How to Buy a Business in 7 Steps
with Certified Business Brokers in Houston
STEP 1: BUSINESS VALUATIONS
A pre-sale valuation is the first step in determining if your business is positioned to sell and if a sale would meet your financial needs. It provides you with an objective price range that you can expect in the current market. You may want to know what Drives Value in Your Business. Check out our Valuation Article to understand the valuation process and what documents would be required. A crucial step in preparing your business for sale is to Recast Your Financial Statements, sometimes called Add-Backs. The recast statement is a reconstructed representation of the earnings that a buyer would be able to enjoy from the business.
STEP 2: COLLECT INFORMATION ON YOUR FINANCES, SKILLS, EXPERIENCE & BUSINESS GOALS
We begin our process by gathering information about you to establish your financial capabilities, your skills and experiences, and your personal goals. This information helps us gain your commitment to the process and enables us to competently assist you in your acquisition search. It is important to recognize that lenders, landlords and others who will be a party to your eventual business acquisition will also require personal and financial information. Prior to discussing confidential information about businesses for sale, we require prospective buyers to complete a Confidentiality Agreement, (also known as a Non Disclosure Agreement), that protects the interests of the business owners during the sale process.
STEP 3: REVIEW BUSINESS LISTINGS FOR SALE
Based on your qualifications and acquisition criteria, we will review with you several businesses for sale in Texas that potentially meet your needs. Should you indicate an interest in one or more of these businesses, you will be given the Business Profile that describes the business, its market, assets, financials, and price and terms of the sale.
STEP 4: MEET THE SELLER AND TOUR THE BUSINESS FOR SALE
Once you have reviewed the information on the Business Profiles and we have answered your questions about the businesses, the next step is to meet with the business owner and visit the facilities. We will schedule all appointments with the business owners. It is common for business owners to require that all such meetings be during non-operating hours to avoid premature disclosure to employees and customers. We will attend these meetings with you to introduce the business owner, and facilitate the flow of information.When meeting with a business owner, you may tour the facilities and ask questions regarding the operations of the business.
Questions pertaining to the price and terms of sale are NOT appropriate topics to discuss at this meeting. We are the liaison between you and the owner regarding the basis on which the business was valued and the terms of sale required by the owner. Remember, you signed an agreement to keep all proprietary information you obtain about the business confidential. Only discuss this information with your professional advisors and spouse and remind them that the information is confidential and not to be disclosed to other parties. In most cases, the employees, customers, suppliers, landlords and lenders are not aware that these businesses are for sale. Premature disclosure could have a negative impact on the business being sold.
STEP 5: MAKE AN OFFER TO BUY THE BUSINESS
At this point you have reviewed operating information and financial summaries of the businesses that meet your acquisition criteria, and you have met with the business owners and toured their business facilities. When you select the business that best meets your needs, you are ready to make an offer.
Since, the inspection period, known as due diligence, can be very time consuming for both you and the business owner and costs may be incurred for such things as professional advisors, copies of documents and records, the business owner does not want to go through a detailed due diligence process without knowing the buyer is serious and willing to pay an acceptable price to purchase the business. Therefore, before copies of tax returns and other business documents can be obtained, and before any contact with landlords, bankers, suppliers, employees, or customers, an Earnest Money Offer or Letter of Intent (used for larger businesses) must be presented and accepted by the business owner.
An Earnest Money Agreement provides the terms and conditions under which you are willing to buy the business and the seller is willing to sell the business. If real estate is included, a separate Earnest Money Agreement will be completed for the property.
The amount of earnest money required to be submitted along with the Earnest Money Agreement will depend upon the size of the business transaction. The amount needs to be sufficient to show your serious intent to buy the business and to encourage the seller to take the business off the market while you complete your due diligence. For most small to midsize businesses, earnest money of $5,000 to $10,000 is typical.
We will facilitate the negotiations between you and the business owner to secure an Earnest Money Agreement that is acceptable to both parties.
STEP 6: DO YOUR DUE DILIGENCE ON THE BUSINESS FOR SALE
The Standard Earnest Money Agreement gives you up to 15 calendar days to perform due diligence, which is the period where you fully inspect the owner’s representations and verify their accuracy. You can review the business financial documents, operating agreements, property leases and other aspects of the business after the earnest money offer has been agreed upon and signed into contract by you and the business owner.
During the due diligence period, we will coordinate your request for documents and assist in arranging meetings with related parties to the transaction including the business owner’s professional advisors, your professional advisors, the landlord, lenders, and others as needed.
If institutional financing is required, we can recommend various lending sources depending upon the type of financing needed.
STEP 7: COMPLETING YOUR BUSINESS PURCHASE: HOW ESCROW AND THE CLOSING PROCESS WORK
When you have completed your due diligence and are satisfied with all aspects of the business, you will authorize an escrow attorney to conduct lien searches, prepare closing documents, such as a bill of sale, note and security agreements, closing statements, and non-competition agreements prior to closing for all parties to review. Final preparations will be made for lease assignments, utility transfers, financing, merchant service accounts, inventory counts and any other last minute preparations to make the transfer as seamless as possible. After the closing documents have been approved by the principals, a closing date will be scheduled. A cashiers check will be required at closing for the amount due. We will coordinate with the principals and their advisors, landlord, lender, and others, to insure that all the necessary paperwork is completed prior to the closing date.
POST CLOSING: WHAT TO DO AFTER YOU PURCHASE YOUR BUSINESS
Transitional training by the seller may include meetings with employees and clients, technical education, computer updating, and other essential knowledge transfer. We will be available to assist you with any questions or post closing requirements you may have. Remember what you have learned throughout this process, because when the time comes, CBB will still be here to help you when it comes time for you to sell.