Expert Answers - Richard Parker - How to Buy Undervalued Business




Expert Answer

Lance Hood:               Now let's talk about how every business is for sale and how to approach the ones that aren't.

                                    Richard, what are some of the proven strategies that someone can use to solicit businesses that aren't currently for sale?

Richard Parker:           The first thing is ask. All you've got to do is ask. You need to get out there; you need to ask questions, you need to ask. And there's really three ways that you do the asking.

                                    Number one, a mutual introduction to a business owner is usually best. That could be from a friend, a professional, a customer, or supplier to the business. That's a great way to get in front of a seller.

                                    Second way is to write them directly. And the key here is to write them. Again, you're asking.

                                    Third is visit the business and talk to the owner. Ask them, "Have you ever thought about selling? I'm interested in you're business. Would you ever consider selling it or at some point if you do would you make sure to get in touch with me?"

                                    We've laid out sort of these three simple, simple, simple steps to get in front of a seller. Again, get a mutual introduction or write them a letter or go visit them. The question that could normally be asked is " Okay so that's great. Those are real simple and I agree. Sound like foolproof." I could tell you they work over and over and over and over and over again, but how do you know who to approach?

A lot of that diverts back to identifying the type of business or businesses that may make sense for you, and ruling out the ones that don't. If there's businesses that you've ever seen that have already intrigued you, or businesses that maybe interesting to own. Or in your job as whatever that may be that you had a customer or supplier who's business that you already liked. Or a local business that you've patronized that you could run more affectively. Those are all types of businesses that are approachable overnight.

Lance Hood:               So now that I know how to solicit a business owner to see if they're interested in selling, my next question becomes, how do I figure out which type of business is right for me?

Richard Parker:           Sometimes for people it - I agree. It's a challenge identifying the type of business that's right for them, and some of these direct solicitations work best when you hone in on that. But let me take you sort of through a backdoor approach.

                                    Let's say Lance you were looking for a business and you had no idea what type of business you want to buy. So here's the question I want to ask you. "Tell me for example four types of businesses that you wouldn't want to own."

Lance Hood:               Well myself I probably wouldn't want to own a gas station, a convenience store, a hair salon, or a restaurant.

Richard Parker:           Okay. So now what I would say to you is, "You know what Lance? Let's go online and look at some of the business for sale listings. Those four alone you'll eliminate 60 to 70% of all the listings because that's what they're loaded with." And that's probably the reason why you don't want to own them is because there's so many of them for sale. People don't want to buy them necessarily. But let's assume that that was your approach. You've now eliminated 60 to 70% of all the businesses that are available to buy.

                                    Now the pile you're dealing with is much smaller. It puts you in a much better position. You start looking, you say, here's the type of business - I'm going to look at some of these. I'm going to think about here's some of the business. What business can I see myself owning? What type of business model do I like? Can I see myself operating this business?"

                                    Let's say you pick out something like business services. That could be wide range but you start narrowing down the scope and the idea is that the Internet is great tool, you start getting in touch with those sellers. 

                                    Now you may not be interested in anyone of their business to buy but you get into their face. And as you go through the process of meeting with sellers, speaking with brokers, doing your research you start getting some clarity about what it is that you like about these businesses. What it is that you don't like about these businesses and start forming your sort of golden rules of things that a business must have in place for you to buy it, something that you find interesting. "This guy's has too many employees. I don't want a business with a lot of employees. I want a business that's open from Monday to Friday. I want a business that's scalable and that I could grow. I want a business that really has a fundamental core belief that it's really helping people." Those are sort of - they become you're golden rules. And then you start looking at businesses and say, "Hey I met with this guy who deals in durable medical equipment and while I don't like him and I wouldn't buy his particular business, I like that business model."

                                    So you immediately say, "You know what? I'm just going to do a direct solicitation to durable medical equipment companies in my area." You easily find a list through a list broker. They're available online. There's hundreds of them. You give them a standard industry classification code, it's an SIC code. That classifies that particular business and they'll pump out a list for you of 10, 50, or 500 businesses that fall into that category right within certain zip codes in your backyard. You send out a letter to them. Cost you $100, $200. Simple.

                                    Or you start speaking to your accountants, attorneys, bankers, Chambers of Commerce, friends, family, et cetera. Just don't speak to your boss. And tell them, "Do you know anybody in the durable medical equipment business?" "Yes." "Could you give me their name and number? I want to call them." Call them up and say, "I was given your name by so-and-so. I'm thinking about getting into this field. Can I buy you lunch? Can I buy you a coffee?"

                                    You may not be going there to buy the business but you ask them question. They know that industry. They may say to you, "Hey. I know of a guy whose business is perfect for you to buy and he's approaching retirement."

                                    You just have to get out there. You have to want to do it. It's akin to if you're looking for a job and if you don't have a job and you've got to feed your family, well you're not just going to sit at home and say to yourself everyday, "I need a job. I need a job." Because no matter how often you tell it to yourself, or no matter what your level of conviction that you repeat it to yourself, unless you go out there and look for a job you're not getting one.

                                    And isn't it funny the way people that are looking for jobs look for a long, long time and I don't know if you've ever gone through this process, but if you look for a job you find you're striking out, striking out, striking out, and suddenly within a very short period of time all of a sudden you've got three jobs you have to choose from. Then you rip your hair out trying to figure out which one you should take. But it starts to crystallize because you got yourself immersed in the process and opportunity presents itself.


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