Personal (Business) Advisors
The Acquistion Process: How to Buy Existing Business
The experts in any profession are masters of their trade. They are copied by competitors, and their operational procedures become the norm for their peers. The "20 Steps for Buying existing Business” is the methodology behind helping today’s entrepreneur acquire their dream.
Our goal is to assist our client so that the business transaction is a smooth transition for the first time owner or the professional buyer. Now in its second decade of offering valued advice, we offer a transaction road map for those purchasing an existing business as to provide guidance through the process.
20 Steps for Buying Existing Business:
1. Interview(s): With your PBA Senior Advisor, we identify your background and criteria for our search, including geographical preference, strengths and capabilities, interests and hobbies, business environment preference, business size and stage, investment and working capital available, income requirements and expectations, among other components and characteristics which you desire in your ideal business.
2. Commitment: It starts with your commitment to be open and honest through our matchmaking process involving a series of telephone interviews and discussions gathering profile information and providing educational insights about industries and specific opportunities. Buying a business is rewarding in many ways, but it is a major undertaking and requires your complete commitment to be successful.
3. Non-Disclosure Agreement (NDA) / Confidentiality Agreement: You will be required to sign a NDA thereby promising to maintain confidentiality for all of the information provided to you on the business, discuss or present. Some business owners require a company specific NDA agreement in addition to one signed for PBA as to review their business specific documents (such as business financial statements, lease agreements, supplier agreements, etc.).
4. Buyer Profile: By completing the Buyer Profile, you are providing us with information about yourself. It includes our signed Advisor Relationship document, resume, and available capital to invest. Sharing information about yourself makes it more likely we can find a business that matches your needs. It also goes without saying that the more information we can provide the sell and financing sources, the stronger your negotiating position.
5. Opportunity Review: Together with your PBA Advisor you will discuss and review various types of industries and specific businesses. The narrowing of options that appeal to you, or that you may be qualified to acquire, saves valuable time for all parties. You will have the ability to review confidential business profiles that, in part, summarize the business, its financial information, facility and lease information.
6. Business Presentation: We will present to you the businesses that have matched your specific criteria, and discuss the opportunity surrounding each. These initial presentations are provided via telephone and/or internet calls (Skype, Go-to-meeting, etc.), to actual on-site visits as the information process moves forward. It is critical to remember when visiting a business, that the sale is highly confidential.
7. Meeting the Seller: A meeting between you, the seller and your Advisor may take place if you are interested in obtaining more information regarding the business, and seriously consider it a candidate for purchase. This gives you the chance to ask questions you may have about how the business operations and allow the seller to feel comfortable in who is acquiring their business (and possibly holding a note for).
8. Offer to Purchase: With the assistance of your Advisor, the next step is to prepare an Offer to Purchase. An Offer to Purchase will include an earnest money check along with contingencies that are to be satisfied during Due Diligence.
9. Present Offer: If desired, your Advisor presents your offer to the seller and takes the time necessary to explain the terms and conditions of your offer to the seller and their decision makers; however, most of our candidates prefer to negotitate and present directly with current business owner.
10. Acceptance or Counter Offer: The seller will either accept the Offer to Purchase as it is written, or will present a Counter Offer. Once the buyer and seller agree to the all the terms and conditions of the sale, sign all counter offers, and amendments (if any), you have mutual acceptance and it then becomes a Contingent Purchase Agreement.
11. Due Diligence and Inspection: At this stage the examination of financial records and other operational information, inventory, management and lease reviews take place. The due diligence and inspection stages are critical for the buyer to confirm that what the seller has claimed to be is truthful and accurate, and meets the conditions of your offer.
12. Contingency Removal: You remove all contingencies as each is resolved or met in the Agreement. Once completed, it is a binding agreement.
13. Escrow: You, or your specified representative, will send the Purchase Agreement and other documents to the escrow attorney or closing attorney who then drafts the closing documents and deposits the earnest money deposit into their trust account. Escrow is “open” as soon as both buyer and seller have signed the documents. Depending on the geographic location in which you live or are acquiring the business, the process may be handled by parties other than an escrow company.
14. Lien Search: In most geographic areas the attorney for the buyer, or the escrow company, performs a lien search on the business to identify any secured creditors. Liens to secured creditors will be removed prior to closing. During the lien search there will also be an investigation with tax agencies for tax clearances.
15. Business License, Permits, etc.: During the escrow period the buyer, with the aid of their professional advisors, will be obtaining liability insurance for the business, workman’s compensation insurance (if required), all necessary business licenses and permits, EIN/TIN (Employer Identification Number/Tax Identification Number), and form the appropriate business entity.
16. Lease Assignment: The seller’s landlord may require the assignment of the existing lease or an entirely new lease. You will, with the seller and landlord, obtain the necessary documentation for closing. This is another critical step and one of your remaining contingencies. It is important to provide the landlord with a complete personal financial statement, resume, and lease application promptly to ensure your new lease or assignment is complete in time for the closing.
17. Note & Equipment Lease: Your identified broker, legal counsel, and/or accountant will work with you, the seller, and an escrow officer/closing attorney to have an agreed upon notes and equipment leases assigned to you and your new corporate entity.
18. Inventory: Arrangements are made for you and the seller to count and price the inventory if it applies to the business you are acquiring. If it is a large or complex inventory it may be necessary to outsource this function to an inventory service.
19. Closing: Signing of the final closing documents may be done at escrow, in person, or in many cases, via courier, email, or fax. These arrangements will be agreed upon by all parties prior to closing.
20. Training: Agreed upon training with the seller commences after the closing and during the change of possession. The terms and length of seller involvement training is agreed to as part of the executed Purchase Agreement.