The Basic Steps To Buying

Get the Basic Facts

Ask your Broker to get preliminary information on price, terms, income, cash flow, and general location. There is no point in continuing the buying process if the amount of cash necessary to buy the business is more than you are willing to invest. At this point, don’t worry about the full price. It’s important, but the key factor is the amount of cash that is necessary to buy the business. There is very little outside financing available such as banks, etc., for those who are purchasing businesses. The great majority of business purchases are financed by the seller. This is why the amount you are willing to invest is a key issue.
The business has to be able to meet your basic financial needs. You always expect a business to improve under your ownership, but you have to be able to meet your living expenses as well as meet the debt service of the business. It is also important to remember that almost all purchase prices and down payments are negotiable. In fact, businesses generally sell for about 15 to 25 percent less than the original asking price. There is an old adage that says, “the more cash you are willing to invest in a business purchase, the lower the full price; the less cash you are able to invest, the higher the full price.

Visit the Business

Arrange with your Broker to visit the business to see if you like the location and the looks of the business itself – Do not forget both inside and outside. This is a visual inspection. Pretend you are a customer and do not speak to anyone about purchasing, just act natural and see how the staff and owner are. It’s not time yet to talk to the owner. If the business is the type that does not lend itself to a visit, then ask your broker if it is possible to make an appointment with the seller to inspect the business. There is no point in going any further if you don’t like the physical location of the business or the appearance of it.

Get Questions Answered

If you like the business so far, then it’s time to get your questions answered. For example: What is the rent? How long is the lease? What have been the sales for the past few years? Can the seller support the figures you have been told? Now is not the time to have the seller’s books and records completely checked. There will be plenty of time to do that and review other important issues during the due diligence phase. This is the time to get those questions answered that have a bearing on whether you may want to own and operate this particular business. It is also the time for you and your broker to visit with the seller to get your questions answered about the business itself.

​Make an Offer

Now if you have your basic questions answered and you want to proceed with purchasing the business, it is time to make an offer, subject, of course, to verification of all the information you have received. This is the point when your Broker will sit down with you to write the offer and ensure that the terms are favorable and there is room to negotiate should not all facts be provable. The main purpose in making an offer is to see if the seller will accept your terms, price, and structure of the sale itself. Remember, you will have the offer subject to your verification of the important information.

Due Diligence

At this point, with the help of your business Broker, you hopefully have arrived at a meeting of minds with the seller, and you are ready to begin removing the contingencies, performing what is commonly called due diligence.

*Tip
Unless you are completely familiar with the type of business purchased, it is beneficial to include as part of the agreement that the seller will stay with you (30 days is fair, with perhaps another 30 to 60 days of telephone consultation) a sufficient length of time to teach you the business – at no charge. If you want the seller to stay longer, it may be best to offer to pay him or her a consulting fee of some type.