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Buying a business can be one of the most important decisions you will ever make. This is a major step that requires a careful due diligence because it will impact your life both financially and personally. Before you embark on this path, there are certain questions and factors you need to consider. |
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Should I Buy an Existing Business? |
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Most small businesses fail within the first three (3) years of their start up. An existing business has passed that hurdle of the start-up phase and has an established track record and certain good will that is associated with it. Let’s break it down in simple terms: Would you prefer to spend only $100K for start-up costs for a business resulting in absolutely no income or even a net loss for the first thirty-six months, or would you prefer to pay a little bit more but obtain a business that is generating cash flow from the first day you purchase it?
Would you prefer to learn the business by yourself by trial and error and spend numerous long hours researching and discovering the ways of operating the business, or would you rather have the existing owner train and teach you the business therefore elimination possible mistakes? These are the two main reasons why people purchase existing businesses rather than starting them. |
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Reasons to Buy a Business |
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- To have the freedom to create the lifestyle you want.
- You can be your own boss, make up your own rules and schedule.
- You can expand your business as much as you want and YOU WILL BE THE ONE MAKING THE MONEY.
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Do I Need a Business Broker? |
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An experienced and knowledgeable business broker can guide you through this exciting yet complicated process. A business broker can assist you by identifying various businesses that are available in the market and by explaining the steps involved in the business buying process. Logistics such as when to set up buyer and seller meetings, when to work as an intermediary with both parties, and when to assist you with all the necessary paperwork, due diligence period, lease negotiation, financing and escrow will all be in the hands of the business brokers. Also, business brokers are a great source of expertise and knowledge when it comes to local trends and market values for small businesses. |
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Do I Need an Attorney or an Accountant? |
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Business Brokers are neither attorneys nor accountants. It may be advisable to consult with both an attorney and an accountant prior to the purchase of the business; however, it is extremely important that these professionals are familiar with the buying process and have experience with business assets and stock sales. For suggestions, you may ask your local business brokerage firm. |
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What are the Steps involved in the Buying Process? |
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Let us start by saying that buying a business is a lengthy process. It generally takes anywhere from six to twelve months, so do not be discouraged if you do not find the right business immediately. A very important rule that you should keep in mind is 30-10-3-1 and it means this: you should at least look at thirty businesses and be interested in ten of them, put an offer on three and one will get accepted, which will be the RIGHT business for you. Once you find a business you think you like, then ask your trusted business broker to put a contingent offer together and present to the seller. Don’t panic! A contingent offer is a conditional offer; it locks the business to you and allows the seller to open their financial statements to you so you can make sure that the financial records are exactly what the seller had disclosed verbally. Once a contingent offer has been accepted, a ten day due-diligence period will start which allows the buyer to observe the business and make their decision. After the due-diligence period is over, a financial condition removal is signed by the buyer, a meeting with the landlord is set-up to ensure a reasonable satisfactory lease for the buyer and then Escrow is opened. It normally takes thirty days from the day escrow is opened for it to close. If a deal requires a specialty license such as a liquor license from ABC then escrow shall take longer. If after the due-diligence period is over and the buyer is not satisfied with the contingencies, then the buyer has two options, either re-negotiate the offer or withdraw the initial offer completely without any penalties. For more information on a personalized buying process, consult a customer representative.
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