Buying A Business - The 8 Steps

Buying a business is a very unique process - no two purchases are the same.

While there is no rigid, set-in-stone procedure that a sale must follow, there are eight steps that you will always take.

1.) Preparation and Self-Evaluation - You do not want to go out looking for just any old business for sale. First you want to develop a thumbnail sketch of your ideal business with a list of "Must Haves". Buying a business becomes a much easier and enjoyable process when you have a short list of just two or three specific types of businesses you want to consider.

2.) Find Businesses For Sale That Meet Your Criteria - Use the Internet, newspaper ads, brokers and your own contacts to find businesses for sale that meet your criteria. In a typical large city there can be thousands of businesses for sale at any given time - but if you have properly prepared during step 1, you will be able to manage this overabundance of available businesses because you'll know specifically what you are looking for and can skip the rest.

3.) Research The Best Candidates - In addition to meeting the seller you will tour the facilities, inspect the books, leases, contracts etc. Plus, you will want to do some research on the industry that the business is in, so you can better understand the risks and opportunities that exist.

4.) Financing - Most small business purchases have some element of seller financing - but almost none have 100% seller financing. This means you'll need to asses your own financing capabilities and investigate financing that may be available through your local bank and the Small Business Administration.

The financing step is usually ongoing throughout the entire process of buying a business and can be greatly influenced during the negotiation phase. It's usually the case that the more money you pay down, the lower the selling price. You should get the financing ball rolling as soon as possible. Contact your bank, the SBA and any individuals who may be interested in investing with you now.

5.) Valuation - Using one of a variety of valuation methods, you and your accountant (or an independent valuation expert, if you choose to hire one) will determine what you believe to be a fair selling price for the business. The seller, of course will have her own idea of what the business is worth. So you will make an offer based on your research and evaluation to this point and thus starts the always enjoyable Negotiation Process.

6.) The Negotiation Process - While each negotiation is different, there are two generals guidelines that affect the price you eventual selling price. They guidelines are:

Almost all businesses sell for less than the initial asking price

and

The more you put down, the lower the seller is usually willing to go on the price

A third and equally true statement is that : Everything is negotiable.

Beyond just price and down payment are the interest rate and the length of the repayment period. If the seller owns the building in which the business operates, a purchase or lease of the building will need to be agreed to as well.

The list of things that can be negotiated when buying a business can be quite long and therein lies a world of opportunity for you to work you best possible deal.

7.)Due Diligence - In the Due Diligence phase you, your accountant and lawyer will have unlimited access to the business for an agreed upon period of time (usually 10-20 business days). During this time you will examine the financial statements and any contracts or leases that are in place. You will inspect and possibly even count the inventory. You can interview key customers, employees and suppliers.

Everything you agreed upon in the negotiation phase is contingent upon the health and profitability of the business being just as the seller represented it. The due diligence phase is your opportunity to confirm the true state of the business.

If during the due diligence phase you discover facts that the owner did not reveal or that some aspect of the business isn't quite the way the seller presented it,certain elements of the sale may need to be renegotiated.

8.) Closing - If during the due diligence phase you find everything is as presented by the seller you can confidently go through with the formal closing of the deal and signing of the sales contract and financial paperwork.

Return From Buying A Business To TheBizSeller.com Home Page

Find Businesses For Sale By Owner