How to Buy a Business
Finding and successfully completing the purchase of a solid business can be difficult. Below are some helpful hints taken from years of experience working with Buyers.
Tools. Make use of all the tools available to you.
Develop a relationship with one Broker and stick with him. If you do this, he will work hard for you. He has access to more business opportunities than you do. If you find business ops in the newspaper, let him call about it and get the information for you. A broker will release more information to an inquiring broker than you can get on an initial call for information.
Be prepared to act. Have your finances in order and your team ready to go to work (Accountant/Attorney/Partners). Good businesses aren't for sale for long. If you think it is a good business, it makes sense that others do too!
Make an Offer! Don't be afraid to submit an offer that you feel will work for you. Regardless of the asking price and terms, make an offer based on your own assessment of the business. You never know where things may go from there.
"Sell" the Seller.
Unless you are writing a check for the entire deal you will need to impress the Seller with your ability to run his business. Remember also that some Sellers are not driven entirely by the economics of the sale. Many Sellers are emotional about the business they created and want to see it continue with a buyer they like.
Manage your advisors. Keep the advice of your advisors in check. Over the years I've seen too many Buyers miss great opportunities because they relied entirely on the advice of over zealous, protective advisors who felt it was more impressive to show their clients how much they know (and may have their own hidden agenda.) rather than help them complete a sale on a business that was right for them.
Be Realistic. Realize and accept that there is no perfect business out there. Every business has its set of challenges. Identify these challenges and determine whether or not you have the skills to overcome them.
The process of buying a business.
1) Commitment. Your commitment to purchase a business at a price and terms consistent with the marketplace.
2) Disclosure. You sign an agreement promising to maintain confidentiality for all the information provided to you on the businesses we discuss. A confidentiality agreement can be printed from this site, sign it and fax it back to me.
3) Background Information. You provide me with information about yourself via a financial statement. The more I know about you, the more likely I can find a business you will like. Most sellers will not provide financial information about their business unless we provide them with a financial statement on the buyer. The more information we provide to the seller, the better the terms he may consider.
4) Review. You discuss and review various types of businesses with me and select some that appeal to you.
5) Showing By Appointment. You will visit with the owners of the businesses you like and discuss the issues and the important factors of each.
6) Offer to Purchase. With my assistance, you write an offer for the business you like. Your offer will be a "contingent offer" meaning it is non-binding until all your conditions have been met by the Seller. Typically, you provide earnest money at this time to demonstrate your seriousness to the Seller. If it is a complicated or large business, we may want to present a letter of intent. Once the details, of the LOI (Letter of Intent) are worked out and agreed to by all parties, a formal agreement can then be put together by us or a business attorney.
7) Background. I will discuss with the Seller your background, financial information, experience and your point of view in arriving at your offering price, terms and conditions. Favorable background information about yourself may result in favourable consideration of your offer.
8) Acceptance/Counter Offer or Refusal. The Seller accepts the offer as it is written, writes a counter offer or outright refuses your offer.
9) Mutual Acceptance. When you and the Seller agree to all terms and conditions of the sale, the offer becomes a Purchase and Sale Agreement.
10) Inspection. Unless otherwise agreed to, the offer you make will be contingent upon your review and acceptance of the Seller's books and records and an inspection of the premises. Following mutual acceptance of your offer, you will meet with the Seller at our office or place of business to examine the financial records of the business. Any questions you have are resolved. If not resolved, you have the choice of accepting the records and continuing the sale process, renegotiating the sale or cancelling your offer altogether and receiving a full return of your earnest money deposit.
11) Contingency Removal. Any further contingencies contained in your offer will be addressed and satisfied.
12) Property Lease Assignment. We will work with the landlord to get an assignment of the existing property lease or renegotiate a new lease.
13) Legal Work. You choose an attorney to handle the closing and to prepare all necessary closing documents. The attorney will do a lien search on your behalf to ensure that you will be buying the assets of the business free and clear of liabilities. Closing costs are usually split between Buyer and Seller.
14) Inventory. Arrangements are made for you and Seller to count and price the inventory (if required).
15) Closing. All parties meet to sign documents and disburse funds.
16) On the Job Training. In order to ensure a smooth and successful transition of ownership, it is customary that the Seller continue to work with you in the business for a period of time following the closing date. This period varies depending upon the size and complexity of the business you purchase.