BUYING A BUSINESS
Unless you've bought or sold a business in the past, you'll find that buying a business can be a confusing and even trying experience.
That's why it is important for the prospective buyer to be knowledgeable about the process involved in buying a business.
Thoroughly understanding the process will assist even a veteran of business transfers in working with me as the intermediary.
Finding a business opportunity usually starts with researching local newspapers, placing telephone calls, or visiting websites. The prospective Buyer may be a Corporation, a Private Investment Group, a sophisticated Private Investor who has a very definite idea of the type of business wanted, or an individual with entrepreneurial spirit seeking a new lifestyle as a business owner.
Ultimately finding the best opportunity for you as a prospective Buyer can only be accomplished properly once you've shared some idea of your resources, skills, needs and objectives.
To find the perfect match, the first and most important step is for the Business Broker to learn about the prospective Buyer. When I ask, "How many days per week are you comfortable working?", “Are you planning to work alone or hire employees?" or "How much cash do you have for a down payment?", along with other questions, I am gathering the information necessary to match the prospective Buyer to an appropriate business opportunity. I am also narrowing the search and saving the prospective Buyer time and aggravation.
Focusing On The Right Business Opportunities
During the search, the prospective Buyer will receive multiple lists of interesting business opportunities. At this stage the business opportunity search moves to a new level involving the necessary disclosure of confidential information relevant to the purchase or sale of any business.
The new level is one of mutual trust and obligation between the prospective Buyer, my company, and the Seller(s) of the business(es) of interest.
When buying a business, confidentiality protects the prospective Buyer from having anyone such as an employer, employees, or the competition discover the proposed acquisition prematurely. It also protects the Seller against unnecessary problems with customers, employees, vendors, competitors, landlords, bankers, creditors, etc.
As a result, all prospective Buyers are required to sign a Non-Disclosure and Confidentiality Agreement before receiving sensitive confidential information.
The Business Profile: The Facts
An important element in the purchase process is the business profile. This report on the business offered for sale is written to provide information that the prospective Buyer can review and evaluate in determining the suitability and desirability of the business opportunity. A typical Business Profile contains a detailed description of the business, a summary of financial data and additional business facts such as lease information, number of employees, inventories, pending and operative contracts with vendors and customers and other pertinent information. Following a thorough review of the Business Profile and consultations with the Business Broker, the prospective Buyer will have a solid understanding of the business, its operations and potential for continued future success.
After reviewing the Business Profile, financial data of the business and the business premises, if the prospective Buyer determines that the business presents a desirable opportunity, the prospective Buyer should be prepared to make a purchase offer. In some instances, it may be possible to arrange a face to face meeting between the prospective Buyer and the Seller. This may provide additional insights into the operation of the business not otherwise obvious from a review of written documentation.
Making An Offer
After meeting the business owner and touring the business, the next step is to present an offer of purchase for the business. Making the offer is not, however, the final step. In fact, it should be viewed as the first of several steps, each of which bring the Buyer and Seller closer to completing the transaction.
Since most sales involve privately held businesses, the Buyer is obligated to make an offer before actually reviewing the business' internal financial records. The Buyer should understand that the offer is always contingent upon the Seller demonstrating the accuracy of its representations to the prospective Buyer’s satisfaction. It is the prospective Buyer's duty and obligation to verify the accuracy of the Seller’s representations by retaining attorneys, accountants, business appraisers or other professionals. Any agreement between the prospective Buyer and Seller is “non-binding” until the prospective Buyer has exercised due diligence in verifying the accuracy of Seller’s books and records and all contingencies have been removed.
The Offer: Terms, Conditions & Contingencies
An Offer To Purchase will consist of the following:
- Terms of the offer including price, down payment and financing (interest rate, loan period, etc.).
- Conditions including covenants not to compete, consulting agreements, training agreements, accounting and apportionment of work-in-progress, and assumption of liability.
- Contingencies such as approval of books and records, equipment, inventory, assignment of leases or loans and any other items incorporated into the terms of the agreement.
- The Financial statement of the prospective Buyer.
- The Credit Report of the prospective Buyer (paid for by the prospective Buyer).
- "Earnest Money" Deposit Check for ten(10%) percent of the offered price.
The prospective Buyer and his/her advisors, attorneys, accountants, business appraisers and other professionals will have a specified period of time to complete a thorough review of the Seller’s books and records, inspect the business premises and take other appropriate steps to verify the Seller’s representations and remove all contingencies (typically 5-10 days). The prospective Buyer and his/her advisors must utilize due diligence in completing their review of Seller’s business in a timely manner. When the due diligence process is completed and all contingencies are removed, the contract becomes binding. Should the business fail to pass due diligence review, the prospective Buyer may withdraw, modify or amend the Purchase Offer. The due diligence procedure is costly and time-consuming. It is only initiated after the respective Buyer and Seller have reached an agreement on price and terms.
The majority of business purchase transactions require some form of financing. I work with Buyers to secure the appropriate financing. This may involve Seller's financing, bank loan, Venture Capital financing, Angels financing (private investor), SBA financing and funds obtained through other financing resources. Regardless your financing requirements, I will provide guidance and assistance in locating the right lender.
Escrow & Closing
Your business purchase will be handled by an independent escrow company. Typically an escrow is opened with the deposit of the Buyer’s earnest money down payment, generally within 3 to 5 days after all contingencies have been removed or satisfied. The average escrow will close in 1 to 4 weeks if there are no recorded liens against the business. A Cashier’s check will be required for the amount due at closing of escrow.
Congratulations! You’re In Business
The escrow has closed and the big day has arrived. The former prospective Buyer is now the owner of the business. A new adventure is at hand. You are now in control of your own destiny.
When you work with me, I will guide you along the way and help make your transition to business owner smooth and stress free.