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| | Buy A Business ProcessThese are required to be signed by the buyer when buying a business and are important to protect the Seller from the risk of negative effects of a confidentiality breach.
2. Financial Information and Profile
A buyer information profile is provided by the business buyer and includes a completed questionnaire and summary financial statement from the Buyer. When selling a business, business owners want to know who will be receiving the confidential information about their business.
3. Release of Confidential Business Information to Buyer
The summary information (sometimes called a Confidential Business Review) describes the business operations and financial performance. Financial information is limited to the details of the calculation of the Seller's Discretionary Earnings (typically for 3 years) and basic balance sheet information.
4. Meeting with Seller and Tour of Facilities
This meeting typically focuses on the Seller explaining his day-to-day role in the business, and responding to any appropriate questions.
5. How do business buyers structure and finance a deal when they buy a business?
Most small businesses are sold with either seller financing, a SBA Loan from the Small Business Administration or a combination of both. Occasionally buyers will pay all cash from their own funds when buying a business. This is typically done when the business buyer uses their 401(k) money to purchase a business. Current IRS rules allow this to be done without incurring taxes on withdrawals. Please consult with a CPA firm that specializes in 401(k) rollovers for buying a business. Click here for more information. An SBA Loan from the Small Business Administration is often the best choice for the buyer and seller. The loans are normally for 10 years and are priced at the Prime Lending Rate plus 2.5% - 2.75%. Although seller financing is often used it is normally the most expensive for buyers because a) the down payment required will be higher than an SBA Loan and b) a seller is unlikely to agree to a 10 year term without significant outside collateral.
6. Contingent Offer Negotiated
The Buyer prepares the offer which specifies the price and terms for the purchase along with any contingencies. Typical Buyer contingencies are full due diligence of business, the Buyer obtaining financing on terms acceptable to the Buyer and if leased space involved, approval by the landlord to assume lease.
7. Full Due Diligence
The Buyer requests all of the information they feel is pertinent to their decision making. Highly confidential information must be treated accordingly. The Seller provides all of the due diligence items that they are able to with an explanation to the Buyer regarding any information that is not available. This information usually includes tax returns, 941s, sales tax reports, bank statements, etc. The Seller will likely request due diligence information from the Buyer as well.
8. Preparation of Closing Documents
The closing documents are drafted and negotiated between the parties. They usually include the Purchase Agreement, non-competes, consulting, lease assignments, etc.
9. Begin the Training and Transition as Agreed to in the Closing Documents.
The new owner takes over the business and begins operation with the assistance of the Seller.
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