Congratulations but don’t pop the champagne yet. Now is when the real work begins in your quest to buy a business.
Essentially, there are 3 fundamental phases to orchestrate before your final takeover of the company. Keep in mind that each business or industry may have several variations of the progression. Here are some general guidelines but you and your advisers may have other steps or systems to add to this buying chain.
Please keep in mind your agreement to purchase likely has important dates identified. Keep track of those dates and take the action necessary to comply with those.
Phase 1 – Initial Due Diligence and Lender Commitment
This phase is mostly about the financials of the business and your personal financial situation.
Basically your lender will want to make sure that the likely cash-flow of the business fits your overall financial situation. Get with your lender immediately and begin the financial due diligence. Your lender will provide you with a list of items they need. The goal here is to do enough due diligence to get your loan commitment as quickly as possible. Get your advisors (typically at least an attorney and CPA) lined up quickly so they can help on the tricky items
Phase 2 – Full Due Diligence
This is where you and your advisers come up with a list of everything you want to know about the business. It’s important to have the loan commitment in hand when you get to this stage because sellers want to make sure they have a qualified buyer with the funding lined up before they release very highly confidential business information.
This due diligence takes a lot of time.
You need to commit to move thru it quickly, in a very organized manner. Remember, this stage is where you personally and along with your advisors, review, confirm, and challenge all aspects of the information. When conducting due diligence, forget about what the broker or seller or your buddy has said, it’s your job to review and confirm things yourself.
Remember, due diligence is about you, the buyer, managing your risk by knowing the facts.
Put in the work, it’s important.
Phase 3 – Closing Process
This begins after you have completed Phase 1 & 2. At this stage you’ll likely be asked to release or waive the contingencies in your offer and authorize the closing company to begin preparing closing documents.
At the same time you’re working thru the closing documents, you’ll also need to be focused on what’s involved in taking over the business and all of the details.
- Is your insurance in place?
- Do you have required licenses and inspections?
- Is your merchant services account ready to go?
- How will you introduce yourself to the staff? Is your payroll service set up and ready to go?
- Have you formed your new entity or LLC?
- Do you have your sales tax #?
- Do you have your Fed ID #?
Make sure you’ve created a complete inventory beginning with the above suggestions. While it seems like an endless list, knock them off 1 at a time to create an even stronger foundation for the success of your new business venture.
After Phase 1, 2 & 3 you’ll be a new business owner.
Working thru these 3 phases can be exhausting and frustrating for both the buyer and seller but we’ve had 100s of people make it thru.
Keep a good attitude, try to avoid ultimatums, stay on good terms with the seller and realize there are lots of 3rd parties (banks, landlords, inspectors, etc) who often move at their own pace.