Critical Buyer Issues



When looking for a business to buy we find there are a number of issues that need to be addressed and faced during the process.  Buying a business isn’t easy, nor should it be.  Determining the right business, at the right price and getting the deal across the finish line takes effort, deliberateness and the willingness to take a certain amount of risk.  Here are few things anyone making the decision to purchase a business should consider:

 

  1. CONFIDENTIALITY IS CRITICAL
  • To many this seems like common sense. However, we’ve seen the results of a breach in confidentiality and the negative consequences to both parties.
  • Nothing good happens when confidentiality is breached. For the seller, it could be a loss of employees, customers or suppliers.  For the buyer, these same issues may be happening undetected and actually manifest themselves after the deal has been closed, leaving the buyer in a difficult position.

 

  1. COMMUNICATE HONESTLY WITH YOUR BUSINESS BROKER
  • Be prepared to discuss and document the experience you’ve had that qualifies you to operate the business you’re interested in.
  • Promptly provide the financial documentation requested by the broker that clearly qualifies you as a “ready and able” buyer.
  • If you find something that concerns you about the deal, let your broker know. Often, deals break down due to misunderstandings.  Your broker can often help clarify the issues and get the deal back on track.

 

  1. BUY A BUSINESS YOU LIKE AND CAN MANAGE
  • There are many motivating factors to purchasing a business. One of the most common is dissatisfaction with current employment and a need to change direction.  When looking at a business to acquire, try to envision going to work there every day.  Will you look forward to heading out the door every morning?  Don’t jump out of the frying pan and into the fire of buying a business you won’t be passionate about.
  • You don’t have to know everything – the seller will help train.
  • As you look at a business, see where you’ll be able to add value.

 

  1. KEY CONSIDERATIONS WHEN SELECTING A BUSINESS
  • Make sure to look at all aspects of a business before making a final decision.
  • Earnings Track Record – Make sure to understand the historical trends of the business and the cause of those trends. For example, a slight negative trend could be a result of the owner’s age and taking their foot off the accelerator.  For some buyers this could be an easy fix.
  • Management – How has the previous owner managed the business? Do you bring the skills to improve the overall management of the business – HR, accounting and finance, business development?  Are there key employees who can help to fill any void left by the owner?
  • Understand why is the seller selling? There can be many understandable reasons. However, it’s important to make sure the owners decision to leave isn’t because of some pending change like the loss of a key customer or employee.

 

 

  1. COMPLETE BUSINESS FINANCIALS ARE RARELY AVAILABLE UNTIL AFTER AN OFFER IS ACCEPTED AND DUE DILIGENCE BEGINS
  • It may seem counter intuitive, but we don’t recommend beginning due diligence until a contingent offer has been accepted.
  • The contingencies protect the buyer and will allow plenty of time to verify the accuracy of the information provided
  • Until an agreement on price and terms has been reached it doesn’t make sense to spend time and money on due diligence, working with a bank or a landlord.

 

  1. DON’T EXPECT 100 PERCENT BANK FINANCING
  • Most banks (conventional loans) are asset-based lenders.
  • Preferred SBA lenders can support cash flow deals.
  • Banks can’t run a small business if borrower leaves.
  • Bankers view small business tax returns differently.
  • Expect to pay minimum of 20 percent for down payment.

 

  1. EXPLORE SOME OWNER FINANCING
  • Owner financing demonstrates seller’s confidence in business.
  • Buyer benefits from seller’s demonstrated confidence in the business.
  • Buyer has seller’s goodwill during term of payments.
  • If something goes wrong, seller has an interest in helping it go right.

 

  1. EXPECT TO NEGOTIATE
  • Believe it or not, many people are afraid of the negotiating dance. If they aren’t willing to pay the price asked by the seller, they won’t make an offer.  We suggest, if this looks like the right business, but the wrong price, make an offer that makes sense to you.  The negotiated price may find a level that’s acceptable to both parties.

 

  1. LOOK AT SEVERAL BUSINESSES

 

  1. WRITE A CONTINGENCY OFFER
  • Make your best offer
  • Base your offer price decision on what you have learned during your meeting with the seller and the financial information provided.
  • Do you have good personal chemistry with the seller and were you able to verify the business facts as represented?
  • Include necessary contingencies as part of your Agreement to Purchase offer. Examples include the buyer’s ability to transfer a lease at acceptable terms and conditions, and satisfactory review of business financial records.

 

  1. REASONABLE EXPECTATIONS
  • Explore the possibility of the seller to finance a portion of the purchase price.
  • Expect to communicate with several financing sources during due diligence and contact these financing sources simultaneously.
  • Expect seller to provide all of their financial information during a due diligence period of 10 days to 2 weeks after accepted offer.
  • Expect a request for your US tax returns and credit report for review by the seller if doing financing.
  • Expect a request for a credit report for review by the seller if they are doing an financing.
  • Expect to consult your attorney and accountant to review elements of the transaction including financial information and the Asset Purchase Agreement. Do not ask them to make business decisions for you!  You must make them!
  • Rely on your business broker’s guidance and liaison to resolve any and all issues during due diligence.

 

  1. EXPECT A SURPRISE OR TWO BEFORE YOUR PURCHASE TRANSACTION IS COMPLETED
  • There is a saying in the M&A industry, each deal will die two deaths.  Unfortunately, you don’t know ahead of time what the cause may be – financing, due diligence issues, transition plans, fear and a variety of others.
  • The key word in the phrase is “deal”, meaning it got done.  Before walking away, make sure you understand the issues clearly and get them clarified.  Don’t let a misunderstanding get in the way of the right opportunity.  Also, don’t forget what you bring to the business.  Many times the current business is missing something that the new buyer can improve upon.  A great example may be the need for a greater emphasis on social media.  The current owner may not know a thing about it, but the new buyer could be an expert.

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Sunbelt is proud to be the world’s largest business brokerage network. Each of our offices is independently owned and operated by an experienced and professional owner who lives and works in the community in which they operate.


Disclaimer: No salesperson, field representative or other person has the authority to make a statement, promise or assurance concerning any matter related to the franchise that is contrary to, or different from, the information/terms contained in the Franchise Disclosure Document/Franchise Agreement. Any such statement, promise or assurance is unauthorized, unwarranted and unreliable. If you believe someone has made an unauthorized statement, promise or assurance to you, please contact Jessica Czekalinski, Esq. at 216-674-0645 ext. 619.