7 Buyer Questions
- Should a buyer purchase an existing business
or start a new one?
- What does a business broker do?
- How are businesses priced?
- What should a buyer look for in a business?
- What happens when you find a business you want
- What happens when I make a purchase offer?
- What is done during the ”due diligence
Should a buyer purchase
an existing business or start a new one? Back
An existing business has a track record and has demonstrated that
there is a need for that product or service in a particular market.
Financial records are available along with other information on the
business, its market and competitors. Additionally most sellers will
not only stay and train a new owner but will also supply some financing.
These last two factors are very important considerations. Having a
knowledgeable person teach a new owner the intricacies of a particular
business and who is also willing to finance a portion of the sale
can make all the difference between success and failure. On the other
hand, failures of start-up businesses occur largely during the first
three years of their existence.
a business broker do? Back
In an initial meeting the buyer and Beltway establish the buyer’s
criteria for a business and his or her financial qualifications and
business background. The prospective buyer then completes a confidentiality
and non-disclosure agreement so confidential seller information can
be revealed to the buyer. Potential acquisition candidates from Beltway’s
listings are then identified based on the buyer’s criteria.
If a listing is available that meets the buyer’s criteria, pertinent
details of the listing are provided to the buyer. If the buyer elects
to pursue the opportunity Beltway arranges a meeting with the seller
at the sellers facility or at Beltway’s offices.
During this initial meeting a buyer should be prepared to ask the
seller about all aspects of the business to include a request for
any additional financial information that may be required. If after
this initial meeting the buyer wishes to pursue the opportunity with
an offer, the buyer then submits a purchase offer to the seller. A
purchase offer should be pursued only after the buyer has made a complete
inspection of the business and has determined that this is the business
that he or she wants to purchase. Beltway works as an intermediary
in negotiating the purchase contract between the buyer and seller.
During the period where the buyer examines the seller’s business
and financial information in detail, the “due diligence period”
as provided by the asset purchase contract, Beltway works with the
seller in helping provide the buyer with the needed information. Due
diligence includes not only an examination of the books and records
of the business but all other aspects of the business and market factors
that may affect the business.
Beltway can also assist buyers in obtaining financing as we have many
lenders who we can recommend for business acquistions. Beltway can
also recommend good sources for business insurance. Beltway Business
Brokerage helps take the mystery out of the business buying process
and offers buyers assistance and guidance every step of the way.
How are businesses priced? Back
Since most business sales have some portion of the purchase price
seller-financed, the down payment and other terms of the sale are
very important. In many cases, how the sale of the business is structured
is more important than the actual selling price. Too many buyers make
the mistake of being overly concerned about the full price when the
terms of the sale are generally the difference between success and
What should a buyer look for in a business?
A buyer should consider only those businesses that they would feel
comfortable owning and operating. “Pride of ownership”
is an important ingredient for success. And obviously a buyer should
consider only those businesses that can be purchased with the cash
they have at their disposal. In addition the business must be able
to supply enough cash flow—after making payments on it—to
maintain the owner’s lifestyle.
Buyers should always look at a business with an eye toward what they
can do to improve it and make it more productive and profitable. There
is an old adage advising a person not to buy a business unless they
feel that they can run the business better than the present owner
does. Everyone has seen examples of businesses that need improvement
in order to thrive, and a new owner comes in and does just that. Conversely,
there are also some cases where a new owner takes over a successful
business and not soon after, it either closes or is sold. It all depends
on the new owner...
when you find a business you want to buy? Back
When one of Beltway’s listings interests a buyer one of our
brokers will either be able to answer your questions immediately or
will research them for you. Once a buyer gets his or her preliminary
questions answered, typically the next step is for the broker to help
the potential buyer prepare an offer based on the price and terms
the buyer designates. The offer will generally be conditioned upon
a review and approval of the actual books and records supporting the
financial information that have been supplied. The offer is then presented
to the seller, who can approve it, reject it, or counter it with his
or her own offer. The main purpose of the offer is to determine if
the seller is willing to accept the offered price and terms.
What happens when
I make a purchase offer? Back
A purchase contract generally includes:
- details of the price to be paid for the business;
- assets that are included in the purchase;
- training to be provided to the buyer;
- the time period and area to be covered by any non-compete agreement;
- and, if there is to be financing by the seller, the details of the
If the buyer and seller agree on the price and terms, the next step
is for the buyer to perform their “due diligence.” Due
diligence is the examination and evaluation of risks affecting a business
transaction that a prudent person might be expected to exercise. The
burden is on the buyer—no one else. A buyer may choose to bring
in other outside advisors to help or may do it on their own—the
choice is solely up to the buyer. Once due diligence has been completed
the closing documents can be prepared and the purchase of the business
can be closed.
What is done during the “due
diligence period?” Back
The due diligence period is used by the buyer to review all aspects
of the business—not only the financial aspects of the target
business, but competition, changes in market dynamics, available financing,
and all other issues that should be considered in purchasing a business.
The buyer’s accountant and attorney should review the financial
and legal aspects of the purchase.
Upon the completion of the due diligence period, the buyer and seller
are ready for the closing of the sale. To facilitate the closing the
buyer and seller retain an escrow attorney. The attorney is responsible
for filing the required paperwork, and ensuring that all licenses
and leases are properly handled for the buyer and seller.
Beltway works with the buyer in securing the approval of financing,
the transfer of licenses, the assignment of lease and franchise rights,
and the performance of due diligence for the target business. If required
Beltway offers business plan services to include financial projections
that will generally be required by outside lenders.