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From the monthly archives: November 2012

We are pleased to present below all posts archived in 'November 2012'. If you still can't find what you are looking for, try using the search box.

Buying a Business? How Do Brokers Screen Buyers?

Prior to discussing confidential information about businesses for sale, business brokers require prospective buyers to complete certain forms that serve two purposes. They protect the interests of the business owners during the sale process and enables a business broker to competently assist buyers in their acquisition search. These documents are necessary to the process and are defined below.

Confidentiality Agreement

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The Non-Compete Agreement - A Negotiated Contract in a Business Sale Transaction

Non-compete agreements are typically included as part of the terms of a business sale transaction to protect the buyer from direct or indirect competition from the seller. A buyer would not want to purchase a business if the seller could relocate down the street. For this reason, buyers usually require that this threat be eliminated.

There are two main issues about which buyers and sellers should be aware. First, a non-compete agreement has limitations on time, industry, and geographic range of competition if it is to be enforceable, and, second, there are tax implications for both the buyer and the seller.

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Buying a Business - What is the Value of Goodwill for a Buyer?

Since the biggest part of the purchase price of a profitable small business is goodwill, it is important for a buyer to have knowledge and understanding of just what goodwill is and why there is value in it. Much of the value of a business is not to be found in its hard assets such as the fixtures and equipment, but in the intangibles that create the income. A simple way to describe goodwill is the difference between the current market value of the tangible assets of the business and the total value of the business.

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Due Diligence - A Must-Do Process When Buying a Business

Performing due diligence on a business being considered for purchase should be conducted much like a surgical procedure. The operation should be an organized examination of the vitals of the company.

This stage of buying a business begins once you have made your offer and the seller has accepted. A contractual agreement has been entered into between the buyer and seller outlining the price and terms of the sale. The contract is contingent upon the business passing "inspection," which is the due diligence period allotted to the buyer.

Since it is the buyer's responsibility to uncover any potential problem areas of the business, it is important to be prepared. This is the time to cut to the chase with checklist in hand to confirm all material facts of the business and validate what the seller has represented. The buyer, being the leader of the procedure, may call in specialists, such as an attorney to examine the legal aspects of the business and an accountant to scope the numbers. Depending on the size of the business, a buyer will typically have about two to four weeks to complete the process.

The following checklist represents vital aspects of a business that a buyer may wish to examine during the due diligence period. This checklist is not meant to fit all scenarios or to be all-inclusive, but to serve as a guideline.

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A Business For Sale is More Valuable When the Owner is Replaceable

Most potential buyers would be averse to purchasing a business if the owner's shoes are too big to fill or if the owner's hand would be too difficult to unravel from the operation. When preparing to sell or build value in a business, the owner should not be so involved in the business that it would be difficult for would-be buyers to see the business as being productive under new ownership. Buyers want the owner to be replaceable. A business is more valuable when perceived risk is low. A business is less risky when it is making money without its owner's involvement in daily operations.

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