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Information for Business Buyers
Buying a business is a major decision! You will devote your time, money and energy to finding, purchasing and operating a business. You hope it will provide a stable source of income and a sound investment. You have decided now is the right time to buy and you want the very best professional guidance you can get. This is when working with a professional business broker can make the difference between just buying a business and buying the right business for you at the very best price and terms!
Below are the most common questions asked by buyers. The responses are based on both experience and knowledge. If you have any questions we have not covered, please do not hesitate to contact us.
What Can Business Brokers Do – And, What Can’t They Do?
Business brokers are professionals who facilitate the successful purchase of a business. It is important you understand what a professional business broker can do – as well as what they cannot do. As your broker, we can help you decide which businesses match your skills and experience and which businesses do not; identify a fair price for a business and how to structure the acquisition so it makes sense for you and the seller; recommend sources of financing if required; and work with you and the seller step-by-step until the business transfer is successfully completed
A business broker is not a magician who can find the perfect business. All businesses have their unique set of challenges. It is important you understand a business transition may be difficult. You may have issues with the economy, employees, suppliers, new competitors and at times the seller. You may not initially achieve the results the prior owner achieved. It is also important you understand the amount of the down payment along with the source and terms of financing can greatly influence not only the ultimate purchase price, but also the success of the acquisition itself.
How Long Does It Take To Find A Business?
It generally takes, on average, up to six months to find a solid, profitable businesses to buy in an industry where you can excel. Keep in mind an average is just that. Timing may be dependent upon the industries and locations you prefer and/or specific revenue and owner benefit targets you require. The sooner we have all the information needed to begin the search process, the shorter the period of time should be. It is also important you understand your personal strengths and weaknesses from the start. Some buyers, operating under the premise they can run any business, often buy the wrong business. This theory often “backfires”. Without relevant experience, buyers fail to move down the learning curve fast enough to compete against a competent, well-skilled marketplace.
It has been shown the amount of down payment may be the key ingredient to a quick sale. The higher the down payment, generally 50 percent of the asking price or more, the shorter the time to a successful acquisition. A reasonable down payment also tells a potential seller you have confidence in your ability to operate the business and make all loan payments.
What Paperwork Is Required To Buy A Business?
To buy a business, you will likely need to complete several documents. These documents include a buyer profile, non-disclosure agreement, proof of financial viability and summary of experience. Providing these documents to your broker prior to the start of a search can expedite the process and save you a lot of time. Business brokers spend a considerable time learning about the businesses they list for sale and documenting key facts. It is only fair to the seller we document similar facts regarding prospective buyers.
A buyer profile is an one-page summary listing your name, contact information, industry and location preferences, owner benefit required, cash available for down payment, timing, key decision-makers and other critical information about a buyer. A broker may ask you to complete the buyer profile, or complete it for you over the phone or in a face-to-face meeting.
A non-disclosure agreement (NDA) protects the seller and broker for a specified period of time. These protections include:
1. Assures the buyer works through the broker and not directly with the seller. Respect the fact the seller hired the broker to communicate with and screen all prospective buyers.
2. Informs the buyer all documents containing non-public information are considered confidential and the buyer is responsible for maintaining this confidentiality.
3. Advises the buyer to seek the advice of their own attorney and/or CPA when purchasing a business as the broker is communicating information on behalf of the seller and cannot guarantee the accuracy of this information.
4. Informs the buyer, should they consummate a deal with the seller and/or landlord without the broker’s involvement within two years of signing the NDA, they will be liable for damages including commissions due the broker.
5. Warrants the buyer is acting on their own behalf and not as an agent of a third-party, government agency or competitor.
A signed NDA allows you to receive a business summary referred to as a Business Listing Information (BLI) sheet. A signed NDA does not permit you to receive the name and/or address of the business.
Proof of financial viability is a critical step. Experience has shown less than 25% of all buyers have the necessary liquidity and/or available funding to purchase the business they are inquiring about. Sellers have little patience sharing time and confidential information with buyers who do not have the financial means to purchase and operate their business. Most sellers require their broker to have prospective buyers verify their financial viability. This can be accomplished by one of three methods:
1. Complete and sign a Personal Financial Statement (PFS).
2. Produce a letter from a CPA or other fiduciary stating they have verified the buyer has a specified amount of liquid capital and/or access to a specified amount of funding, or they have looked at the terms and conditions of the sale and assure the buyer is viable.
3. Statements from a bank, retirement or other savings account.
All businesses requiring a down payment of over $100,000 will require you to prove financial viability. There are no exceptions.
A summary of experience can be provided to a broker in written form, e.g., resume, work history or similar document, or verbally during a phone call or face-to-face meeting. Most sellers want to be reassured by the broker a buyer has experience and skills to successfully transition and operate their business. The more you share about your skills and experience, the better the broker can represent your interests to the seller.
Only after the broker has accumulated the necessary paperwork from a buyer and believes they are qualified to purchase and operate the business, will the broker feel comfortable in releasing the name and address of the business.
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