Buying a Business – The Process

Buying an existing business can be a wise choice for entrepreneurs who desire to have their own business. A proven track record, skilled employees, established customers and suppliers, and the availability of financing make buying a profitable business easier and safer than other types of investments. Utilize the services of Best Biz To Buy to help You fulfill the American Dream of owning a successful business of your own.

Advantages Of Buying An Existing Business

Some of the advantages in acquiring existing businesses include:

Being able to review a company’s existing track record as reflected in P & Ls, tax returns and other financial records can be very helpful in determining expansion plans. Growth potential can be measured based on actual experience rather than projections associated with startup ventures.

The need for additional working capital is reduced due to the immediate cash flow being generated by the acquired company.

Obtaining skilled employees who are familiar with the business operation and market.

Gaining established customers significantly reduces the time it would otherwise take to attract an adequate number of customers to support the overhead of a new operation.

Obtaining existing licenses and permits can often reduce the time and cost of making application, gathering information and conforming to required regulations.

Sources of capital to purchase existing businesses are more readily available than startup ventures. It is very common for the owner of an acquired business to finance part of the purchase price. Banks and other financial institutions prefer to loan money for existing operations that have a proven track record.

Sequence of Events

Buying a business is serious business and should not be taken lightly. Working with professional advisors is the key to successfully finding and purchasing a business. Friends and well meaning relatives are not usually qualified to provide the specialized advice needed for a business acquisition. Best Biz to Buy experienced business brokers can assist you in finding a business and coordinate the sequence of events. Utilize an accountant who can help you with the due diligence process and advise you on tax and record keeping issues. Obtain legal advice for business organizational requirements and legal documentation for your acquisition.

Finding A Business Broker

While there are a number of ways to find businesses for sale, utilizing the services of a business broker can greatly expedite the process. Business brokers are sometimes referred to as the “Shopping Cart” of businesses for sale, as the better firms will have many businesses for sale at any point in time. When selecting a company that specializes in selling businesses, verify the following information, which will help ensure that you are properly investing your time and money.

Are they full time business brokers, rather than a firm that handles business sales as a sideline?

Are they a member of the Texas Association of Business Brokers (TABB) and the International Business Brokers Association (IBBA)? As a member of these organizations, brokers are obligated to adhere to practice standards and a code of ethics.

Ask for references of former clients and customers or obtain a recommendation from other professionals.

Questions To Ask Yourself

When you meet with your Best Biz To Buy Broker, be prepared to discuss your background, work experience and financial ability to purchase a business. They can help you find a business that meets your needs. You will need to prepare a personal resume and financial statement which will be required by lenders, landlords and others who will be a party to the business acquisition. The following are examples of the questions a Business Broker will be asking you.

  1. Why do you want to buy a business?
  2. What are your special skills and educational background?
  3. What is your work and/or business ownership experience?
  4. What are your hobbies and areas of special interests?
  5. What is the maximum amount of your personal funds you can invest as a down payment?
  6. If you have an equity partner/investor, how much do you expect them to invest of their personal funds?

What Business Do You Want?

  1. What business categories are of most interest to you?
    1. __ Service __ Retail __ Wholesale/Distribution
    2. __Manufacturing __ Restaurant/Fast Food or Other (Specify) _________________
  2. If you are not sure of the type of business you want, are there any businesses you do not want to purchase?
  3. What is the minimum income you require from a business to meet your living expenses?
  4. What is your preference for the location of a business?
  5. How far are you willing to commute for a good business?

Review Businesses For Sale

Based on your qualifications and acquisition criteria, a Best Biz To Buy broker will review with you several businesses that meet your needs. Profiles that provide a summary of the business and financial information will be provided after you sign a Confidentiality Agreement, which is required by the business owner.

Meeting With The Business Owner and Touring The Facility

After reviewing the information on the business profiles, a Best Biz To Buy Broker will answer any questions you may have about the businesses or will obtain the answers from persons deemed reliable. Once you select those businesses that you believe best meet your investment criteria, the Business Broker will schedule appointments with the business owners so you can see the facilities and operations.

It is common for the business owners to require all meetings with prospective buyers be during non-operating hours to avoid premature disclosure to employees and customers. The Best Biz To Buy Broker will attend these meetings to introduce you to the business owner, facilitate the flow of information and provide guidance with regard to completing an earnest money agreement and the due diligence process.

When meeting with a business owner, you will be able to tour the facilities and ask questions regarding the operations of the business. Do not discuss the price and terms of sale with the business owner. The Best Biz To Buy Broker should be able to explain the basis on which the business was valued and the terms of sale required by the owner.

Please remember to keep all proprietary information you obtain about the business confidential. Only discuss this information with your professional advisors and spouse, and remind them that the information is confidential and not to be disclosed to other parties. In most cases, the employees, customers, suppliers, landlords and lenders are not aware that these businesses are for sale. Premature disclosure could have a negative impact on the business being sold.

Due Diligence and Offering Process

At this point you have reviewed operating information and financial summaries of the businesses that meet your acquisition criteria, and you have met with the business owners and toured their business facilities. You should now be ready to select the business that you feel best meets your needs and begin your due diligence process. Checking out the business can be very time consuming for both you and the business owner.

Furthermore, costs may be incurred for such things as professional advisors, copies of documents, lien searches and closing documentation. The business owner does not want to go through a detailed due diligence process without knowing the buyer is serious and willing to make an acceptable offer to purchase the business. Therefore, before copies of tax returns and other business documents can be obtained and before any contact can be made with landlords, bankers, suppliers, employees, or customers, an Earnest Money Agreement must be presented and accepted by the business owner. The basic steps are:

  1. The Best Biz To Buy Broker will help you complete the Purchase Agreement. This Agreement provides the terms and conditions under which you are willing to buy the business and the seller are willing to sell the business. Final closing documents, such as a bill of sale, note and security agreement, closing statements, noncompetition agreements, leases and approvals from various parties will be handled by the Escrow Attorney prior to closing.
  2. The amount of earnest money required will depend upon the size of the business transaction. The amount needs to be sufficient to show your serious intent to buy the business and to encourage the seller to take the business off the market while you complete your due diligence. For most small to midsize businesses, earnest money of $5,000 to $10,000 is typical.
  3. The Best Biz To Buy Broker will assist in the negotiations between you and the business owner to secure a Purchase Agreement that is acceptable to all parties.
  4. The Standard Earnest Money Agreement gives you up to 30 days to complete your review of the business financial documents, operating agreements; property leases and other aspects of the business after you and the business owner have approved the agreement.
  5. During the due diligence period, the Best Biz To Buy Broker will coordinate your request for documents and assist in arranging meetings with related parties to the transaction including the business owner’s professional advisors, your professional advisors, the landlord, lenders, the escrow attorney and others as needed.
  6. If institutional financing is required, Best Biz to Buy can usually recommend various lending sources depending upon the type of financing needed.

The Closing Process

When you have completed your due diligence and are satisfied with all aspects of the business, the escrow attorney will conduct lien searches and prepare the bill of sale and other closing documents for all parties to review. After the principals have approved the closing documents, a closing date will be scheduled. Cashiers check or wire transfer will be required at closing for the amount due. Best Biz To Buy will coordinate with the principals and their advisors, landlord, lender, and others, to insure that all the necessary paperwork is completed by the closing date.