Buying an Existing Business: the Process

You have a good sense of the size and type of business you want to buy and how such a business will help you accomplish what you want in life. You’re ready to make your vision a reality.

When you first meet with your business broker they will ask you to sign a confidentiality agreement. Confidentiality is critically important in the buying and selling of a business and your broker will explain what’s at stake if word gets out.

They will have you complete a questionnaire that provides them with information about your goals, aspirations, history, resources and skills. They will discuss some businesses that may be suitable for you at this stage in your life, zeroing in on the best matches for your needs and means.

They may send you to visit some of these businesses as a mystery shopper on the understanding that you will come back after you have had a chance to review information on the businesses they have selected for you and have visited those businesses, if they are open to the public.

You must take your role as a business buyer seriously. Good businesses do not stay on the market for a long time. Do your mystery shopping in a timely fashion.

When you reconvene with your broker tell them what you liked and didn’t like about each business you visited. This will help them in narrowing the choices to one that will work for you.

There is no perfect business. In the end you will select a business believing that all things considered, this business is your best choice. Once you have selected a business you believe will work for you, your broker will arrange an after-hours meeting with the owner, at the business.

You will be given fairly detailed information about the business. Use it to prepare questions prior to meeting the owner. That meeting is not a negotiating session. It is not a time to discuss price and terms. Use it instead to gain a full understanding of the business—its history, its revenue and costs, its market, its suppliers, the systems that drive the business, the employees who run the systems, the clients who provide the income, the competition, the industry and its trends, and the skills required to successfully operate and grow the business.

Spend some time with your broker immediately after this meeting. Raise your concerns and discuss the possibilities. Is this a business in which you are prepared to invest further time and effort investigating? Discuss what you would do differently if you were its owner.

At this stage, your broker should give you a sample offer for review along with detailed financial information about the business, including a go-forward forecast. Have the broker explain these documents and figures, then take them home and sleep on it. If, the next day, you are still enthusiastic about becoming the owner of this business, meet with your broker to develop a non-binding, highly contingent offer based upon the information that has been provided.

The goal now is to determine if, based on the supplied information, you can come to a set of terms that both you and the owner can live with. Do not waste your time and money on lawyers and accountants at this point in the process. The offer is completely non-binding and the deposit that will accompany the offer is refundable. If you cannot come to terms now there will be no deal and you will have saved substantially on the cost of legal and accounting advice. If you do come to terms, your financial and legal advisers will become involved in the diligence process and in drafting the agreement of purchase and sale.Your broker can recommend professionals to assist in this.

For more tips on buying an existing business, see and download our Top 10 tips for buying the right business for the right price and terms.

Previously published in our At the Broker’s Table series.

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Gregory Kells
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