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After 20 years as a business intermediary, I finally did it, I bought a business. Now that I have a solid six months of ownership under my belt, I would like to share the experience.

From the beginning, it’s been a fantastic journey. The business, a food manufacturing and distribution company, came to me as a potential listing last November 2008.

I first looked at the business through my intermediary eyes and identified all of the benefits and pitfalls. On the plus side, the business had a proprietary product, which was actually quite good, it had increasing sales, it was account based, with little customer concentration and it was both under managed and expandable. On the minus side, the business had some of the worst books I had ever seen. My first comment to the seller concerning the financials was “this is not possible”. I spent two full days creating my own P&L from scratch.

By the time Christmas 2008 rolled around, I had listed the business and was planning to go to market at the first of the year. If you’ll go back to that timeframe, things were not pretty in the national economy. As I had no direct experience in the food manufacturing industry, I was quite worried about my ability to truly operate the business as well as the time commitment it would require.

Miracles do happen and a perfect partner materialized who could run the day-to-day operations and make up for my lack of experience in the industry. I went to my seller and made known our intent to be considered as a buyer. Fortunately, we were given the first shot at a purchase.

This is where things got tricky. By this time, the economy and stock market were in full plummet. I got to experience every doubt and sleepless night that buyers face. Would the economy continue to drop? Was I overpaying for the business? Does the product have staying power? Will our biggest customer drop us? Are our prices too high for the times? All of this had to be balanced with the fact that I still had an obligation to the seller. On top of it, I was bringing in a partner and worried about risking his financial future and mine.

The very week that I was putting my finances together was the low point of the stock market. I decided not to raid my accounts, but to get my money out of my home equity line. Every day I watched the account, fearful that my line would be pulled by the bank. It all worked out and the closing occurred. I have to say that mine was the fastest and least painful sale of the year.

It’s been a whirlwind since the acquisition. There just aren’t enough hours in the day for the demands of two businesses. While it’s been an enormous task to systematize and grow a new business, I’ve gotten to put everything I’ve learned about small business management into practice.

There have been some unexpected benefits for our brokerage firm from owning the food business. First, the new business has introduced me to many industry people under a different pretext. I naturally let them know about the business brokerage services I can provide and some benefit in this area has already been realized. Secondly, I am able to share my stories as a business owner and acquirer with buyers and sellers and relate to them differently than before. I have walked the proverbial mile in their shoes. I believe this helps to develop a better relationship, which is so needed in getting deals done.

All in all, it’s been a rewarding experience to purchase a business. As an intermediary, I always identified potential areas of growth and improvement for the businesses I represented. As elementary as this may seem, it’s much easier to identify potential than to realize it. I also have a better understanding of buyer concerns, starting with the offer process and going through closing, and eventually operating the business as ones' own. It's been a challenging and eventful journey, but I wouldn't trade the experience for anything.

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The Small Business Administration (SBA) guaranteed loan program (7a) for small business purchases has been on a one-year virtual hiatus, but as of October 1, 2009, the new rules are in place.

The big roadblock that stood in the way of the purchase and sale of small businesses has been removed. The SBA has finally eliminated the cap on goodwill value in a transaction. Previously, they only financed goodwill if it was under $250,000, which limited the sale of a lot of good businesses. Now, transactions with intangible assets (including goodwill) that are valued up to $500,000 can be approved by lenders with no restrictions. When the goodwill is over $500,000, then there has to be a 25% down payment, but there is no upper limit to the goodwill value.

• The purchase price of the business is NOT the deciding factor for the goodwill contingency - it is the value of the intangible assets, which includes goodwill.

• If the value of the intangible assets (goodwill) is BELOW $500,000 REGARDLESS of the purchase price of the business, the deal is subject to 15% down (typical down payment requirement).

• If the value of the intangible assets (goodwill) is ABOVE $500,000 REGARDLESS of the purchase price of the business, the deal is subject to 25% down.

In addition, there is also a new FIXED INTEREST RATE option for (7a) loans. In the past, the only option was a variable interest rate based on the prime rate. Thereoretically, there was no upper limit on the interest rate. Now, there is the option to have a fixed rate for the duration of the loan. It will be based on average rates over a 5-10 period and will be posted monthly by the SBA.

This is definitely good news for business buyers and sellers as it looks like SBA financing, which had all but dried up in the past year, will ramp up again.

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Building strong business relationships with customers and suppliers is always an important goal for a business owner. Customers become more loyal and suppliers become more responsive.

When you work with a good customer, not only do you get more business, but it can be more enjoyable as well. Sometimes the relationship even gets to be more social – going to lunch, playing golf or attending industry events together. Many business owners have their own special accounts and work with them for years.

The same strong relationships can also develop with suppliers – buying from them over long periods of time and building their trust and loyalty. They can give you special service, lower prices or deals they don’t extend to their other customers.

But then what happens when it comes time to sell the company? Clearly, those great relationships become a red flag for potential buyers of the company. Buyers are afraid they won’t be able to have those same relationships. Will those good customers leave and go to the competition? Will the suppliers’ contracts transfer to the new owner? Will the revenues and profits of the business go down as a result of the change of ownership?

Business owners have to plan for the time they will sell their business. They have to start delegating these special relationships to key employees. Buyers for the business have to feel that the relationships with those customers and suppliers will continue long after the sale.

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Who can believe the pace of the changes in technology in our world today? For business owners, it can mean amazing advances in systems, communications, and capabilities. And many companies will jump on the latest and greatest technology to stay on the cutting edge.

But many small business owners just can’t handle these changes. For some, the cost is way too high; and for others, they lack the energy or aren’t willing to learn the new technologies. Of course there is no question, age can be a big factor. Try discussing Twitter or Facebook with a business owner who is over 50 years old.

For decades, it has been common for a new business to enter the marketplace with the latest technology and literally jump over the existing competition. And those old-school competitors can be driven out if they don’t react.

The business owner who avoids keeping up with technology is playing a dangerous game. Not only will the business lose its position in the marketplace and its previous profitability, but the value of the business can take a big drop --- many times to virtually NO VALUE.

It has never been more exciting to operate a business with the latest technological changes, but it can be expensive to take the leap. Business owners must be constantly aware of these changes and find ways to keep up. But for those who aren’t, it might be time to exit their company before it’s too late.

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One of the great joys of owning your own business is making your company grow and thrive. It can actually be enjoyable to buy new equipment - to have the latest technology and new capabilities. Or perhaps to take on a new product line or add a new service. And it can be exhilarating to hire new talent and delegate more of your own work to others. Yes, growth is fun!

Cutting back is not fun. It's not fun to worry about what's going to happen when everything is going downhill. It's not fun to tell an employee they have lost their job. It's not fun to have to fight with creditors. It's no longer enjoyable to come into work.

Business owners have to face the future and make realistic plans to survive. Avoidance is not an option. They have to understand all the elements of their financial statements and look at the history and the trends. They have to make honest projections and understand what the company will look like in the near term and the long term.

Then here comes those words "business plan" again. Business owners have to adjust their business plans and start making the hard decisions. This means having to fight their emotions and take an objective look at costs and expenses. Whether they have to hold big sales to reduce inventory, drop an unprofitable line or service or sell off expensive equipment, they have to take those actions. And of course, the toughest action of all has to be taken. They have to cut back the work force.

By delaying these actions, the business owner puts his or her company and personal future in jeopardy. But by taking a good honest look at the reality of the situation and dealing with it, the business owner can get through the tough times. The windows of business open and close. Business owners must put their company in a position to be there when a new window of opportunity opens.

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Plan, plan, plan. That’s what all the consultants and business coaches tell business owners to do. And the banks? They’re really serious about it. And that’s when they were actually loaning money. But many business owners either don’t like to do it, don’t have time, or just put it off. Who wants to create business plans, marketing plans, and especially exit plans?

In this unprecedented economic downturn, it has become painfully obvious that business owners who were thinking about selling in the near future might have missed their window of opportunity for maximum value. Their revenues are down, their profits are non-existent and their businesses have lost value – just like the stock market. And who wants to sell in a down market?

What does this mean for business owners who were planning on selling, but now have to continue to run their businesses? They are in a totally defensive mode. They need to cut costs, lay people off and scramble to get more sales. And what makes all these stressful activities even more difficult? It takes energy – lots and lots of energy. And many business owners find that after many years of running their companies, the energy just isn’t there.

If the spark is gone, then business owners must recognize that the business might continue to decline. Maybe it is time to talk to a business broker about what options might be available. Selling the business now, even at a reduced value, might be better than eventually closing the doors. Sometimes selling the company’s accounts to one buyer and the assets to another may be attractive in this environment. Or in an attempt to increase revenues and profits, acquiring another company may be an option.

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Any business broker with two weeks in the business has heard this from prospective sellers who thought they were ready to sell their business and move on. When given a lower than desired valuation price from their broker, many business owners decide that they can grow and improve their companies to ultimately receive the selling price they want. It sounds good, but the reality of the situation is something different.

In my twenty plus years of selling businesses, I have seen only two cases in which the owners were actually able to make a significant difference in the value of their companies. One engaged the services of a business coach, spent a year and a half improving his business and then was able to obtain a price about double my original valuation. The other business owner made the needed changes, but continued to refuse good offers at the new and better price. I later saw his business at market at a lower price than I was able to achieve. I believe it has still not sold.

The purpose of this article is to convince business owners to look at reality when they think they want to sell. They have poured the blood, sweat and tears of a lifetime into their companies. Most have spent more waking hours at their business than with their families. Often, a desired price for the business is their perception of the value of this effort.

Unfortunately, the reality is that most business owners have given their company all that they can. Most lack the ability, energy or capital needed to go to the next level. Good intentions don’t always generate good results.

If you are going to reposition your business for sale at a better price, be willing to commit to a fairly long time frame. There has to be significant evidence of improvement in the business financials. A month or two does not make a trend. Lenders, in particular, are looking for a multi-year history of positive results before they’ll lend on a higher price.

My best advice to business owners is to start planning for the sale of their businesses on day one. Almost every owner thinks that their business exit will result in a pot of gold at the end of the rainbow. The national statistic is that only one out of five businesses which go to market end up selling. This is often the result of poor or no planning.

Unlike with their homes, many business owners don’t really know what their businesses are worth on the open market and are shocked when they discover the truth. In spite of the huge time commitments they give to the business, most owners put incredibly little energy into positioning for sale. So many things can be done ahead of time which not only determine the price and terms the business sale will command, but the very salability of the business itself.

Assuming you wish to someday be rewarded with a good price when you are ready to sell, work with a good business broker well ahead of your desired exit. Spend the time and money now to learn what your business is worth and what value drivers influence your price. Also know yourself and your abilities. Don’t kid yourself or underestimate the task of turning the ocean liner.

As a final note, my database of the companies who chose not to go to market because of price, shows that over 50% are no longer in business. Evidently, ego was worth more than cash in the pocket of these business owners.

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Once again, the right hand of the Government is not communicating with the left hand. While the President is busy expanding the money available to buy businesses, the Small Business Administration is doing its best to stop those sales from happening.

The SBA 7(a) Loan Program is the primary financing vehicle for small business purchases. Loans can be issued for up to $2 million, which covers the majority of transactions. Until recently, funds have been readily available and repayment terms have been favorable, with 10-year loan periods and interest rate caps.

The President’s recent American Recovery and Reinvestment Act provides $730 million to the SBA for, among other things, eliminating the borrower’s upfront fees for 7(a) loans, increasing the federal loan guarantee from 75% to 90%, and adding staff at the SBA. These provisions make it easier for banks to lend and for businesses to borrow.

Now, here is the catch. The SBA has changed its procedures to make it harder for small businesses to borrow this money. In the past, the SBA based its loan approval on the profitability of the business, also known as “Goodwill Value.” Recently, they have changed the procedure to base the loans primarily on physical assets, not goodwill. In the case of businesses with few assets, but high profitability, there is no longer a basis to make a loan.

The average sale price for most businesses is more than twice the value of the physical assets, and the balance of the price is made up of the goodwill value. This new policy from the SBA severely constricts the primary financing available for business sales. Another little known fact is that the SBA also discounts the value of the physical assets by 50% to calculate the loan amount. Combine these restrictions and a business buyer can only get financing for 25% of the value of the business. This means the buyer has to come up with a 75% down payment. Before this change in policy, it was normal to see only a 10-25% down payment with SBA loans financing the rest.

Buyers cannot afford the higher down payments. As a result, they will offer lower prices for the businesses and sellers will be asked to finance the purchase with a seller carryback note. The result is there will be fewer sales and lower prices; and sellers may decide to stay with their businesses until conditions change. Business sale transactions are going to slow down considerably, which will impede growth in the economy. Already, the Colorado Association of Business Intermediaries has heard anecdotal evidence of a slowdown. Of 12 recent transactions reported to CABI, only one had bank financing. One transaction had no down payment, with the seller financing 100% of the purchase price.

It will now be a challenge for sellers to get the full value for their business. Business expansion and job growth that normally comes from these business sales are being put at risk. It is time for the SBA to get back to the former policy of financing profitable businesses.

The President is trying to get the economy moving ahead, but the SBA is putting up a roadblock. What are the nine most dreaded words in the English language? “I’m from the government and I’m here to help.”

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In the search for small business ownership, it's funny how we expect such perfection. Business ownership has many illusions - the first is that you'll find perfection in any business: the one you buy, or the one you've owned for ten years!

Businesses are Human, we forget that they are as imperfect as each of us. There are no perfect businesses; no perfect sellers, no perfect buyers (and certainly no perfect employees!). As a business broker, I softly remind parties all the time that first & foremost the process of buying (and selling) a business is emotional, and thus human. Sure, buyers commonly demand financial reports before they even develop an understanding of the culture or personality of a business. Before buyers ask about employee tenure, vendor strength, customer mix, lease longevity, community profile ... they say, “send me the financials and I'll get back to you”. That's my first clue that perhaps I'm talking with a shopper, not a buyer of a business.

Yes, financial performance matters in business, small and large, but it's the WHY that is the real question: . “Why is that business successful, what are the value-drivers?” (You have to study the value drivers.)

The second important question then follows; “Is this business the best application of my strengths & interests?” The weaknesses that you perceive in a business are an opportunity for you to add-value; to put your skills, experience and ideas to use.

Why do you buy a business in the first place? Statistically it's a much better investment than starting from scratch. A successful business is a case-study gone right. Whether that business generates $75,000 or $375,000 in earnings - it's doing something right. (In my experience, anything under $60,000 in earnings is still a hobby.)

But “why” you buy a business is not “how” you buy a business. Businesses are inherently imperfect, just like us. Businesses have many moving parts that never perfectly align. Few small businesses realize the Samuel Slater efficiencies that shaped our industrial revolution. Instead, solutions grow from needs, and change is so profuse that the solutions may never realize peak efficiency; whether it is bookkeeping, marketing, production (product or service), or other factors that drive the success of a business. Surely, the process of buying/selling a business itself is inherent with imperfections, just like owning one. It is a process of managing realities - your first lesson of business ownership!

I've learned two primary lessons in 25 years of small business:

1. Being connected to a business makes success more likely, and more fun.
2. The best investment ever made is in your own business. This asset-class alone has outperformed any real estate or stocks/equities I've owned (particularly today!).

Statistically, small business sales, and sale-valuations, were up in 2008! With more buyers in the market, and fewer growing businesses to choose from it's sometimes hard to tell whether this is a buyer's market or a seller's. My point is: that doesn't matter. You are looking for a business today, so find the one that fits you best.

Don't look for perfection; look for the business that is perfectly you! Before you begin this search; perform an honest assessment of your strengths. With each business you review, look for opportunities to leverage these strengths: either through a seller that embodies similar personal characteristics, or through a business that could really benefit from the strengths you'd bring.

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2008 is not going to be remembered as a banner year in the financial realm for most people. Many are opening up their year end investment reports or looking at the real estate values with dismay. I myself think how hard I worked to save and invest, only to have a large chunk of my investment portfolio vaporize. I thought I was on track for a happy and secure retirement, but now wonder how I will regain my net worth.

So what can be done to recoup the losses and get back on track financially? What investment typically provides both a high return and control? The answer is business ownership! Investments are priced based upon their perceived level of risk and expected rate of return. This is why your FDIC insured passbook savings account pays you a sub-1% return. It’s the most risk sheltered place to put your money.

As you ascend the perceived risk ladder, you’ll find better expected rates for CDs, bonds, real estate and stocks. Business ownership is seen as the highest risk and therefore highest return investment commonly available. Rates of return for small businesses tend to range between 20% to 50%, simplistically stated that you expect your money back in two to five years. What better way to regain net worth than to get returns that are double to quintuple the average performance of your other investments!

So how do you live with this higher level of risk? First, find a business that you have the skill sets to maintain or improve. Don’t be lured by high returns in businesses in which you have no expertise. Business earnings are not cast in concrete, but tend to be very connected to the quality of management. You’re better to find an underperforming business which you can grow than to invest in a highly profitable endeavor in which you have no background.

Next, analyze what makes the target business work and identify the risk factors. All businesses have some risk, but make sure that there are no fatal flaws. Every question you ask should relate to likelihood of future income and the replicability of future income in your target business.

Remember the pet rock, a popular holiday gift of a number of years ago? That entrepreneur made a killing one season, but there was no demand for the product the next, thus no likelihood of future income. Replicability of income falls into the same category. Are the business earnings based upon the skill sets or personal connections of the current owner? A good business broker can advise you on ways to manage this risk.

One of the most appealing aspects of business ownership is your ability to control your investment. You are the captain at the helm of your ship. You are making the important decisions which determine how the business performs and are constantly on the alert for dangerous conditions. You do not have to wait until the next month to open an envelope and see how others handled your money. You also can’t be laid off from your own business, giving you an added level of security not found in the job market. More good news is that many businesses are selling at lower prices, so much of the risk has already been removed and you’re getting in at what is hopefully the bottom of the market.

For those who already own their own companies, the acquisition of an add-on business can be a fantastic way to see immediate growth in sales and profits with a small investment in relation to the benefits. It makes sense to find a business which can be effectively and profitably added to the existing endeavor. This is especially true if the business adds sales, new product lines, capacity, personnel or reduces expenses.

More good news exists with financing. Small business has always been one of the primary sources of growth in the American economy, so the government is committed to keeping the Small Business Administration (SBA) funded. SBA loans are government insured, so there is not a problem in finding investors for the loans as has plagued other lending markets.

Buyers are able to finance a business purchase and obtain working capital via the SBA for as little as 20% of the total costs. This is often less than the acquisition costs of the tangible assets! If you've heard that the SBA loan process is burdensome or time consuming, don't play into the rumor mill. A good business broker can connect you with the right lenders who will efficiently obtain your loan.

Sellers who do not have businesses which qualify for SBA loans are often acting as the bank and helping buyers to finance their business acquisitions. Do not, however, expect a seller to willingly turn over his precious business to you with no strings attached. You must prove that you are both creditworthy and have the ability to continue to run the business he has spent a lifetime building. Expect to have skin in the game, with a good down payment and even some outside collateral.

The bottom line is that it is an excellent time to pursue that dream you’ve always had of owning your own business. The returns and rewards can be great when you find the business that’s right for you. You’ll be controlling your financial future and getting returns not typically available in passive investments.