Buying a Business

The business buying process is generally composed of the following steps.

A person, the buyer, wants to buy a business

The buyers actively seeks, usually through advertisements or websites, for the type of business he/she is interested in purchasing.

Depending upon the size and profitability and sensitivity, the broker is often times required to screen prospective buyers.

 

Non Disclosure Agreement

In the small business arena screening usually consists of meeting with the broker and signing a non disclosure agreement whereby the potential buyers agrees not to disclose the fact that the business is for sale or any other private information. The broker then has a discussion with the buyer about his experience and ability to buy the business.  If the broker is satisfied that the buyer is qualified the broker then discloses information about the business such as its address and possibly the owners representations of income and expenses.

The buyer then discretely views the business and the surrounding neighborhood and decides if he wants to further investigate the business.

If the buyer likes what he sees he contacts the broker to arrange and interview with the owner and a site inspection where the buyer can look at the equipment and ask the seller questions about the business.

Especially in the case of a successful business, the owner does not want the employees, distributors and his competition to know that he is selling the business. There are several reasons which are listed below:

The employees might feel that the risk of them being fired, layed off,  or terminated is increased with the change of management.  Many times the new owner has his own family and employees that will replace the existing employees.

The owner control of the employees might be undermined since they know that he is leaving anyway.  This could result in increases in employee insubordination, showing up for work late, not working hard and diligent and theft.

If suppliers know that the business is for sale, it increases the risk of them not being paid on the businesses’ accounts receivable and an as such the supplier may reduce or eliminate the businesses line of credit.

Customers may not give the business orders if their is a risk that the current owner is not going to be around to follow through on the services.  This is especially true if the service is to be provided at a future date like a restaurant holding future corporate events or wedding.

If the buyer is interested in the business, he now spends more time discretely, quietly without letting the above parties know, watches the traffic flow and attempts to verify the sales by the traffic flow.

 

Deposit to Purchase

If the buyer wants further priority information from the seller, he is generally required by the owner, to make a good faith deposit.  The deposit is NOT given directly buyer directly.  The deposit is not held by seller but rather is held in escrow by a quality third party.