Advice for First Time Future Business Owners
Posted by Kipp Krukowski on Mon, Apr 25, 2011 @ 03:20 PM
The first time is the most challenging, whether you are buying a car, home or ready to buy a business. A business for sale listing may catch your eye, but what do you do first? Pick up the phone and start asking the Business Broker questions about the business for sale. A professional Business Broker has the answers, even if you don’t have all the questions about the business for sale.
Questions for first time future business owners
Tell me about the business for sale.
How did you get started?
What services does your business provide?
Why are you selling your business?
What are the last three year's sales and earnings?
Who are your biggest competitors?
What are your industry trends?
What do you think are some things I can do to increase sales and profits?
How many employees do you have and are there any employees that are critical to the business?
How long will it take me to really learn this business?
The Process of Buying a Business
Confidential Business Listing/Initial Contact—The listing of the business for sale and your initial call to the Business Broker will provide general information. Consider this like reading the preface of a book. Does the information create an interest to continue? A business listing will typically provide enough information to generate interest while maintaining the confidentiality of the business and owner.
Non-Disclosure and Confidentiality Agreement—A prospective business buyer will sign a non-disclosure and confidentiality agreement before receiving additional financial information. In most cases, it is important that the sale of the business remains confidential during the sales process.
Financial Information Review—Business sellers can provide prospective buyers with a number of different items including the financial statements of the business for sale, tax returns, a list of assets of the business, business valuation reports and cash flow statements. How much and what type of information that is provided is dependent on the type of business and how sophisticated the business is. It is now time to review the information you’ve received in greater detail. You may want to do your own projections of earnings for the next three years based on the history of the company and your anticipated improvements. You may choose to do some research into the general industry if you are unfamiliar with it.
Meeting with Owner/Visit the Business-- If there is genuine interest in the business for sale, the Business Broker will arrange a meeting with the seller. This is typically held at the broker’s office, at a coffee shop or after-hours at the seller’s place of business. This is the time to ask general questions on anything and everything but not the time to begin negotiations on price and terms for the sale of the business.
The Offer-- Your offer to buy the business will typically be a conditional offer or in the form of a Letter of Intent (“LOI”). It will also contain specific requirements for the Seller as far as training and transition and non-competition clauses. With the offer, you will provide a reasonable deposit based on the purchase price. The purchase offer typically contains other provisions such as a stated due diligence period, deadlines for obtaining financing, and a specified closing date to buy the business.
Due Diligence Period—A reasonable amount of time is needed when buying a business to conduct due diligence. You and your advisors need to verify and review the information given to you including any information that may have been withheld prior to your offer.
Agree on Price and Terms--The details of your accepted offer of the business for sale or letter of intent will be forwarded to the lawyers for both parties for drafting and review of Definitive Purchase Agreement. The Definitive Purchase Agreement is the actual agreement of purchase and sale. It typically includes all of the conditions and clauses in the original offer or LOI plus any additional clauses and conditions you and the seller agree upon. This agreement is typically drafted by the buyer's lawyer.
Closing-- Close the purchase and begin your first day as the owner of your very own business. The seller will be available to assist in the transition of the business. Now you and your family are part of the American dream of owning your own business!
Here is one final piece of advice on buying a business. Be patient and persistent. The road from initial inquiry to closing the transaction is usually long taking weeks even months to complete. There may be several twists and turns in the road to buy a business but remain flexible, be thorough and determined to stake your claim in business ownership!
Written by: Jeff Young, Business Intermediary, Confidential Business Sale, Inc.
