago I was attending a seminar. At the end of the day, the instructor passed out a blank page with just one word at the topDREAMS. We were asked to fill in the blank. I thought for a moment. Then I wrote down several personal dreams, one of which was to write a published book... someday.

It has been a formidable task in that the writing has been woven around my regular jobnights, weekends, holidays, and vacations. Needless to say, the book would not have been completed without my partner in life and my partner in this book: Leslee, my wife of thirty-seven years. Her willingness to spend the hours at the computer in order to get this to a publisher made the task easier, and the constant encouragement from my four children, all adults, kept me focused.

Others to whom I am indebted are Liza Cormier, who has been my loyal publishing assistant since 1992 when Tom West and I produced a monthly national newsletter, M&A Today. Some of my articles in that publication have been incorporated in this book. Liza further helped my with the extensive revisions of this updated edition of Buying Your Own Business. I have also relied heavily on many of my business friends, particularly those who shared with me the personal experiences described in the chapter Case Studies of Buyers.

Finally, I am indebted to Brendan ONeill, the assistant project manager at Adams Media, who not only encouraged me to update the first edition of this book but to embellish and enlarge this second edition.

HOW TO USE THIS BOOK

The process of buying a business is usually long and difficult. In compiling this book, I spent more time reading relevant material, talking to industry professionals, and thinking about the subject matter than actually writing. Many of the references and quotes are from businesspeople I know in the Boston area. Their knowledge of the mergers and acquisitions (M&A) business is applicable nationwide.

The outline is sequential. Because the M&A business may have terminology foreign to many readers, please reference the Glossary early and often. M&A jargon includes such colorful phraseology as deals crater because of sellers remorse, which depicts the culture of the business.

The book was written to be anecdotal, using numerous experiences. Perhaps the most interesting reading is Chapter 27, Case Studies of Buyers, because actual buyers share their lessons learned. This is not an academic book, as it does not rely on theory or textbook-type explanations. The examples are true, although a few are purposely disguised.

In writing the book, I have tried to impress upon you the formidability of the task of successfully acquiring a business. Additionally, on numerous occasions I emphasize the need for professional advisers to assist you in the potential transactions, e.g., in the chapters Use of Intermediaries and Your Acquisition Team.

The book discusses the trials and tribulations of acquiring small businesses, family businesses, and troubled companies. Along with pointing out opportunities, I try to point out warning signs and red flags.

Buying Your Own Business can be used as an ongoing reference. Such chapters as Valuation Techniques, Finding the Deal, Picking Apart the Financials, Negotiating, and Letter of Intent are how-to, nuts and bolts analyses.

From a practical point of view, the chapters on Letters, Memos, Forms, and Contracts and M&A Organizations inform you of helpful resources.

Whether buying a business at all is really worth the effort is discussed in the chapters How and Why People Buy a Business and Should You Buy a Business? It is no panacea owning a small businesssurveys show that more than 30 percent of these owners work ten hours per day and 15 percent work seven days per week.

Ill cover technical advice in Representations and Warranties and Legal and Tax Issues. And when it comes to advice, there is no lack of opinions, as discussed in Why Deals Fail and Pearls of Wisdom.

Hopefully this book is fairly easy to read, informative, and enjoyable. Throughout the book, I have referred to and quoted from many authorities in the mergers and acquisitions business. These additional viewpoints make this book even more comprehensive.

Good luck!

NOTE FROM THE AUTHOR

This book was written for those individuals who want to buy a business, particularly a business in the lower-end of the middle market, frequently referred to as companies with sales between $3 million and $50 million. More than ever, this book is timely because of our recent business society, which no longer offers long-term employment. After numerous transfers or layoffs, many people are motivated to buy their own business to become masters of their destiny and less subject to powers beyond their control.

Having sold three small businesses of my own and having been an intermediary for buyers and sellers since 1985, I have direct knowledge of this subject. This book is an attempt to educate individual buyers so they will have a better chance to successfully buy a business.

Harvard Business School case 9-385-330, Buying an ExistingBusiness, clearly summarizes the search process:

Searching for a small business to buy can be difficult; not only