Buying a Business:
A Guide to Fulfilling the American Dream
For entrepreneurs seeking to own a successful business, buying an existing one can be a wise choice. With a proven track record, skilled employees, established customers and suppliers, and available financing, acquiring a profitable business is often easier and safer than other types of investments. At Best Biz To Buy, we help you navigate the process of buying a business, ensuring that you make informed decisions and fulfill your American Dream.
The Advantages of Buying an Existing Business:
1. Proven Track Record: Reviewing a company's financial records, such as P&Ls and tax returns, allows you to assess its growth potential based on actual experience rather than projections.
2. Immediate Cash Flow: The need for additional working capital is reduced, as the acquired company generates immediate cash flow.
3. Skilled Workforce: Gain access to experienced employees who are familiar with the business operation and market.
4. Established Customer Base: Acquiring an existing business significantly reduces the time it would take to attract a sufficient number of customers to support the overhead of a new venture.
5. Licenses and Permits: Obtaining existing licenses and permits can often reduce the time and cost associated with the application process and regulatory compliance.
6. Financing Options: Sources of capital for purchasing existing businesses are more readily available than for startup ventures. Owners of acquired businesses often finance part of the purchase price, and banks prefer lending to operations with a proven track record.
Sequence of Events
Buying a business is a serious undertaking that requires the guidance of professional advisors. At Best Biz to Buy, our experienced business brokers assist you in finding the right business and coordinate the sequence of events. We recommend working with an accountant for due diligence and tax advice, and an attorney for legal documentation and business organization requirements.
1. Finding the Right Business Broker:
When selecting a business brokerage firm, consider the following:
1. Full-time Commitment: Ensure that the firm specializes in business sales rather than treating it as a sideline.
2. Professional Memberships: Look for brokers who are members of the Texas Association of Business Brokers (TABB) and the International Business Brokers Association (IBBA), as they adhere to practice standards and a code of ethics.
3. References: Ask for references from former clients and customers, or seek recommendations from other professionals.
2. Defining Your Acquisition Criteria:
When meeting with your Best Biz To Buy broker, be prepared to discuss your background, work experience, and financial ability to purchase a business. Provide a personal resume and financial statement, which will be required by lenders, landlords, and other parties involved in the acquisition. Consider the following questions:
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 is the maximum amount of personal funds you can invest as a down payment?
What business categories interest you most?
What is the minimum income you require from a business to meet your living expenses?
What is your preference for the location of a business, and how far are you willing to commute?
3. Reviewing Businesses for Sale:
Based on your qualifications and acquisition criteria, your Best Biz To Buy broker will present several businesses that meet your needs. After signing a Confidentiality Agreement, you will receive profiles summarizing each business and its financial information.
4. Meeting with the Business Owner and Touring the Facility:
Once you select businesses that best meet your investment criteria, your broker will schedule appointments with the owners during non-operating hours to avoid premature disclosure to employees and customers. During these meetings, you can tour the facilities, ask questions about the business operations, and discuss the basis for the business valuation and terms of sale with your broker.
5. Meeting with the Business Owner and Touring the Facility:
Once you select businesses that best meet your investment criteria, your broker will schedule appointments with the owners during non-operating hours to avoid premature disclosure to employees and customers. During these meetings, you can tour the facilities, ask questions about the business operations, and discuss the basis for the business valuation and terms of sale with your broker.
6. Due Diligence and the Offering Process:
After selecting the business that best meets your needs, you will begin the due diligence process. To ensure your commitment and protect the seller's interests, an Earnest Money Agreement must be presented and accepted by the business owner before obtaining detailed financial documents or contacting related parties.
The basic steps include:
Completing the Purchase Agreement with the help of your Best Biz To Buy broker, outlining the terms and conditions of the sale.
Providing earnest money, typically $5,000 to $10,000 for small to midsize businesses, to demonstrate your serious intent to buy the business.
Conducting due diligence within the agreed-upon timeframe, usually up to 30 days, to review financial documents, operating agreements, property leases, and other aspects of the business.
Coordinating with your broker to arrange meetings with related parties, such as professional advisors, landlords, and lenders.
Securing financing, if required, with the assistance of Best Biz To Buy's recommended lending sources.
6. The Closing Process:
Once due diligence is complete and you are satisfied with all aspects of the business, the escrow attorney will conduct lien searches and prepare the necessary closing documents. After approval by all parties, a closing date will be scheduled, and the purchase will be finalized with a cashier's check or wire transfer for the amount due. Best Biz To Buy will coordinate with all involved parties to ensure that the necessary paperwork is completed by the closing date.
