Deciding to become an entrepreneur and buy a business is an exciting step, but it can also leave you weary of not knowing how or where to begin the process. That is why Transworld Business Advisors has developed this handy guide for understanding how to buy a business.
Before buying a business you should review your finances and have personal financial statements ready to share with your business broker. You will need them when it comes time to be pre-qualified by your business broker and they will provide helpful insight into the amount of cash flow you will require in the future.
#2: Build Your Team
The first official step towards buying a business is identifying your team of advisors. A typical advisory team includes a transactional attorney, wealth manager, and a business broker or transactional advisor. The expertise of this team will dictate the likelihood of a successful future transaction.
#3: Information Collection
Now that you’ve engaged a business broker, they will begin to gather information about you and start the pre-qualification process. The information gathered in this step will help your business broker guide you to a business that will suit your preferences and goals.
#4: Business Search
Now the fun starts! Your business broker will identify business opportunities that may be a match for your needs. As a buyer, you can support this process by reviewing businesses for sale on Transworld’s website at www.tworlddenver.com or visiting other business listing websites like BizBuySell.
#5: Inquiry & Screening
Once a good opportunity is identified, the buyer can begin their inquiry into the business by first signing a non-disclosure agreement (NDA). This step is also when the buyer will need to get serious about their financial capabilities, and the source of their funds for the purchase price. Your business broker can provide valuable support for financing the purchase of a business!
#6: First Meeting & Company Review
After signing an NDA, if a buyer is still interested in the business, they can meet with their business broker and have a discussion about the company to exclude significant financial and tax information - this information will be dispersed during due diligence. The broker can answer questions about the business, its structure, performance, industry, growth opportunities, and transition plan, as well as a recast of the business’s financials.
#7: Second Meeting & Tour
At this stage, the seller gets involved via a meeting with the buyer and broker. Often times this meeting is held at the business for sale, and is an opportunity for the buyer to ask more specific questions of the seller and for the seller to get to know the buyer. The development of a positive relationship between the seller and buyer is essential to a positive and successful future transaction.
#8: Letter of Intent
During this step, real action is taken through the submission of a letter of intent (LOI) which outlines the future deal structure and includes key terms including the purchase price, transaction timeline, and length of due diligence. The buyer will also put a deposit into escrow. The LOI is an important tool to get the buyer and seller on the same page, but it is actually a non-binding contract.
#9: Due Diligence
Due Diligence is a period of validation for the buyer where they receive full access to the business and its financials, with the exception of employees. Generally, a week or two is permitted for due diligence and at the end the buyer can either decline or accept their LOI. If they decline they receive a full refund of their deposit, and if they accept, the terms of the LOI will be finalized and will become the Purchase Agreement.
Between Due Diligence and Closing a long list of tasks facilitated by the broker, are completed and encapsulate "Pre-Closing." These tasks may include the transfer of the lease, setting up a new business entity, securing financing, licensing transfer, contract assignment, and much more.
Rather anticlimactically, most closing are completed virtually before the closing date and include signing the bill of sale, the lease transfer, the buyer & seller statements, and other documents. A few days prior to closing the buyer will complete a wire transfer to be distributed by the transactional attorney on the official closing date to the seller.
#12: Training & Transition
A closing meeting will be held for employees of the company to alert them of the transition of ownership, at which both the buyer and seller will be present. The training period will also begin immediately after closing and involves knowledge transfer from the seller to the buyer.
To learn more about buying a business schedule visit our website for more information.