These methods can help you find, vet, and buy a book of business for sale.
Buying a book of business for sale can help you start or scale your operations relatively quickly compared to starting from the ground up. This article covers recommend practices for how to find a business for sale, how to understand its price, and how to finance a business acquisition.
Where to Find a Book of Business for Sale
- Your Network
Business is all about who you know. You may be surprised by how many people within your own network could be a resource to find a book of business for sale. This approach to finding a business requires more patience on your side but could help you feel confident in your decision in the long run. Acquiring a business using a personal tie may facilitate more trust in the process once you’re ready to buy.
Retirement and relocation are two common reasons entrepreneurs decide to sell healthy, profitable businesses. Start thinking about who you know in these stages of life. Do some targeted outreach to start getting your name out there as a potential buyer.
Even if you don’t know anyone ready to sell their book of business right now, you could become the first person they think of when they are ready to transition their business.
- Online Databases and Marketplaces
Databases like Flippa, BizBuySell.com, LoopNet, and BizQuest help business sellers and buyers connect online. Potential buyers can use the marketplaces to search through businesses for sale in their region, desired industry, and budget.
There are also industry-specific online databases that could help you narrow your search faster. For example, Agency Equity lists insurance agencies for sale throughout the US. If you’re looking to buy a financial practice for sale, you might consider an online database like this one hosted by FP Transitions.
In addition to helping you find a business for sale, digital marketplaces are also valuable research tools. Use online databases to understand your market from a high-level point of view to strengthen your ability to make the most competitive offer.
- Franchisor Networks or Captive Agency Networks
Interested in buying a franchised business for sale, or a book of business from another captive agency owner? You may be able to tap into the franchise’s network of business owners to help you find a franchise or book of business for sale near you.
A couple of things to consider as you’re researching a franchised business to buy: is this a turn-key operation? Are there extra qualifications or training owners need to complete before operating the franchise or agency under the captive model? What are your financing options? Is the franchise or agency agreement eligible for SBA loans?
No two franchises are exactly alike, but asking the seller these questions can be a valuable step to understanding if the franchise or captive agency book of business is a good fit for you.
- Work with a Broker/Consultant
A business broker may help you find a business for sale relatively quickly. The job of a broker is to move businesses between parties, so they have an ever-evolving roster of businesses at their fingertips to help connect you to the right one. A broker may incur significant fees for facilitating the transaction. Be sure to ask about their fee structure before you begin working together to avoid any surprises.
How to Value a Book of Business for Sale
Once you’ve found a business for sale, evaluate the worth of the investment. We do not recommend buyers acquire a new business before understanding how and why the business is priced.
How much does a business for sale cost? That depends on many factors, including the business:
- Profit / Loss Statements
- Industry Outlook
There are a few different ways to calculate the market price of a book of business for sale. One objective (if not overly simple) method is to calculate a basic Return On Investment (ROI). You can calculate ROI by subtracting all expenses from the annual net profit.
As a financing partner, we often look at the business EBITDA: earnings before interest, taxes, depreciation, and amortization. This calculation accounts for more long-term costs that wouldn’t be reflected in an ROI calculation.
Some businesses are valued using a standardized industry-based multiple, prior performance, and projected performance. 3rd party business valuation services typically appraise businesses using this type of calculation.
At West Town Bank & Trust, we typically require a 3rd party valuation for business acquisitions. This appraisal provides enhanced transparency and pricing standardization from an objective source. It helps both the financing partner and buyer understand the unbiased value of the business that’s being acquired.
Get Ready to Buy a Book of Business for Sale
Acquiring a business is typically a process for both the seller and the buyer. We recommend these 4 steps to help you prepare financially for the investment.
1. Determine Your Budget.
Review your liquidity, assets, and current and future financial obligations. Decide how much debt you’re willing to take on, and on what terms.
This is the point in the process of buying a business to start thinking about financing. Leveraging business acquisition loans with business-friendly terms could help you close a deal while maintaining your financial goals.
Most often we help entrepreneurs leverage Small Business Administration (SBA) financing to secure loans with longer amortization periods to give them less restrictive monthly payments and a healthier cash flow. Read more about the loan program we recommend for most business acquisitions we finance.
2. Negotiate with the Seller.
Approach negotiations with a well-rounded idea of what you want from the seller of the business. Think outside of just the listing price. Maybe you’d be willing to pay more if the seller stays on to help you transition, includes additional assets in the purchase, or if they agree to seller financing. These terms can make a deal more convincing if the seller does not want to budge on the listing price.
3. Secure an LOI or Purchase Agreement.
A Letter of Intent (LOI) or Purchase Agreement is a document that outlines the intention between two parties to do business with each other. This is not a legally obligating document, but it would typically outline the broad terms, conditions, and expectations of each party to complete their end of the deal.
An LOI is particularly important if you plan to utilize seller financing to buy a business. This letter helps your financing partner and third parties involved plan for a more efficient, seamless loan application process.
4. Apply for Financing with a Formal Application.
If you decide to finance the business acquisition, get started on your business financing application with a financial institution that offers the loan program you’d like to leverage.
As a preferred lender by the SBA, most of our clients finance business acquisitions through the SBA 7(a) loan program. We typically start this process with a pre-qualification. This quick check for eligibility helps you determine if the SBA loan is right for your goals before you dive into the formal detailed application.
Buying a business for sale is a milestone in any entrepreneur’s career. With the right approach, you can find a business for sale that fits your professional goals and your financial targets, too.
Pre-Qualify for Financing to
Buy a Book of Business for Sale
About West Town Bank & Trust: Our 100+ year legacy as a community bank is centered on building long-lasting banking relationships. We’ve relied on old-fashioned values and innovative solutions to serve our customers for the past century, building the foundation to continue serving the next generation. Our single focused purpose is your financial well-being.
West Town Bank & Trust is a preferred SBA lender. The Bank is chartered in North Riverside, Illinois, and retains its operations in Raleigh, North Carolina. Our business financing and banking services are available to businesses nationwide.