Being a business owner is a big achievement and brings many entrepreneurs a sense of accomplishment. However, wanting to be a business owner does not always equate to wanting to start your own business from scratch. The uncertainties attached to starting a business from scratch do not always appeal to entrepreneurs. Instead, many business entrepreneurs prefer to buy an already existing business or company.
When it comes to the construction industry, is it a good idea to buy a business?
Many M&A advisors and business brokers in Ontario, BC, Alberta or across Canada would tell you that buying a construction business can be a great way to become a successful business owner. This has to do with the nature of the construction industry – the industry is highly competitive, has low barriers to entry, and is mostly dominated by smaller businesses. There is also the fact that when it comes to actually finding a business to buy, there are several businesses for sale for an entrepreneur to choose from.
Suppose you’re looking for businesses for sale in Ontario, for example. In that case, you could get in touch with N3 Business Advisors to get an idea of which construction industry businesses are listed for sale.
Of course, no entrepreneur decides to buy a business casually. Before a decision is made, various businesses are considered, and a lot of thought and research goes into the process. There is a significant due diligence process that is usually carried out when trying to see if a business is fit to buy. The due diligence process includes an overview of the company, a company valuation, checking out the business’s finances and legal standing, taking a look at production capability, and so on.
And while due diligence is extremely important, that is not the end-all and be-all for making the decision to buy a business. When considering different businesses for sale, it is important that a business’s buyer and seller can sit down together and discuss various aspects of the sale. The buyer and seller should be on the same page regarding different factors to do with the business and what the future of the business will be.
So, if you are an entrepreneur about to buy a business, it would be a good idea for you to get together with the business seller and ask them various questions about why they are selling their business, about how they run their business, and what they hope to achieve for the business once the sale has been closed.
Here are some of the questions you will want to ask the seller of a business you are thinking of buying:
1. What is your reason for selling your business?
Finding out why a business owner is selling their business can give you a lot of insights into the business and might also point to certain issues the business could be facing. You want to make sure you ask the seller about their main reasons for selling. It is usually quite common for sellers to put up their companies for sale because they are planning to retire soon or have some personal health/family-related issues, meaning they cannot devote their time and energy to the business any longer. These reasons are the best you can expect and do not point to any problems within the business itself.
Some reasons for selling a business can be a red flag for you. For example, a seller might put their business up for sale because they aren’t doing too well financially or there is some new competition that they can’t keep up with. These kinds of reasons for selling a business let you know about issues within the business that you would have to put up with or handle if you were to go ahead with the sale. Of course, such reasons shouldn’t automatically put you off the idea of buying that particular business, as it is possible that the business can do better under new ownership and with some manageable changes put into place.
2. How did you come up with the asking price for business?
If you are even considering the possibility of going through with the purchase, we’re sure you would have already had your own company valuation carried out by valuation experts.
However, it would still be quite insightful for you to ask the seller how they came up with their asking price. What exactly do they consider when coming up with the value of a company? What kind of a valuation process did they carry out on their own side of things? Did they use an asset-based approach to value the business or an income-based approach? Did you hire a professional third-party valuation expert or use some kind of business valuation calculator tool?
These questions relating to the company valuation and asking price can help you learn more about which parts of the business the seller thinks are most valuable and bring the most to the table. Having more insight into how the seller reaches their asking price can also be more helpful in carrying out negotiations relating to the asking price if you are unable to agree on the final amount.
3. What outcomes are you hoping for from the sale?
You, as a potential buyer of a business, might have significantly different ideas for outcomes as opposed to the seller. So, to ensure that you are both on the same page regarding what you want for the future of the business, having an open conversation with the seller is very important. No matter what kind of businesses you are looking to buy, be it a landscaping business, manufacturing business, wholesale business, or distribution business for sale, there are certain common outcomes that can be expected. Is the seller hoping for a good price and no more involvement? Or are they interested in having the business develop and grow? Depending on what outcomes the seller wants, they may want to play a more or less involved role once the sale closes. How long will you stay for successful business transition.
4. Who are your top employees and staff?
Any business would rely heavily on efficient, trained, and qualified employees. When buying a business, it is important to get a good idea about the employees and staff and see whether there is a good mix of reliable and qualified workers. If you find out that the business relies mostly on a handful of employees, that could mean trouble for the business in the future if those few employees decide to leave. On the other hand, a balanced reliance on different employees and staff will make a business stronger and more conducive to growth.
5. Which customers does your business rely on the most?
Similarly to how a business might rely primarily on a small number of employees and staff, the business might also rely too heavily on a handful of customers for their sales. If you are considering a business, especially a small business for sale, be sure to ask the seller about their customers and whether they have a varied and diverse customer base. A more diverse customer base is definitely preferable, as it ensures the business does not fail if one or two large customers pull their contracts.
6. What sort of role do you wish to take on during the business transition period?
As we mentioned before, depending on their reasons for wanting to sell the business and the outcomes they are hoping to achieve, the seller might wish to play a more or less involved role in the business during the transition period and once the sale has been closed. If you are able to sit down with the seller and get a clear idea of what role they want to play, you can be on the same page as them and save yourself from any surprises further down the line. The seller might want to play an advisory role or even continue to work with the business full-time for a period of time.
This can be a huge positive and offer you meaningful insights into how the seller used to run the business before the sale. On the other hand, the seller might decide to step back completely. Either way, knowing what the seller intends to do is in your best interest before you close the sale.
7. How much time do you put into your role as a business owner?
Some businesses rely very heavily on the business owner for day-to-day operations. Other businesses have very little interaction with the owners and rely more heavily on upper management. When you look at different businesses for sale and sit down to discuss matters with the sellers, be sure to ask the seller how much time they usually put into their role as the owner. How many hours do they work during the week? How often do they get called in, even when they’re taking time off? How much does the business rely on them? The answers to these questions will help you understand what kind of a role you would expect as the new owner should you buy the business.
8. What are some of the biggest or most significant problems your business faces?
Whether you are looking for a business for sale in Toronto, Ontario, Ottawa, or anywhere else, you will definitely face some – if not many – problems down the line. In construction businesses, in particular, there are problems with too much competition to keep up with and a limited pool of customers to compete for. So, when deciding to buy a business, be sure to ask the seller about the biggest problems their business face. This will help you make an informed decision about the sale and give you a good idea about whether or not you are up to tackling the various problems the business might have to deal with. You can also ask the seller if they have any plans or strategies they think would help tackle any significant problems.
The Bottom Line
Due diligence is a fundamental process when buying a business. However, most of the due diligence process focuses on the financial and legal aspects of a business. A lot more can be learned about a business through speaking with the seller. A good relationship between a potential buyer and seller, and both parties being on the same page, can help close a deal and make buying a business much easier. Open conversation with a seller can also help the potential new buyer gather more insights about the business they are looking to buy.
When it comes to actually finding businesses for sale, there are a number of avenues to check out. For example, you could look at some of the more popular services, such as BizBuySell. You could also get in touch with M&A Consultants or business brokers, or if you want to look for industry-specific businesses, for example, in the construction industry, then consider getting in touch with N3 Business Advisors. Here, not only can you find businesses for sale in Brampton, Vancouver, Calgary, Markham, Ottawa, Mississauga, Ontario, and Toronto, but you can also list and sell your business.
N3 Business Advisors – Businesses for Sale Near Me
N3 Business Advisors is a Construction Industry mergers and acquisitions advisory firm. We are based out of Ontario and specialize in helping to grow, buy, or sell small businesses in the construction industry. Whether you are looking for a landscaping business for sale, a manufacturing business for sale, a wholesale business for sale, other any other kind of construction business, you can get in touch with us!
Our team has trained professionals, including M&A lawyers, company valuation experts, due diligence experts, financial advisors, accountants, and more!
You can schedule a confidential call with us by visiting our website or giving us a call at 647 967 4222.