Buying
A Business
Are
you tired of the volatility in the stock market? Diversify
your assets through business ownership. Acquisitions of existing
businesses are at an all time high due to the immediate high
returns and established business operations. Individuals,
corporations and financial buyer groups are all actively scouring
the countryside for existing businesses. It is usually much
safer and more profitable to buy an existing business than
starting a new venture. According to the Small Business Administration,
over 50% of startup businesses fail due to unproven concepts,
lack of working capital, and poor management.
Advantages
of Buying An Existing Business Through Corporate Investment
Business Brokers (CIBB, Inc.)
- Being
able to review a company's existing track record as reflected
in P&Ls, Tax Returns, and other financial records can
be very helpful in determining expansion plans. Growth potential
can be measured based on actual experience rather that conjecture
associated with startup ventures.
- The
need for additional working capital is reduced due to the
immediate cash flow being generated by the acquired company.
- Obtaining
skilled employees who are familiar with the business operation
and market.
- Gaining
established customers significantly reduces the time it
would otherwise take to attract an adequate number of customers
to support the overhead of a new operation.
- Obtaining
existing licenses and permits can often streamline the application
process.
- Sources
of capital to purchase existing businesses are more readily
available than startup ventures. It is very common for the
owner of an acquired business to finance part of the purchase
price. Banks and other financial institutions prefer to
loan money for existing operations that have a proven and
documented track record.
The
Sequence of Events
Buying
a business is serious business and should not be taken lightly.
Working with professional advisors
is the key to successfully finding and purchasing a business.
Friends and well meaning relatives are not usually qualified
to provide the specialized advice needed for a business acquisition.
Seek out an experienced Business Broker
who can assist you in finding
a business and coordinate the sequence of events. Utilize
an accountant who can help you with the due diligence process
and advise you on tax and record keeping issues. Obtain legal
advice for business organizational requirements and legal
documentation for your acquisition.
Finding
A Business To Buy
While there are a number of ways to find businesses for
sale, utilizing the services of a Business Broker
can greatly expedite the process. Business Brokers are sometimes
referred to as the "Supermarket" of businesses for
sale, as the better firms will have several hundred businesses
for sale at any point in time. When selecting a company that
specializes in selling businesses, verify the following information which will help
ensure that you are properly investing your time and money.
-
Are they full time Business Brokers, rather than a firm that handles business sales
as a sideline?
- Are
they a member of the Business Brokers of Florida (BBF), Florida
Cooperating Business Brokers Association (FCBBA)
and the International Business Brokers Association (IBBA)? As
a member of these organizations, brokers are obligated to
adhere to practice standards and a code of ethics.
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Self
Assessment
When
you meet with a Business Broker,
be prepared to discuss your background, work experience and
financial ability to purchase a business so that the most
productive benefits from the meeting are achieved and you
can find a business that meets your criteria. You will need
to prepare a personal resume and a financial statement which
will be required by landlords, lenders and others who will
be a party to the business acquisition. The following are
examples of the questions a Business Broker will be asking
you:
- Why
do you want to buy a business?
- What
are your special skills and educational background?
- What
is your work and/or business ownership experience?
- What
are your hobbies and areas of special interests?
- What
is the maximum amount of your personal funds that you can
invest as a down payment?
- If
you have an equity partner/investor, how much do you expect
them to invest of their personal funds and are they willing
to verify this?
Your Purchase Criteria
- Is
there a specific type of business that you are interested
in purchasing? Service, retail, wholesale/distribution,
manufacturing, food related, etc.
- If
you are not sure of the type of business you want don't
be embarrassed. Most Buyers are not sure what they want
to purchase because they don't know what is available. Are
there any types of businesses that you do not want to purchase?
- What
is the minimum income that you require from a business to
meet your living expenses?
- What
is your geographic preference for the business location?
- What
is your ideal timeframe for the acquisition?
Reviewing
Businesses For Sale
Based
on your qualifications and acquisition criteria, a Business
Broker will review with you several businesses for sale that
meet your needs. Don't attempt to look at "everything
on the market." This will only confuse you and the Business
Broker and will not be beneficial to you. Profiles that provide
a summary of the business and financial information will be
provided after you sign a Confidentiality Agreement which
is required by the business owner.
Meeting
The Business Owner and Touring The Facilities
After
reviewing the information on the business profiles, a Business
Broker will answer any questions you may have about the businesses
or will obtain the answers from persons deemed reliable. Once
you select those businesses that you believe best meet your
criteria, the Business Broker will schedule appointments with
the business owners so you can see the facilities and operations.
It
is common for the business owners to require all meetings
with prospective buyers be during non operating hours to avoid
premature disclose to employees and customers. The Business
Broker will attend these meetings to introduce you to the
business owner and facilitate the flow of information.
When
first meeting with a business owner, remember, not only are
you looking at the owner to determine if you want to purchase
the owner's business but also the owner is looking at you
to determine if he wants to sell you "his baby."
Many times it is an emotional moment for the owner to sell
his business that has been his "financial security blanket"
and he is also concerned about the new owner continuing to
taker care of his employees, friends, and customers. At this
initial meeting you will be able to ask questions regarding
the operations of the business. Usually the owner is not anxious
to share detailed financials with you until you have indicated
your seriousness and desire to proceed forward. The Business
Broker will assist you in this regard.
Please
remember to keep all proprietary information you obtain about
the business confidential. Only discuss this information with
your professional advisors and spouse, and remind them that
the information is confidential and not to be disclosed to
other parties. In most cases, the employees, customers, suppliers,
landlords and lenders are not aware that these businesses
are for sale. Premature disclosure could have a negative and/or
devastating impact on the business being sold. Additionally,
you may very well have considerable liability for not maintaining
confidentiality.
Disclosure Statement
The
Purchase Agreement and Due Diligence Process
At
this point you have reviewed operating information and financial
summaries of the businesses that meet your acquisition criteria,
and you have met with the business owners and toured their
business facilities. You should now be ready to select the
business that you feel best meets your needs and begin the
contractual process.
You
have now reached the "cart or the horse" syndrome.
Checking out the business can be very time consuming for both
you and the business owner. Furthermore, costs may be incurred
for such things as professional advisors, copies of documents,
lien searches and closing documentation. The business owner
does not want to go through a detailed due diligence process
without having an acceptable Purchase Agreement in place.
It is customary that there are contingencies in the purchase
agreement that provide for lease negotiations, the due diligence
process of reviewing books, records, leases, and whatever
you deem necessary. The Purchase Agreement will also provide
for the specific price and terms and other conditions which
you are willing to pay the business and the seller is willing
to accept for the business. Final closing documents, such
as bill of sale, note and security agreement, closing statements,
non-competition agreements, leases and approvals from various
parties will be handled by the Escrow Attorney prior to closing.
The
amount of your earnest money deposit required to be submitted
along with the Purchase Agreement will depend upon the size
of the business transaction. The amount needs to be sufficient
to show your serious intent to buy the business and to encourage
the Seller to take the business off the market while you complete
your due diligence. The Business Broker will advise you in
this regard and will assist in the negotiations between you
and the business owner to arrive at an acceptable Purchase
Agreement.
During
your due diligence period, Corporate Investment Business
Brokers (CIBB, Inc.) will coordinate
your requests for documents and assist in arranging meetings
with related parties to the transaction including the business
owner's professional advisors, the landlord, lenders, the
escrow attorney and others as needed. If institutional financing
is required, the Business Broker can recommend various lending
sources depending upon the type of financing needed.
The
Closing
When you have completed your due diligence and are satisfied
with all aspects of the business, the escrow attorney will
conduct lien searches and prepare the bill of sale and other
closing documents for all parties to review. A cashiers
check will be required at closing for the amount due.
Buying
an existing business can be a wise choice for entrepreneurs
who desire to have their own business. A proven track record,
skilled employees, established customers and suppliers, and
the availability of financing make buying a profitable business
easier and safer than other types of investments.
Utilize
the services of a Business Broker to help YOU fulfill the
American Dream………
OWNING A SUCCESSFUL BUSINESS OF YOUR OWN.
CONTACT Corporate Investment
Business Brokers (CIBB, Inc.) TO BEGIN THE
PROCESS TODAY!
