FAQ Purchasing Businesses

by | Business Law, Private Client Services

Q. What should I expect when I decide to purchase a business concern?

A. Because every business is unique, the process of selecting a business to purchase and then properly assessing its value can be time consuming. Assets, liabilities, operations, personnel, physical plant, et cetera, all have to be evaluated to be sure that you’re not overpaying for your purchase.

Q. What should I consider when choosing a business?

A. Any purchaser of a business must consider whether or not this is a sector in which they want to operate and invest. What does the business do to make money? How much does the business have to make to break even or show the required profit? How much space will you need? How many employees will it take to run? What are their costs? Are the lenders who are helping to make this business run willing to extend the same credit to the new ownership?

Q. How do I locate businesses that are for sale?

Investors seeking businesses used to have to keep their ears to the ground by checking out newspapers, trade publications, magazines, et cetera. Now there are a vast amount of materials and business listings online. Brokers are often useful in weeding out businesses that either don’t meet the buyer’s criteria or are unaffordable.

Q. How do I find information on a business that I’m interested in purchasing?

You , seller and your attorneys will typically negotiate the terms of sharing information about the business. As a buyer, you should be able to examine the facilities and operations. Sellers will typically have you and your team sign a confidentiality agreement.

Q. What is due diligence?

A. This is a review of the inner workings of the business. This should include a review of financial statements (both current and past), forecasts, assets, debt, property, equipment, management, and other factors that affect the performance—and therefore the value—of the business. There are costs involved at this stage, which is why it doesn’t occur until there is a tentative offer on the table and it has been accepted by the seller. This is often referred to as an “earnest-money” agreement. This is essentially a deposit on the business to prove the seller’s intent to purchase the business from the buyer. In turn, the buyer takes the business off of the market for a specified period of time.

Q. How does the deal close?

Once the you’ve completed your due diligence and are satisfied that there aren’t any unacceptable concerns, the deal can be closed. An escrow officer will conduct a lien search and can complete the necessary legal documents: note and security agreement, bill of sale, non-compete agreements, leases, et cetera. A closing is then scheduled and you present the seller with payment.