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- Did you work on the right thing today?
- 3 Critical Rules for the day after you buy a company – to make sure you don’t miss a loan payment
- What about flipping a small business compared to real estate?
- Managing your Business in 2 Hours
- How we buy companies for under $5,000
How do you find good companies to buy?
How do you find good companies to buy?
By: KC Truby
The first question is to figure out what type of business deal you are looking for. Now this is not chiseled in stone. Stay flexible because we never know where the good deals are going to come from or what they are going to look like.
The most common acquisitions fall into one of three categories
The Good Business with Positive Cash Flow: Most of these deals are found in the ‘business for sale’ web sites. Every week I log onto the national sites like BizBuySell and BusinessMart as well as the local web sites put up by brokers. We also develop a relationship with local brokers (being cautious to not waste their time) and let them know that we are buyers of great little companies that have potential.
The Roll Up. When you’re in a certain market space like software or home health care, you should then start a campaign of buying your competitors. We actually have lunch with one competitor every day all year long. Our goal is to be nice but snoop around a little on the subject of ‘who needs capital, or who is in trouble?’ The weak competitor roll up is a great way to get ahold of customers and staff without paying much.
The distressed business. These are harder to find but your biggest chance for an enormous ROI in a turn around. A company in trouble is not going to advertise the fact. Most just quietly fade away and no one knows there going under until you drive by and see an empty building.
To find these deals we ‘work’ our referral sources. When you start it is going to seem like a lot of hard wasted work but after three or six months you’ll probably get about 100 leads a year dropping in your lap. We call on…
- Accountants. Almost no one knows who is in trouble like the local bookkeeping service or CPA. Now they cannot come out and tell us, that is an ethical violation so we pass out cards and say “Will you tell anyone that needs money, or needs to get out before they close out, about us?” In most town there are hundreds of accountants so this is going to be a big job that you may want to accomplish by direct mail letters.
- Business coaches. The business coach has a vested interest in saving their clients and are willing to get you in the door. You can find them locally on the internet and a phone call will get you the email address. We simply send out reminders to all business coaches in our town every month that we’re looking to buy small local companies.
- The Business lawyer. Here again we have trouble with the ‘referral’ but they will pass our name on to the troubled owner. Then it is up to the owner to give us a call.
- SCORE: I attend the score meetings in Arizona and make sure everyone has my business card. I explain in one to one conversations what we do to save companies and to please keep me in mind.
- Bankers. This is often the hardest place to get a referral until the client is really in trouble. But it is worth being known by every business banker in town. Simply call the bank, get the local small business agent on the phone and start a letter and email campaign to remind them of you monthly.
- Public Record. When a business gets sued, or a tax lien is filed – you have a WINNER. This is free online information in most counties. Get a high school or home based worker to look up the events each week, find the contact name and get in there.
- Commercial RE agents. These guys know as soon as someone is behind on their rent and they want the rent paid. So you will get notified of people that need help ASAP.
- Vendors and Suppliers. Become friends with the credit manager of the local commercial supply stores and you’ll hear about people who are behind on their payments. That is a lead for you.
- Your local clients and acquaintances. Make sure everyone you know is aware of what you are looking for. A business that is in trouble has a hard time keeping it a secret.
One of our best acquisitions was triggered by an ex-employee who came into our home health care company complaining that their last paycheck bounced and they wanted a new employer. My staff called me immediately and after a few hours of running down the owners’ name, we had a lunch meeting the next day and an acquisition the following week.
Doing this entire task is a big job, but it does not require you to do it. We use a CRM software to track all our contacts and the referrals we get so no one falls between the cracks. But more important I hired a work at home bookkeeper to keep on top of the entire project. She gets paid $11 an hour plus a $500 bonus every time she finds us a deal we can get done.
This will be a negative cash flow project for the first few months, but remember our average distressed acquisition generated $200,000 in new equity in the first year during 2012 to 2014.