10 Steps To Purchasing A Business

» Posted by on Jul 19, 2011 in Buying A Business | 0 comments

Buying a business doesn’t have to be hard and confusing.  There are several steps to buying a business. If you follow them, you’ll have a smooth journey. If you don’t, you may not reach your destination.

1. Work with an experienced intermediary. An experienced and competent business intermediary can save you lots of wasted time and frustration by negotiating at arms length between you and the seller. This ensures you both are satisfied with the price you agree to, and you avoid any personal conflicts during negotiations. They know what you need to do to purchase the business that will work for you.

Occasionally, their suggestions or ideas may seem odd to you, but they work. You won’t ever be pressured to make a decision, but they know the decisions you must make. They walk you through those decisions in the proper sequence. If you don’t follow the proper sequence, you’ll end up frustrated and will not be able to get the vital information you need to make the final decision to buy, or not to buy, a particular business.

2. Buyer Registration / Non Disclosure Agreement: The most important thing you need to know is that you cannot remain anonymous if you want to get information about a business. You must be up front about who you are and what your financial resources are. In other words, you must be qualified, and you must be willing to prove that you are qualified. Otherwise, a business intermediary cannot show you the confidential information about a business because of his fiduciary and legal obligations to the seller prevent him from doing so. Until you complete this step, you will not be able to obtain any substantial information, except some very general information that reveals the type, size, and the general location of the business. So . . . complete in every detail a Buyer Registration / Non Disclosure Agreement including complete and accurate financial information.

3. Meet with the intermediary, preferably in person, to discuss the opportunity.

4. Review the Business Brief: You will be given a detailed brief on the business. After reviewing the it, you will know if you’re interested in learning more. At that point, you probably will want to schedule a meeting with the broker, the seller, and yourself, where you can ask the seller any questions you want to ask. One exception: Don’t ask about price or get into negotiations. It is much too early for that, and doing so will likely kill the deal. After all, the seller knows virtually nothing about you at this point.

5. Submit a Letter of Intent: After your preliminary evaluation of the information provided by the seller and the intermediary, you are ready to take the next step–submitting a letter of intent or an offer to purchase. The intermediary will show you how to write a no-risk offer or a letter of intent that will protect you, the buyer. You will be able to withdraw at any time your contingencies are not met and satisfied.

This is an important decision, but don’t view making an offer as a final decision. It’s just your first move and you may withdraw at any time, because we show you how to make an offer that protects you.

You should make an offer when you have seen the business, visited with the owner of the business and determined the business may be right for you. This is probably the only way you will be able to learn all you need to learn about the business. Most small business owners are reluctant to reveal details of their business until they know they have a potential buyer with a genuine interest in their business, and have the ability to buy it and run it successfully. Also, why spend all the time and effort to research the business only to find out that you and the seller cannot agree on the price and terms?

Make an offer – it works! You are at absolutely no risk – you can terminate your offer and get your deposit back any time you wish, unless you have instructed the intermediary to prepare closing documents.

6. Perform your “due diligence.” If your letter of intent, or purchase offer, is accepted, you will be able to make a closer investigation, view actual financial and other documents, and confirm to your satisfaction the validity of your offer. This is called the “due diligence.” If your due diligence isn’t satisfactory, you may withdraw your letter of intent or purchase offer, and your escrow payment will be returned to you.

7. Have closing documents prepared. I recommend sharing this cost with the seller. The intermediary’s lawyer will not argue the position of either party, but will draft legal documents to comply with the agreement the buyer and seller have reached. This will always save you legal fees. Your attorney can review the documents if you desire. In fact, I recommend it.

8. Close the purchase.

9. Begin your first day as the owner of your own business.

10. Your broker and the seller will assist you with an orderly transition.

 


 

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