THE
PROCESS OF BUYING A BUSINESS
Initial Inquiry -
Traditionally a phone contact from a Buyer who is responding
to a business listed in a web site or advertisement.
The broker provides general information about the business
and the agency. At this point, the broker inquires as
to the Buyer’s interest, background, abilities, financial
capabilities, expectations, goals and time frame.
Buyer/Broker Meeting -
Basic Summary of the business is provided to the Buyer.
‘Buyer Profile’ is completed by the Buyer.
‘Confidentiality Agreement’ for the specific business
is signed by the Buyer.
Buyer receives ‘Confidential Detail Business Summary’
‘Recast’ - Explains the Seller’s financial benefits.
‘Buyer Scenario Chart’ - Cash flow variations.
Buyer visits the business as a customer -
(if applicable) without introduction to Seller, with
or without the Broker.
Broker will arrange for and conduct a ‘Buyer/Seller
Meeting’.
Buyer can ask general questions about the business.
Broker will provide Buyer ‘List of Assets’ and the
‘Employee Summary’.
Buyer submits an ‘Offer’, with contingencies and
special provisions.
Customarily, an earnest money check for $1,000, payable
to an escrow company, is submitted with the ‘Offer’.
Buyer provides the Seller -
‘Buyer’s Credit Report’ and ‘Buyer’s Financial Statement’.
Seller responds to the Buyer’s Offer -
Counter offers are generally made a few times by Buyer
and Seller until an agreement is reached. If reached,
the agreement will be contingent upon a ‘Due Diligence’
period in which Buyer verifies the information received
and secures the funding.
Broker notifies the Escrow Company to prepare the
Closing Documents - The Buyer traditionally submitts
an aditional check of $4,000.
During the ‘Due Diligence’ period, the Buyer is provided
-
Tax Returns
Leases to be assumed
Sales tax reports
Seller’s disclosures
Year to Date financials
Liabilities to be assumed
Certificate of Good Standing
Buyer finalizes the funding arrangements to purchase
the business.
Traditionally, the funding is a combination of cash
from the Buyer and a note from his bank or the SBA for
approximately ten years. In addition, the Seller traditionally
finances a portion for a period of five to ten years.
At time of the sale (The Closing) -
the Buyer is provided proprietary information such as
the
Customer List and Suppliers.
The Sale - the transfer of the business, occurs at
the ‘Closing’.
The closing is conducted
by a professional escrow company and generally the
funds are transferred and disbursed through the
escrow company. In addition
to searching for any liens against the business
that would interfere with the transfer of the business,
the escrow company prepares the necessary documents
such as the Bill of Sale, Promissory Note,
Security Agreement, Release of Name Certificate,
Indemnity Agreements, Closing Statements,
Covenant Not To Compete and the UCC Financing
Statement.
The closing cost are traditionally split between
the Seller and the Buyer.
The Seller’s and Buyer’s attorneys
- It is reasonable to expect that both the
Seller and Buyer will want their attorneys to review
the closing documents. The escrow company should
be given about one week prior to the closing to
prepare the documents in order to provide drafts
a few days in advance for the attorneys to review.
When a closing date is requested,
it is important to keep the date. Additional
fees will be charged by the Escrow Company if the
date is changed within three days prior to the reserved
date.
It is important to appreciate
that the closing documents are to formalize define
the terms that have been negotiated. In representing
their client, attorneys may take this opportunity
to adjust or renegotiate terms. The Buyer and Seller
should introduce the developing transaction to their
prospective attorneys before the closing documents,
if they wish to have their comments regarding the
terms.
Buyers and Sellers should
know that not only could these last minute changes
jeopardize the transaction, but at a minimum,
additional closing expenses could be incurred.
Transition Period - Seller explains the details
of the operation to the Buyer and introduces the
Buyer to the suppliers and customers.
All offers are contingent
upon Buyer’s review and approval of due diligence
results at the sole judgment of the Buyer.
If at any point the Buyer or Seller terminates the
process, the Buyer must return all information to
the Business Broker listed on the “Offer to Purchase”. |
