The Business Buying Process From Start To Finish

The process of buying and be easy, but the buyer must always undertake thorough research prior to making any commitment to buy. Unfortunately many first time buyers fail get so excited with the thought of becoming business owners, they fail to undertake a thorough due diligence process. This can be a costly mistake that can haunt them for years. The sad thing is that many blame the previous owners for their own failing, claiming they were ripped off or “taken for a ride.”

It is vitally important to get answers to all of your questions and to have all the information necessary to make an informed decision. It is a big decision, so it is  important to be thorough. You only have one chance to get it right.

Gather as much information as you can on the business, the location, the market, the competition, potential threats and opportunities for growth etc.

If are doing this research and you are still interested – then it's time to start asking the questions of the current owner. Questions like:

• What is the out-goings like rent, wages, other expenses etc.?
• How long is the lease and what are the terms?
• What have been the sales, profits and cash-flow trends for the past 6 months, 1 year, 2 years, 3-years?

Now, ask yourself if the seller can prove the figures. It may not be necessary to examine the seller's financial account just yet, but you need to know that sales/profit claims can be supported when required. There will be plenty of time for a thorough examination of the business accounts.

At this stage you are still doing the detective work to decide if you are really interested in buying the business. Substantiating the answers can be done later further down the due diligence process.

Having satisfied yourself with the results of your basic research, the time will come to make an offer. When you do, your offer would be subject to verification of all the information you have received. You may even want to add other clauses to ensure that you can opt-out if you change your mind, or if you are advised not to purchase the business by one of the professional you consult. Proper legal and accounting advice is always recommended.

The main purpose in making an offer is to see if the seller will accept your terms, price, and structure of the sale itself. If the offer is accepted subject to your conditions, then you can formally employ outside advisors to thoroughly check all the information and the viability of the business. There is probably no point in hiring advisors and go through the time and expense of due diligence unless you can firstly agree on financial terms with the seller.

In most cases it is beneficial to include as part of the agreement that the seller will stay on for a transition period after the sale is completed. Typically 30 days is fair, but it does depend on your knowledge of the business, and it may affect the price you ultimately agree on. Often another 30 to 90 days of telephone consultation (at no charge) is written in as part of the contract. If you want the seller to stay longer, it may be best to offer to pay him, or her, a consulting fee of some type. But, do realize that at some stage you will have to let go and stand on your own two feet. Also, the former owner may not be as keen to help as time goes on.

This is just a quick overview of the business buying process. You will need to fill in the gaps, seek professional advice, and do your own thorough research before signing any legally binding contracts. It will be worth the effort.