Top Questions When Buying a Business Operation

1. I Want to Buy a Business. Where do I start?
You can contact us for assistance. We can help expedite the process, through our "Exclusive Buyer Brokerage Agreement", or by simply acting as a conduit. Many times, buyers will respond to some sort of general listing information posted by the Listing Broker, on a website, like www.business-usa.net, or in the newspaper. You may then see a one or two-page presentation that provides a minimal amount of specific information. This is used to let buyers know what type & size of business is available without disclosing to the general public financial & proprietary information that any business owner would not want to make common knowledge. Even the fact that a given business is for sale can be extremely detrimental to the business if that information is made available to competitors, vendors, and employees.

After seeing this "blind" profile, a buyer may decide this is something they want to know more about. Contact with the selling or listing broker will then result in some communication via phone, e-mail, fax, or in person. The broker will want to know some more about the buyer to determine if this business, or perhaps some other business, is a good fit. Most brokers will ask for some basic background information to assess your financial and experiential qualifications.

The buyer will also be asked to execute a Confidentiality Agreement, also called a non-disclosure form, before he will be allowed to meet with a seller or see any proprietary information. This information may sometimes include "small" things like the location. With some businesses, knowing what they do, and their location can easily give away their identity. It is (generally) the Broker's job to handle the marketing of the business for the seller, and this includes obtaining the required paperwork to protect the seller's livelihood and interests.

After the Buyer has signed a Confidentiality Agreement, and if the buyer is a fit for the business, the broker will work with the buyer to provide all of the information he needs to make an informed decision on a given business opportunity.

2. When buying a business, what are some basic questions to ask?
Most professional Business Brokers will have an information package available to you after you have signed a Non-Disclosure or Confidentiality Agreement, which protects the seller and new buyer's interests from damage done when proprietary information is made available to the wrong parties.

Why are you selling your business?

How many years have you been in business?

How many years have you been in business at the present location?

Did you create the business or did you buy it from someone else?

Are you a sole proprietorship, partnership, or S or C corporation?

Do you have tax returns and financial statements that my CPA can look at?

Which bank do you do business with?

What types of insurance must your business carry?

What licenses are necessary to own and/or run this business?

How many hours did you work per week in your business?

How many employees do you have?

Do family members work in your business?

Will the family members stay after the sale?

Are you willing to take a note and be paid over time instead of all at once?

Will you stay and work for a while after the business is sold?

How is inventory controlled?

3. What is Due Diligence and when do I do it?

After you have met with the seller of the business, and analyzed the material made available to you by the broker, you will make a decision concerning your commitment to proceed with the purchase of the business. If you are serious, you will need to make an Offer to Purchase or proffer a Letter of Intent, stating the terms of the intended transaction. The Business Broker can assist you with the preparation of this document, based on your terms. You can prepare an Offer or LOI all by yourself, or with the assistance of a trusted advisor. Offers can be legally binding, or NOT, depending upon the wording of the document, so you should be fully aware of the content. The Broker will present your Offer to the Seller. If the seller agrees, accepts your terms, you will continue the systematic process that will lead to a closing.

Due Diligence is the necessary investigation on the part of both the buyer and the seller to verify that each party understands what they are getting in the transaction. No one wants to be surprised at or after Closing. The parties will often have their CPAs participate in this process.

The buyer will want to verify that the business information he has received is accurate. This will entail, at a minimum, a review of the books & records of the business, counting any inventory, and surveying the equipment. Due diligence can be complicated with larger businesses, so there is no standardized list of usual items. The seller will want to verify the claims of the buyer regarding his business experience, creditworthiness, and available liquid cash for the business down payment. This is especially critical when the seller is considering financing the buyer for some portion of the Purchase Price. This may entail checking references, running a credit check, and reviewing copies of certain account summaries.