Unless you have bought or sold a business in the past, you will find that buying a business can be a confusing and often trying experience.   That is why it is important for a prospective buyer to be knowledgeable about the process involved in buying a business.  An understanding of the process will assist even a veteran of business transfers in working with a company.

Ø      Getting Started Questions – Finding a business opportunity usually starts with researching local newspapers, placing telephone calls or visiting web sites.   The prospective Buyer may be a Corporation, Private Investment Group, or a sophisticated Private Investor who has a very definite idea of the type of business wanted.   On the other hand, many first time buyers are still in the formative or exploratory stage of their search.   Frequently the Buyer’s first question is, “What kinds of businesses do you have?”

Although we have many business listings, that question can only be answered properly when we have some idea of the prospective Buyer’s resources, skills and needs. 

The first and most important step is for the Business Broker to learn about the prospective Buyer.  When we 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, we are gathering the information necessary to match the prospective Buyer to an appropriate business opportunity.  We are also narrowing the search and saving the prospective Buyer time and aggravation.

Ø      Defining the Business Opportunity Search – After the search has been refined to businesses which fit the prospective Buyer’s criteria and requirements, we can communicate non-confidential summaries of our business listings to the prospective Buyer in a number of ways.  One way is for the prospective Buyer to view our web site and access the non-confidential summaries of our business listings by simply clicking on the “Listings” button.   This section will provide our business opportunities, a brief description of each business, financial summary or often the asking price for the business.

Ø      Focusing on the Right Business Opportunity – During the search, a prospective Buyer may receive 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.   This new level is one of mutual trust and obligation between the prospective Buyer, our 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.

Ø      The Business Profile – An important element in the purchase process is the Confidential Business Memorandum.   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 Confidential 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 Confidential Business Profile and consultations with the Business Broker, the prospective Buyer should have a solid understanding of the business, its operations and potential for continued future success.  

Ø      Face to Face Meeting – After reviewing the information provided, if the prospective Buyer determines that the business presents a desirable opportunity, the prospective Buyer may request a face to face meeting between the prospective Buyer and the Seller, which may provide additional insights into the operation of the business not otherwise obvious from a review of written documentation.

Ø      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, however, is not the final step.   In fact, it should be viewed as the first of several additional steps, each of which bring the Buyer and Seller closer to completing the transaction.

Since many sales involve privately held businesses, the Buyer is obligated to make an offer before actually reviewing the internal financial records of the business.   The Buyer should understand that its 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.

Ø      The Offer to Purchase – An Offer to Purchase will consist of the following:

o       Terms of the offer including price, down payment and financing (interest rate, loan period, etc.).

o       Conditions including covenants not to compete, consulting agreements, training agreements, accounting and apportionment of work-in-progress, and assumption of liability.

o       Contingencies such as approval of books and records, equipment, inventory, assignment of leases or loans and other items incorporated into the terms of the agreement.

o       The financial statement of the prospective Buyer.

o       The credit report of the prospective Buyer (paid for by the prospective Buyer).

o       Earnest Money Deposit Check for ten percent (10%) of the offered price.

Ø      Due Diligence – 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 and is only initiated after the respective Buyer and Seller have reached an agreement on price and terms.

Ø      Financing – The majority of business purchase transactions require some form of financing.   This may involved Seller’s financing, bank loans, private investor financing, SBA guarantees and funds obtained through other financing resources.  

Ø      Closing – Normally the closing is scheduled within a week after all contingencies have been removed or satisfied and is transacted through an attorney who is mutually agreeable to both Buyer and Seller.  A Cashier’s Check will be required for the amount due at closing.  

Congratulations – The prospective Buyer is now the owner of the business.   A new adventure is at hand and you are now in control of your own destiny.