The first step is to decide if buying an existing business is the right choice for you. Ask yourself- are you ready, and is it time for you to become a business owner?
Your next step is to determine what you wish to accomplish with the business purchase. Are you looking for freedom, the opportunity to make more income, or, perhaps, a business that one day your children can take over?
Whatever the reason, be sure that your motivation is sound.
Once you have decided to purchase a business, you must then assess the amount of money you need, have, or can borrow to purchase your dream business. Many buyers look no further than their retirements funds, and remember, those funds can come to you tax deferred. Just ask your First Choice Business Broker for details.
Another option may be provided by the seller. Quite often, business owners will consider financing the purchase for a Buyer with 50% of the purchase price as a down payment.
A prudent business buyer should know their options before setting out on the journey of purchasing a business, which is why your search should start with a trained, full-time Business Broker.
A First Choice Business Broker can direct you to lenders who favor financing a business purchase. Lenders will advise you that they are more willing to loan money on an existing business because of the business track record than a “start up from scratch” business.
Your Business Broker will spend time with you, asking a series of questions geared towards understanding your background and finances to help determine what type of business might be the right fit for you.
The Business Broker will then show you information on a variety of businesses, some of which you may not have even thought of or even known existed. Once you have shown an interest in a particular business, you will be asked to sign a Confidentiality Agreement which includes several items, some of which state, for example, that 1. You agree not to talk to the surrounding businesses or the Sellers employees before taking ownership, and 2. You will not disclose information about the business to anyone except your financial consultants.
If, after review of the Seller’s information package, you have further interest in pursuing the business, the Broker will arrange a meeting and/or a conference call between you and the Seller, in which you can ask any related questions about the Seller or their business. Be aware that you will likely be asked to provide proof of funds before any meetings are arranged.
The meeting is often held at the business location. You will be able to walk through and observe the business operation. However, there are often times when the seller prefers to meet with the buyer at the business broker’s office before going to the place of business.
If, after meeting the seller and viewing the business, you still have an interest, your Broker will arrange additional meetings and/or conference calls with the Seller to answer any lingering questions you may have prior to making an offer. If, after contemplating all the materials received and your visit with the seller, you determine you would like to make an offer on the business, your First Choice Broker will assist you in completing the offer, and he or she will present your offer to the Seller.
The offer will entail, among other clauses, an agreed-upon training period in addition to the Seller’s agreement not to start a competing business, along with many other items aimed at protecting the interests of both parties. Be prepared to write a check or to wire funds immediately upon acceptance for the greater of 10% of the purchase price, or $10,000 minimum. This amount is referred to as an EMD, or an Earnest Money Deposit. This check shall remain uncashed unless the offer is accepted. The provision of an Earnest Money Deposit demonstrates to the Seller that you are a serious buyer with the true intention of purchasing his or her business.
In the case that your offer is not accepted, you can usually expect a Counter Offer from the Seller, a document that includes terms more acceptable to the Seller. If you approve the Counter Offer, your Earnest Money Deposit (EMD) will be deposited into a Trust Account, and the purchasing process will begin.
After acceptance, a Due Diligence Period will be initiated, which is your time to thoroughly review the business financial statements and other pertinent information.
If you with your accountant (if any), are satisfied with the Seller’s records, the purchase process will commence via your signature on a statement that indicates you are satisfied with what you have seen and that your intention is to move forward with the sale. This statement is called a Due Diligence Release. If there is a significant amount of inventory in the business, a third-party inventory counting company will be contacted to conduct an independent count/value of the inventory at the Seller’s cost, if inventory is included in the purchase price.
After any and all additional contingencies are released by you, the completion of transaction is arranged through the third-party escrow company or an attorney.
Your First Choice Business Broker will be by your side every step of the way, helping to facilitate and navigate to ensure a smooth transition of ownership wherein you become the proud owner of this business. Congratulations.
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