How to Buy a Business That’s Not for Sale: A Guide for Entrepreneurs

As an entrepreneur, you can toil away in a garage to build a startup from scratch or buy an established business. The garage startup might capture your imagination, but buying an existing business is a more practical solution. And buying one that’s not listed for sale can offer even more advantages.

Buying an existing business gives you a head start. It likely has an established customer base, name and brand recognition, vendor relationships, and operations. The employees know the ropes, and you won’t have to hire and train to get up and running.

But what if you scour the marketplace and online listings and you’re unable to find a small business that suits your experience or interests? When the businesses listed for sale aren’t a perfect match, or even a good one, buying a small business that’s not listed for sale can be the right solution.

Pros and Cons of Making an Unsolicited Offer for a Business

Buying a business that’s not for sale takes more resourcefulness than buying one on the open market. You’ll have to dig a little deeper to identify a target business and research its financial condition. You’ll have to take an educated guess at a business valuation. And approaching the current owner of a hidden jewel takes more finesse than responding to an ad.

That said, there are many pluses to searching off-market for a business acquisition. An off-market transaction allows you to:

• Avoid the competition that can drive up the purchase price
• Access a larger pool of acquisition targets
• Cherry-pick companies that are the best match for your skills and interests
• Have greater control over the process and drive the discussion and the timing of the sale

How to Find the Right Business

Identifying the right business for your needs begins with an inventory of your know-how, strengths and weaknesses, interests, and goals. Once you’ve identified the kind of business you want to buy, reach out to companies, organizations, and people who are connected to the businesses you want to target.

Some of the avenues you can use to identify potential businesses include:

• Vendors
• Salespeople
• Local business groups and associations such as chambers of commerce
• Wholesalers
• Other business owners
• Lawyers
• Accountants
• Insurance agents
• Friends and family

These networks and individuals likely work with customers, clients, and members who are business owners. They might have insider tips about business owners willing to entertain a sale.

Casting a wide networking net lets you identify potential targets and give you insights into a target company’s operations and performance.

Researching Target Businesses

Learning as much as possible about a target business is important before you approach the owner. You’ll want to gather enough information to assess the competition and how your target business grows. You’ll also want to ensure your target isn’t underwater or carrying too much debt.

Some of the sources and methods you can use to research potential targets include:

• The company’s website. A company website’s “About” section can hold many clues into its operation. At the very least, it will usually tell you how long the company has been in operation, its mission, and the names and backgrounds of the management team.
• A credit check. Unlike consumer credit reports, buyers don’t need permission to run a credit check on a business. Though the information varies from one reporting agency to the next, a credit check will generally provide a business’s credit score, information on past bankruptcies, and credit risk ratings.
• An internet search. Gather news and other information about the businesses you are interested in exploring by searching the company name, the names of its executives, and keywords.
• Newspapers and journals. Local, regional, and national magazines and business journals regularly research privately held companies for lists such as “fastest growing companies,” and they feature profiles of businesses and the executives who run them. They might also report on lawsuits and other problems a business might be facing.
• Social media. A check of your target business’ social media accounts can tell you if the brand is well-regarded and point out customer service problems.

The resources listed above will give you insights into the issues your target business is facing and how well it’s performing. But you’ll probably have to conduct additional research to estimate what the business is worth.

How to Estimate Business Valuation

When buying a company that’s not for sale, you won’t have the benefit of knowing the seller’s asking price. You’ll have to make an informed guess about the company’s sales volume, cash flow, earnings, and revenue to determine a sale price.

Research on publicly held businesses is readily available through the Securities and Exchange Commission (SEC). If you want to pursue a franchising opportunity, you’ll also be able to access a wealth of information from the franchisor.

But small and mid-market businesses are likely to be privately held companies that aren’t required to register with the SEC or file financial statements. You’ll need to use other sources for financial information on these kinds of businesses.

Business research companies like Dun & Bradstreet and PrivCo collect data on privately held businesses. While these sources offer financial information on many private companies, they don’t cover all businesses, and you’ll need to pay a subscription fee to access their reports.

Sellers that use online marketplace listings like BizQuest often include information on cash flow and revenues. Check those listings for similar businesses to help make an educated guess about your target business.

How to Make an Unsolicited Offer to Buy a Business

More than a traditional business sale where prospective buyers contact a seller through an ad or a third-party referral, you’ll need to have your ducks in a row before you make an unsolicited offer to buy a business. You’ll want to prepare a material package showing potential sellers your capabilities, including your ability to obtain business financing and how the sale might benefit the existing owner.

Prepare a Buyer’s Resume

A buyer’s resume is a marketing package for buying a small business. It should discuss why you’re interested in buying the business and support the claim that you can run it successfully.

A buyer’s resume includes:

• Background and education
• Experience
• References
• Financial capability and how you intend to finance the purchase, such as a small business loan or conventional bank loan.

Your resume should also include a discussion of how your proposal will benefit the seller. Just as a product marketing package would include how a product benefits the user, your resume should take the seller’s reasons for selling into account and position your offer in a way that furthers those objectives.

Prepare a Business Plan

A business plan tells a prospective seller you can be relied upon to follow through with your offer. Your business plan should include details about financing the acquisition. Include the method of financing (whether you intend to purchase through a conventional bank loan, SBA loan, or another type of business loan), the amount of financing you expect to receive, and the down payment you’re prepared to pay.

If you want seller financing for your business acquisition, you’ll want to include additional information about your creditworthiness and sales and profit projections.

How to Approach a Seller

You can approach a seller in person or in writing, but even if you choose to write a letter, you’ll eventually need to make direct contact to gauge the seller’s interest.

Keep in mind that it’s not uncommon for small business owners to receive numerous solicitations from potential buyers. As a result, they might be skeptical of your intentions or mistrust that you are who you say you are.

Overcoming a potential seller’s skepticism makes cold calling challenging. Instead of approaching a small business owner with your offer, consider explaining your interest in acquiring a similar company and ask if the seller knows any owners in their industry who might entertain a sale.

This approach gives you an opening to discuss the kind of business you’re interested in buying and your capabilities as they relate to your target business. Using your research about the company, point out the scenarios where your experience can be impactful, such as expanding product lines, sourcing products or materials, or buttoning up finances.

By the time you get around to asking if this seller is interested in selling, you’ll have already established a rapport, and the business owner will feel confident that you’re the real deal.

Get Your Pitch Down Cold

Yes, you should think about your offer to buy a business as a pitch, not unlike the way you might pitch a product or service.

• Describe the size, type, and location of the business you want to acquire.
• Relay your experience and relate it to what you know about the target company.
• Provide a sale price range for the business acquisition you are seeking.
• Mention any incentives you are prepared to provide, such as paying for attorney’s escrow and filing fees.
• Explain your financial preparedness, such as cash for a down payment and the type of business financing you expect to use.

Remember, you are marketing yourself as a potential buyer. Sellers want to know that you are serious about your offer and capable of following through.

Responding to Feedback from Potential Sellers

A potential seller’s response to your offer might be straightforward or unclear. If the response is unclear, you’ll have to decide whether to continue pursuing the target business or move on.

Be prepared to respond to any of these possibilities:

A yes response. If your timing is right and your pitch succeeds, ask for time to follow up with a letter of intent (LOI).

A flat no. Trying to move a business owner from an outright “no” to a “maybe” or a “yes” is probably not worth your time. It’s best to move on.

No response. If you’ve contacted the business owner in writing and you don’t receive a reply, follow up by phone. A phone call will help to determine whether your letter is sitting unopened at the bottom of a pile or whether it was read and dismissed.

A “maybe” response. In some cases, “no” might mean “maybe.” The business owner might think your offer is too low or needs more information before making a decision. Consider asking the business owner outright about the conditions under which they might sell so you can overcome any objections. If the business owner seems unsure, suggest they take some time to consider and offer to follow up with a lunch or Zoom meeting.

Remember Your Due Diligence

Once you and the seller have agreed to the terms of the LOI, it’s time to start due diligence. Just because the sale process began with your unsolicited offer, doesn’t mean you can skip this important step.

Until now, you probably haven’t been privy to detailed financial statements or the documents you need to run the business. Once due diligence begins, potential buyers and sellers should sign a non-disclosure agreement to conduct a more detailed evaluation of the business.

In addition to obtaining the business’s certificate of good standing from the office of the Secretary of State, your due diligence should include an examination of:

• Seller’s business plan
• Seller’s business licenses to ensure they are current
• Condition of business assets, such as equipment and inventory
• Last three to five years of tax returns, balance sheets, and cash flow statements
• Accounts receivable, accounts payable, payroll records
• Business’s debts and liabilities

When due diligence is complete, you can firm up the purchase price and prepare a purchase and sale agreement.

When to Hire a Business Broker or M&A Advisor

If all this seems like a lot of work, it is. A buy-side business broker or M&A advisor can take much of the work of identifying a business and making an offer off your plate.

These professionals might have a database of businesses that meet your criteria, and they can act as intermediaries for approaching small and mid-sized business owners. Perhaps most importantly, a business broker or M&A advisor will access comparable sales data and help you establish a valuation and set an offer price.

Buying a business is a complex and multi-layered process. It starts with evaluating whether starting or buying an established business is the right path to entrepreneurship. Begin by researching the current business-for-sale marketplace and the businesses up for sale. Browse through BizQuest’s current listings to find the ideal business or franchise for you.