Business Buying Guide
Thinking of buying a business?
Are you ready to take the leap from being an employee to becoming your own boss? Is your current business ready to grow and you'd like to acquire complimentary businesses to expand your empire? Have you always had entrepreneurial dreams but don't want to start a business from scratch? Are you an investor looking for just the right business opportunity to add to your portfolio? If the answer is yes to any of the questions above, then purchasing an existing business might be the right move for you.
Why Use a Business Broker?
You are ready to purchase a business, but you don’t know where to start? That is exactly where a business broker comes in. Business brokers list businesses for sale, and then they work to find buyers for the businesses. Once a buyer is found for a business, they work to bring all parties to a point of understanding and agreement. From there they help with the details to get the deal to the closing table. It is important to note that a SELLER in a transaction pays the broker’s commission. As a buyer, you do not pay a business broker for their services. Since this type of transaction can be complicated, it is priceless to have an experienced intermediary help guide you through it. The best part for a buyer…it is free! Also, it's important for buyers to understand that business brokers are INTERMEDIARIES, and we work on behalf of the transaction. We do not "represent" either side, and we do not have a fiduciary relationship with the seller or buyer.
Here are the top 3 reasons to use a business broker:
1. Access to Businesses For Sale
Brokers can provide you with access to business-for-sale listings and details about the business that you may not discover on your own. Business brokers have access to multiple listing services of businesses for sale, similar to residential real estate. However, not all businesses are listed publicly, due to confidentiality reasons. If you are looking for something in a specific industry or location, business brokers can also help find you businesses for sale that aren’t advertised. For a serious buyer, good brokers will even search their contacts for off-market businesses that might be willing to sell.
2. Have A Buffer Between You and The Seller
Just like in residential real estate, business brokers will be a conduit to help deliver news and information to the seller. There may be instances where you have to retract or modify an offer and certainly times where you’ll need to adopt an aggressive negotiating position. In many cases, you will need the seller to train you after the purchase, so it’s a good idea to keep the relationship civil and cordial. Let the business broker deliver any negative message to the seller. Allowing the broker to be your buffer will help make the transaction as smooth as possible. Remember, business brokers work on behalf of the transaction, and do not "represent" either side, so we are working for a win-win outcome for all parties.
3. The Paperwork Is Overwhelming
A business purchase, no matter how small, requires a tremendous amount of coordination and document gathering. The data you’ll need from a seller to evaluate a business, the documentation required to close a deal, and the overall chasing that must be done between buyer/seller and their professional advisers, can be astounding. A good broker will be an enormous help putting all of it together. They will even provide you with the standard Asset Purchase Contract paperwork, as well as a Confidential Business Review.
Key Elements Of The Purchase Process
1. Initial Meeting – Objectives, Needs, and Requirements Review
In preparation for this initial meeting with your business broker, make sure you outline your specific personal goals and objectives. This will provide a good starting point to begin a detailed search of our listing inventory. From there we will develop a selection of “target” businesses for your review. If you are not sure exactly what you want, you should discuss different options with your broker. The more information you can give to your broker the better. That way we can understand what it is that you are looking for, and we can help guide you in the right direction.
2. Review of Important Business Information
Most companies market their sale confidentially. In order to have the name of the business disclosed, as well as have financial statements provided to you, you will be required to sign a standard Non-Disclosure Agreement and fill out a Buyer Questionnaire, which is required by the business owner.
Don't be surprised if the listing broker calls you and asks you detailed questions about your financial position, your motivation and ability to buy the business, as well as your plan to manage the business. If you "pass" this initial buyer screening process, then you will be sent the Confidential Business Review or CBR for short, and it will contain all of the confidential details about the business for sale. If you have further interest in the opportunity, then we will schedule a meeting between you and the seller.
3. Buyer/Seller Meeting
Arrangements will be made to meet with the seller and visit the target business location (if applicable), normally at a time that will not disrupt operations, in order to maintain confidentiality. Many times this initial meeting will be a conference call or a zoom call.
At this meeting with the business owner, the potential buyer can not only see the business in person (if applicable), but also ask detailed questions regarding the operation and financial performance of the business. The purpose of this meeting is to decide whether or not you want to move forward with making an offer to purchase the business.
4. Purchase and Sale Agreement
We provide a standard Asset Purchase Contract that covers the necessary elements of a business asset sale. We employ the same sophistication on a $100,000 sale that applies to a $10 million sale. We prepare clear, concise documents to protect all parties. The basic Contract provides important contingencies to protect both buyer and seller. Here are just a few examples:
- Books and Records Review: The Contract specifically calls for a complete review (due diligence) of all company records by buyer and/or buyer’s agent, CPA or accountant. The buyer must approve, in writing, the records of the company before proceeding toward a closing.
- Loan: If the buyer is obtaining 3rd party financing, they are protected by a loan contingency in the Contract.
- Lease: The Contract specifies that the leasehold rights will be assigned, or a new lease developed, in the exact manner as requested by the buyer.
- Fixtures, Fittings and Equipment: The Contract specifies that all equipment and fixtures will be in working order and free of liens at the time of closing.
- Inventory: The Contract specifies the amount of marketable inventory included with the sale.
- Training and Familiarization: The Contract provides for training and consultation, at no charge, by the seller for the buyer’s benefit (for a specified period of time).
5. Structuring the Sale
Deal structuring is the most difficult and least understood by the average business buyer.
We will discuss deal structures with you and recommend the most favorable arrangements for both parties.
6. Preparation of Closing Documents
The closing agent (a 3rd party, either a closing attorney or escrow company, depending on which state the business is in) will be working to prepare all documents necessary to close out the deal. The closing package will be sent to buyer and seller before closing for their review. Business sale closing costs are quite reasonable and are usually split equally between buyer and seller. The buyer does not pay broker commission. The seller is responsible for the Broker’s commission. The buyer typically pays for any financing-related closing costs.
7. Final Closing and Follow-Up
The closing agent will carry out facilitating the closing, either remotely via mail, or in-person at their office. The buyer will be required to wire funds due for closing at least one business day before closing. Immediately after closing, the buyer will be responsible for running the business. That's why the buyer and seller will need to work closely together before closing, to make sure everything is in place (licenses, utilities, vendor accounts etc) and ready to for the buyer to take over operation on closing day.
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