So You have a Deal to Buy a Business, now what?

So You have a Deal to Buy a Business, now what?

So You have a Deal to Buy a Business, now what?

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.

IT Due Diligence when you Buy a Business

IT Due Diligence when you Buy a Business

Intellectual Property Due Diligence (this includes information technology I.T.) when you buy a business is critical and often overlooked, along with the Intellectual Property element of Due Diligence.

I.T. and Intellectual Property (IP) Due diligence are closely related and both are often done at the same time. This process can be very technical and often involves complex federal law. If your attorney is not familiar with intellectual property law you might, dependinging on the value you assign to the intellectual property, want to seek an attorney or  Intellectual Property Due Diligence expert who specializes in these somewhat arcane issues.

I.T. & IP due diligence have some common elements and one of the most important is to make certain who actually owns the IP often associated with I.T. value in a business.

Note: To mitigate risk, “involve IT professionals as part of the deal team to help assess a broad overview of the IT landscape of the target firm and identify any substantive issues that may exist early in the deal making process.” John Beauford, director of IT at Doctors in Training.

Laws around ownership of Intellectual Property can be confusing. A common question is, when the business had it’s website developed does the business have written confirmation that the intellectual property (i.e., the website content and design) is owned and the property of the business? Just because an employee did the work it doesn’t necessarily mean the business owns the IP.

If the IP and I.T. of a business is a significant part of the value of the business you are buying it’s probably a good idea to put in the time to investigate the issues and engage some legal expertise to make sure that you will own or have the rights to the IT/IP after you purchase the business.

According to, there are 7 specific measures you should consider for IT Due Diligence.

CLICK HERE to read more about IT/IP Due Diligence.


Anatomy of a Successful Small Business Purchase


Although the names, location, types of businesses and other details have been changed for confidentiality purchases this Hub reflects real transactions in the world of buying and selling a business.


The Buyer


Susan, 45, had been employed in the corporate world for 15 years and had done well, worked hard and gotten good performance ratings. She felt like she would be with her company for a long, long time. She thought that right up until the moment when, on a Friday afternoon, she opened an email from the company CEO stating that the company had just agreed to be acquired and more details about what that means to individual employees would be forthcoming in the next few weeks and months.

This news wasn’t a total surprise since there had been rumors for months but now it was real. Susan felt like her group might get consolidated and that, though she might survive, she was fairly certain that would require a move for her family. However, within weeks it became apparent that no one in Susan’s group was likely to survive the merger and now they were just waiting on the details of a severance package, if there was to be one.

Susan began as many in her situation often begin, she updated her resume, did a quick analysis of her current financial situation and started thinking about where she might look for another job. She started going through her contacts and she quickly found out that another job at her pay grade was likely to be very difficult to find. In addition, she wondered what would happen if her job search went on for months or even years, would she need to use up her savings and 401k money just to live on while she was looking for work?


What other options did she have? One of her contacts asked her if she ever consider owning her own business. Susan had only occasionally given it a brief thought but decided to investigate it more closely since she had no idea what the process of buying a business entailed.


Susan’s financial situation wasn’t great but wasn’t terrible either. She had some liquid assets (about $30k cash), not much debt, pretty good credit and her 401k plan had about $125k in it. She considered her 401k sacred and had no plans to touch it until retirement. Susan’s salary was $90,000 per year with the occasional bonus….although there hadn’t been one for the last two years.

Susan had no idea how to find a business to buy and didn’t know what are the right questions to ask when buying a business so she did the obvious, she googled buy a business Houston Texas.

That’s how Susan found us.

The Seller

Arthur had owned his small manufacturing business, XYZ, Inc, for 30 years and was comfortable. It had been a good business for him. Arthur had recently turned 68 years old and, although he had hoped otherwise, his children had their own careers and weren’t returning to run the family business.


Arthur was talking to his accountant about his taxes and mentioned he had had some health problems. His accountant asked Arthur if he intended to run the business until they carried him out on a stretcher or did selling the business make more sense for him? After talking with his wife Arthur decided selling the business was the right thing to do. He could get the value of his business to fund his retirement, relax, travel more and enjoy his family.


Arthur told his CPA he was ready to sell and his CPA referred Arthur to us.


That’s how Arthur found us.


The Business


XYC is a light manufacturing business that makes a variety of small parts used in the transportation industry. Arthur hadn’t really worked on growing the business for the last 10 years. He had a variety of regular customers and didn’t have any organized sales effort. At this point in his life he felt like growing the business would be more work than he wanted to do. He liked his 30-40 hour work week.


•   XYZ did $1,200,000 in annual sales most years and didn’t vary much from year-to-year


•   XYZ’s net profit available to Arthur was consistently around $180,000 per year. This $180,000 is often called Seller’s Discretionary Earnings (SDE) because it includes Arthur’s salary and all of Arthur’s substantial benefits. Many of these benefits are in pre-tax dollars so they can’t be directly compared to a salary that might be earned from working as an employee at a big company.


•   XYZ didn’t have any debts other than what was normal accounts payable owed to suppliers.


•   XYZ was located in a leased building and did not own the real estate.


•   Asking Price for the Business $675,000 – FYI- How we determined the asking price is too long for this post and I’ll create another Hub to describe the business valuation logic and methodology.


The Transaction


Susan came to us looking for a business to buy and based on her experience, skills, lifestyle and financial capability we decided to present XYZ company to her. (Here is a post about Confidentiality when buying a business). Susan liked the industry and the business location. We provided her with some high level financial reports for her review and Susan decided she wanted to look more closely at this opportunity.


We arranged for Susan and Arthur to meet to tour the business and for Susan to ask Arthur all the questions she felt were important. After due diligence, research and negotiations here is the final transaction that was completed and Susan purchased the business which she still runs today.


Selling price $655,000


Susan’s down payment was $110,000 which she obtained, tax & penalty free, from her 401k plan.


Susan received an Bank Loan with an SBA Loan guaranty for $605,000 (the bank included some working capital to assure Susan’s financial comfort). Terms: 10 years @ 6.0%. Click here for a Hub about using aSBA Loan to acquire a business.




•   The business was earning $180,000/year.


•   Susan’s bank note payment is $80,000 per year.


•   Earnings available to Susan in excess of debt payments = $100,000/year ($180,000 – $80,000)


•   The business is paying the debt. On a straight line basis Susan is building $60,500 per year in equity ($605,000 divided by 10 years). That’s a 55% investment return per year on Mary’s equity of $110,000, I doubt you can get that kind of return over 10 years in any other investment.




•   Susan was able to immediately replace her $90,000 per year, fully taxable salary with $100,000 per year of income that had significant tax advantages.


•   Susan had no worries about being laid-off ever again. She did have a business to run that comes with it’s on worries but at least Susan feels like she is in complete control and can manage any problems successfully.


•   When the day comes for Susan to sell the business she expects the value of the business to have far outgrown the value of her $110,000 had she left it in her 401k plan and relied on the luck of the stock market. Susan, like Arthur before her, is now in total control of her retirement investment.


If you have the skills to operate a successful small business the financial rewards can be tremendous.

If you want a good book on Buying a Business here is our recommendation:


Confidentiality when Buying a Business

A lot of things can go wrong when buying a business. Here’s some background on the Importance of Confidentiality. If you want to buy a business….understanding this issue can be the difference between buying a business and losing a good opportunity. Below is a 2 minute video discussing the importance of confidentiality when you buy a business:

Minute video Confidentiality in a Business sale

Note: Please note that this information is copyright protected and can not be reproduced without the written consent of Sunbelt Business Brokers Houston Texas or Dan Elliott. 

Business Buyers 7 Deadly Sins


Buying a Business – The 7 Deadly Sins

Buying a business could be the best decision for you but you need to approach the task methodically and with a clear understanding of yourself as well as the businesses you consider. Here are the mistakes many business buyers make.

We call them the Business Buyer’s 7 Deadly Sins:



Buyer Sin #1


Buyer’s failure to seriously investigate and understand their personal financial situation before they begin the process of investigating businesses to buy. How much ready cash do you really have for a down payment? Where is it? Will your family and friends really back you? What are the tax consequences of accessing the cash (401k/IRA)?


Buyer Sin #2


A Buyer’s failure to understand how much money they need to live on, month-to-month. This is often called your “burn-rate”, which needs to be absolutely as accurate as possible, by month, for at least 1 year.


Buyer Sin #3


A Buyer’s failure to understand the difference between profits and cash flow. Profit is what the books say the business made. Cash flow is what cash, the owner, can actually use. You can’t spend profits, you can only spend cash. You can have a lot of profits and no cash.





Buyer Sin #4


A Buyer fall’s in love with a business that makes absolutely no sense for them. Buying a business is a lot like picking a spouse, what’s good for one person might not be good for the next. If you are working with Business Brokers or another intermediary first make sure you understand who they represent in the deal…you or the seller. Then consult with them about the skills required to operate the business and also discuss this in detail with the business seller.


Buyer Sin #5


Getting advice from people who don’t know what they’re talking about. When a business buyer seeks advice about how to buy a business they need to first check out the person giving the advice to see if they know what they are talking about. I don’t care, and neither should you, if your golf buddy the dentist has an opinion on a trucking company. You need to understand what you’re buying when you buy a business, not your neighbor, not your golf buddy but YOU!.


Buyer Sin #6


A Buyer sometimes crosses the line from skeptical to cynical. If you want to buy a good business from a good seller you need to start from a basis of trust but always verify. Also, here’s information about maintaining confidentiality during this process.


Buyer Sin #7


A Buyer sometimes fails to understand why they think they want to buy a business. Are you just worried about getting fired from your current job? Do you really want to make all the decisions? Should you make all the decisions? Are you prepared to have no one else to blame? Can you identify priorities and do you have the self-discipline to manage them?


The good news is you can, if you are honest with yourself, protect yourself from the Buyer’s 7 Deadly Sins above……..




What Does Patricia Kluge Bankruptcy teach us about business ownership?

A messy business failure can always be learned from. The Patricia Kluge bankruptcy has lessons for small business owners with partners, both known partners and unknown partners.

I once heard a wise man say, “Pick your business partners twice as carefully as you pick a spouse..because a spouse can only take half of what you have.”

If you are going into a partnership in a small business make sure you set up the proper buy/sell agreements so that you don’t wind up with a partner you don’t want. How could that happen?

You and you partner are 50/50 with no buy/sell agreements in place. You’ve known your partner since high school and trust him completely but….. after you two are in business he goes thru a divorce and his wife winds up being your 50/50 partner. Now what? But wait it could get worse…she remarries and now you have another partner, kind of. You get the picture.

Get your buy/sell agreements in order before you go into business with a partner. A good business attorney can help you avoid a terrible situation, one which we see way to often out in the real world. You’ll even find businesses for sale solely because of partnership issues that weren’t planned for at the beginning and now selling the business is the only way out.

Here’s a good video post regarding buy/sell agreements.