Requirements for buying a business
Capital and Credit
Skills
Time
In order to buy a business, you will need liquid assets to invest. Cash, stocks and bonds are examples of liquid assets. Your personal financial statement will help your Broker determine how much you can afford to invest. If you expect to finance a portion of the purchase, it is important that the lender approve your credit.
Most small businesses require an owner-operator in order to be successful. Absentee ownership is often an invitation for failure. Your resume will help your Broker match your management and business skills to the best opportunities for you.
Buying a business often takes between two and four months. If you are employed, it may take longer. Buying a business can be a full time job.
Procedure for buying a business
Qualification
Needs Determination
Develop a Short List
Your Broker needs to get to know you to insure the best use of time for all concerned. This process is called qualification. To help you buy, your Broker must know your business and financial strengths and limits. This information may be shared to help inform brokers, sellers, landlords and lenders about your ability to do business.
Your Broker can help you create a customized search profile based on your resources, requirements, and resources. All decision makers must participate in this process in order to generate the criteria for your search.
Your investment criteria may be used to search databases of businesses available for sale. These “live” databases are constantly being updated by hundreds of Brokers and the Sellers they represent. The results of your initial search may then be further reduced to a short list of businesses you would like to learn more about.
Confidentiality Agreement
Video Call
Meet the Seller
Up to this point, the information you receive is generic. In order to provide additional detail, including the name and address of the business, you must agree to keep all details, including the fact that the business is for sale, confidential and to negotiate through your broker.
Confidential information is only available after you sign a confidentiality agreement for a business. The agreement will be used to register you with business sellers.
This process gives you a chance to have any basic questions answered before we invest the time to meet with the Seller. If you plan to travel to Florida to buy a business, scheduling a few calls prior to your arrival will allow all parties make the best use of time.
Face-to-face interaction helps you determine your compatibility with the Seller. Additional detail is generally available at this time.
Offer and Acceptance
Contingencies
Closing
Up to this point, the information you receive is generic. In order to provide additional detail, including the name and address of the business, you must agree to keep all details, including the fact that the business is for sale, confidential and to negotiate through your broker.
Confidential information is only available after you sign a confidentiality agreement for a business. The agreement will be used to register you with business sellers.
Standard contract contingencies include a legal review of the contract, financial due diligence, an employment agreement, a non-compete agreement, equipment inspections and an assignment of any lease agreement. Other common contingencies include finance from third parties and franchisor approvals.
The closing is the meeting that results in the purchase and sale. This is when you pay for the business and receive ownership. Through cooperation with your other advisers and with our thorough understanding of this process, Collins & Collins Investments offers you an effective and efficient solution to the challenges associated with purchasing your business properly and for the right price.
How much is a business worth?
It is not at all uncommon for a business owner to have an exaggerated opinion of the fair market value of their business. In most instances, the owner understandably has developed an emotional perspective. It is also common for a business owner to have become comfortable with the risks associated with their business. Prospective buyers have a fresh perspective of these risks and commonly discount the value of businesses accordingly.
As a business Buyer, working with a business appraiser can be very beneficial. When used properly, a valuation can be a powerful decision making and effective negotiating tool. In much the same way that your broker will pre-qualify prospective sellers, a valuation can effectively pre-qualify a business prior to making an offer to purchase. A pre-offer valuation offers several benefits to you and your broker as well as to the prospective seller. First and foremost, it can assist in establishing a realistic selling price for a proposed transaction. The emotional component of the transaction can be reduced by an unbiased third party valuation.
A qualified business appraiser will calculate the value of a business from a purely objective point of view. This allows both you and your broker to utilize your time more effectively. A valuation can limit unrealistic expectations by providing a “reality check”. From the perspective of the purchaser, third party valuations add credibility to the negotiation process.
In the absence of a third party valuation, you may not have an accurate opinion of the selling price of a business or be able to determine whether or not it is realistic. By seeing that the proposed price is in line with recent sales of comparable businesses, the anxiety level of both parties may be reduced. At the same time, the purchaser’s confidence level in the negotiation process is enhanced, as is the likelihood of the transaction being financed by a third party and eventually consummated. The net effect of utilizing a valuation as a decision making tool is a more efficient use of resources by all parties concerned, a lower level of subjectivity and often a shorter negotiation process for the business. The cost of these decision-making tools generally range from $1,000 to $10,000.
Business appraisers can adapt the valuation process to suit your particular needs. Most can prepare limited scope or summary valuation reports designed save time and money. These tools often fulfill the requirement of supporting the proposed transaction and assist with closing your transaction at a fair price.
In today’s competitive marketplace, it is important that business people utilize their resources as effectively as possible while avoiding costly mistakes. Business buyers, sellers, appraisers, lenders and brokers ultimately work toward a common goal, even if it is from different perspectives. Through years of experience we have refined an effective system of managing the purchase process for you. From the day you retain us until the day you close your deal, you will be able to focus on buying your business, not learning how it’s done. We get business transactions closed smoothly, quietly, and for the right price.
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