Business to Buy
So you want a Business to Buy. Buying a Business may be on of the most important decisions you will ever make.
There are several important steps to take that will help you successfully buy a small business.
Speak With a Business Broker: Business Brokers are licensed professionals that specialize in the sale of small businesses.
Business Brokers will guide you through the entire buying process and help you determine the type of business to look for, how much you can afford, financing, and help you with the negotiation of the business.
Business Broker Directories:
What is the Definition of a Small Business: Most main street businesses with Revenues
between $0 and $10,000,000 per year are considered small businesses.
Determine a Realistic Purchase Price for a Business. This is another area that a Business Broker can help out with.
You can estimate how much a business is worth by an industry average of around 2.7 x the Net Cash Flow back to the owner. The Net Cash Flow is the total income the owner receives from the business per year. Most small businesses with Net income below $1,000,000 will fall into this category.
Keep the Sale Confidential: It is extremely important to keep the sale of a business confidential. You do not want the customers or employees to know the business is being sold.
Key employees have been known to leave a business before a transfer because of the uncertainty with the new ownership. Customers often think the business is struggling or a new change in ownership may change the service they receive. It’s best to leave both of these issues off the table until the transaction is complete. Once you are the new owner and can be introduced to customers and employees the transfer process is much smoother.
Finding a Business for Sale: Contacting a Business Broker will help you locate the right business for sale. Business Broker offices represent 100’s of businesses for sale in the area. In addition they have contacts that may be interested in selling if the right buyer comes along.
The easiest way to search for a available Business for Sale is online. There are a number of free web sites that Business Brokers and Business Owners advertise businesses for sale.
Excellent Web Sites to search Businesses for Sale:
CONSULTATION
VALUATION
EXPECTATIONS
Finding Businesses
for Sale
Buyer & Seller Meeting: Once you have found an interesting business visit the business as a customer. If you decide that this may be a good fit for you the next step is to meet with the seller directly. If you are using a business broker have the Broker set a meeting up.
This meeting will involve the the buyer touring the business and sitting down with the owner to ask several key questions regarding operating the business. It is important when you have the Buyer Seller Meeting that you are well prepared to ask operational questions.
Key questions could include: What's involved with running the business, why are
you selling, how much could I expect to make as the owner, how dependable are the
employees, who are the key employees, how long have the employees been there, who
is the customer base.
If you show up and you don’t have anything to say and you are not prepared the seller will feel like you are not a serious buyer and have wasted their time.
Negotiating the Purchase Price: Negotiation, Negotiation, Negotiation! Take your time and negotiate through the purchase price. First time offers are very insulting to the Seller. As a Buyer you will try and see how low they are willing to go. Be patient and negotiate back and forth 4 or 5 times and if you are both interested in making a deal then you should end up close enough to make the deal happen. If your still a world apart after negotiating 5 times then it may be time to look for a new business.
Financial Due Diligence: It is important to request a financial package that will include the last 3 years of tax returns and a profit and loss statement that is current. If the business has not been in business for 3 years just request the most recent numbers that they have.
If the seller refuses to provide the buyer tax returns or financial's it should raise a flag to the reliability of the income for the business. It is important to evaluate all aspects of the business.
This is the information normally provided as part of Due Diligence:
3 years tax returns
1 year most recent profit and loss statement
1 year Bank Statement
Closing the Deal: Once the buyer has completed the due diligence you are ready to have the asset purchase agreement created. The buyers attorney will draft this and it is the legal document to transfer the sale of the assets of the business.
Presentation
Negotiation
Due Diligence
Closing the Deal
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