Buying a Business

An existing business has a track record and has demonstrated that there is a need for its product or service in a particular market. Financial records are available, along with other information on the business, its market and its 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: having a knowledgeable person teach you the intricacies of a business, who is also willing to finance a portion of the sale, can make all the difference between success and failure. Start-ups, on the other hand, fail largely during their first three years.

A professional business broker can provide a selection of different and, in many cases, unique businesses, including many that buyers would not be able to find on their own. Many buyers end up with a business completely different from the one they first inquired about.

Brokers are also an excellent source of information about small business and the buying process. They know the market and can advise on trends, pricing and what is happening locally. They handle many of the details of the purchase and assist buyers throughout, including recommending other professionals when needed.

In an initial meeting, the buyer and Beltway establish the buyer's criteria for a business, financial qualifications and business background. The buyer then signs a confidentiality and non-disclosure agreement so confidential seller information can be shared. We identify acquisition candidates from our listings that meet the buyer's criteria and provide the pertinent details. If the buyer wants to pursue an opportunity, we arrange a meeting with the seller at the seller's facility or at our offices.

At that meeting a buyer should be prepared to ask about all aspects of the business, including any additional financial information needed. If the buyer then wishes to make an offer, they submit a purchase offer to the seller, ideally only after a complete inspection of the business. Beltway works as the intermediary in negotiating the purchase contract.

During the due diligence period set by the asset purchase contract, when the buyer examines the seller's business and financial information in detail, Beltway works with the seller to provide what the buyer needs. Due diligence covers not only the books and records but all other aspects of the business and market that may affect it.

We can also help buyers obtain financing, with many lenders we can recommend for business acquisitions, and recommend good sources for business insurance.

Many surveys have tried to answer this question, and most reveal the same responses in almost the same order. A typical result, in order of importance:

1. To do my own thing, or to control my own destiny.
2. I don't want to work for someone else.
3. To better use my skills and abilities.
4. To make money.

It's interesting to note that money is not at the top of the list. It comes in fourth.

Since most business sales have some portion of the price seller-financed, the down payment and other terms are very important. In many cases, how the sale is structured matters more than the price itself. Too many buyers focus on the full price when the terms are generally the difference between success and failure.

As the saying goes: if you could buy a business with a relatively small down payment, and it gave you more net cash flow than you thought possible, would you really care what the full price was?

Consider only businesses you would feel comfortable owning and operating. "Pride of ownership" is an important ingredient for success. Consider only businesses you can buy with the cash at your disposal, and that supply enough cash flow, after the payments on the purchase, to maintain your lifestyle.

Look at a business with an eye toward what you can do to make it more productive and profitable. An old adage advises not to buy a business unless you feel you can run it better than the present owner. Everyone has seen a new owner turn a struggling business around, and also a successful business that closed or sold soon after a new owner took over. It all depends on the new owner.

First, adequate capital: enough to buy the business and make the improvements you want, while keeping working capital in reserve to weather slow periods. You also need to be willing to work hard and, in most cases, put in long hours.

Small businesses are different from large ones with trained support staff. A small business owner may have to be the president, the janitor, the salesperson, the computer expert and the accountant. Owners of small businesses must be "doers."

When one of our listings interests you, one of our brokers will answer your questions immediately or research them for you. Once your preliminary questions are answered, the broker typically helps you prepare an offer based on the price and terms you choose. The offer is generally conditioned on a review and approval of the actual books and records behind the financial information supplied.

The offer is then presented to the seller, who can accept it, reject it, or counter with their own. Its main purpose is to find out whether the seller is willing to accept your price and terms.

A purchase contract generally includes:

• the price to be paid for the business;
• the assets included in the purchase;
• the training the seller will provide;
• the time period and area covered by any non-compete agreement;
• and, if the seller is financing part of the sale, the details of the financing.

If buyer and seller agree on price and terms, the buyer performs their due diligence: the examination and evaluation of the risks of the transaction that a prudent person would be expected to carry out. The burden is on the buyer, who may bring in outside advisors or do it on their own. Once due diligence is complete, the closing documents can be prepared and the purchase closed.

The buyer reviews all aspects of the business: not only its finances but its competition, changes in the market, available financing and every other issue that should be considered. The buyer's accountant and attorney should review the financial and legal aspects of the purchase.

When due diligence is complete, buyer and seller are ready to close. To facilitate the closing they retain an escrow attorney, who files the required paperwork and makes sure licenses and leases are properly handled for both parties.

Beltway works with the buyer on securing financing approval, transferring licenses, assigning lease and franchise rights, and performing due diligence. If required, we also offer business plan services, including the financial projections outside lenders generally require.

An experienced attorney can be invaluable in making sure all the legal aspects of the transaction are properly handled. Business brokers are not qualified to give legal advice; however, many attorneys are not qualified to give business advice. Your attorney will, and should, look after your best interests, but the seller's interests must also be considered: the transaction has to be fair for all parties. If an attorney goes too far in protecting a buyer, the seller's attorney may advise their client not to proceed.

It also matters that the attorney is familiar with the business buying process and has time to handle the paperwork promptly. Otherwise you may end up paying for the "attorney's education." Beltway can give you the names of attorneys experienced in business purchases and sales.