Buying Tutorial for Business Buyers

Before approaching any business owner, ensure you’re ready to buy. Start by taking a hard look at your finances. Do you have a lot of cash on hand, or will you need to borrow a considerable sum? One of the advantages of purchasing an existing entity is that the seller could provide financing, which could help you avoid the uncertainties of applying for bank loans. 

You’ll also need to decide on the most likely industries for your success as a business owner. Review your previous work experiences, interests and expertise to find the ideal fit. Conduct research to determine whether the industry is growing or in decline. 

Once you know you’re ready to buy a business, you can begin your search for the ideal operation. Using the services of an experienced, reputable broker like Inbar Group can be much faster and more efficient than conducting a self-guided search.

The best brokers can provide a comprehensive listing of businesses for sale in the states or geographic areas that appeal to you. A broker also screens and vets the business, giving buyers more peace of mind. 

Other potential sources include unvetted online listings, local professionals like CPAs, attorneys and commercial real estate agents, and your own network.

After identifying the business you’d like to buy and expressing your interest to the owner, you’ll want to investigate the company to decide whether to proceed. Draft a letter of intent (LOI), a non-binding agreement between you and the owner that outlines the terms for a formal sale, including a potential price. 

With the LOI in hand, you can initiate due diligence to uncover essential information about the operation. During this phase, you’ll gather and evaluate relevant documents, such as financial and legal records, contracts and operational data. A business broker can help by serving as a central coordinator to manage the information flow between you and the seller.

Solidify your financing arrangements as you conduct due diligence on the business. Many sellers are willing to provide financing assistance to facilitate the transaction. In these arrangements, the owner extends a seller’s note, which is a loan to the buyer covering all or part of the sale price, and includes the repayment terms and interest rate. The seller may also require you to post collateral, which is typically the business’s assets. 

If seller financing isn’t available, you’ll need to consider other alternatives, such as traditional bank or Small Business Administration loans. 

If you’re satisfied with the due diligence results and have secured financing, you’re ready to complete the transaction. Negotiate and draft a purchase agreement, a legally binding contract between you and the seller detailing the terms and conditions of the entire business transfer process. 

In addition to the final price, the purchase agreement should list all the business’s assets and liabilities, including intangible assets like intellectual property, trademarks and patents. 

Once you and the seller sign the purchase agreement, you’re ready to complete the deal and perform all the essential transaction closing steps. This process can include finalizing the paperwork, transferring funds, updating registration or licensing to reflect the new ownership and reassigning contracts and leases as needed. 

Collaborating on a smooth, seamless ownership transition is beneficial to you and the seller. It’s best to commence the process before closing the deal to ensure you’re ready to hit the ground running and alleviate the concerns of employees, customers and all key stakeholders. Work hard to establish a positive relationship with the current ownership during the sales transaction and use them as a resource immediately after the change.