Buy A Business
Overview
Why should you buy a business rather than start a business?
Common Motivations for Buyers of Privately-Owned Businesses
First-time Buyer
If you’re a first-time buyer, buying an existing business means you’re buying an asset with a track record. The failure rate in small business is largely in the start-up phase. The existing small business for sale has demonstrated that there is a need for that product or service. Most sellers will stay and train a new owner, and some will also supply financing. Finding someone who will teach you the intricacies of running a business and who is also willing to finance part of the sale can make all the difference to your success.
Growth Through Acquisition
Many small businesses are growing faster through acquisition than through organic growth. Unlike slow and steady organic growth, growth through acquisition or merger is generally much faster and – if done right – can yield a number of almost instant benefits that can help make that rapid growth sustainable. Growth through acquisition is a quicker, cheaper, and far less risky proposition than the tried and true methods of expanded marketing and sales efforts. Further, acquisition offers a myriad of other advantages such as easier financing and instant economies of scale.
National Transaction Advisors provides buyer representation for our clients looking to buy—both as individuals and strategic buyers looking to grow through acquisition. We also understand both sides of the business transfer desk—and other key variables such as funding, valuation and business advisory services.
While there is no such thing as the “perfect” business, we know the importance of finding a business that fits your needs, talents, skills and in particular your lifestyle.
Process
The Buying Process
PLANNING
- National Transaction Advisors (NTA) Initial Meeting
- A NTA intermediary will speak with the buyer prospect to determine if they are an appropriate fit for NTA ’s Buyer Services. Unless a buyer truly is ready to become a business owner, the process cannot begin. Prospective buyers are required to submit a signed and dated financial summary and Non-Disclosure Agreement (NDA). The NTA intermediary explains what’s involved in the buying process.
- Determine Buying Parameters
- Before a search for a viable business can begin, buyers should have a good idea of their needs and buying requirements. By outlining the parameters of your search, you will increase the chance of finding an offering that fits your criteria.
- A NTA intermediary will speak with the buyer prospect to determine if they are an appropriate fit for NTA ’s Buyer Services. Unless a buyer truly is ready to become a business owner, the process cannot begin. Prospective buyers are required to submit a signed and dated financial summary and Non-Disclosure Agreement (NDA). The NTA intermediary explains what’s involved in the buying process.
- Before a search for a viable business can begin, buyers should have a good idea of their needs and buying requirements. By outlining the parameters of your search, you will increase the chance of finding an offering that fits your criteria.
SEARCH
- Identify Potential Businesses
- There is always an overabundance of buyers for good business offerings. It’s important to determine the right fit for you as the new owner and matching your skill sets to those required to continue operations. Being organized and ready to act quickly is key to successfully contending in an unbalanced market.
- Determine the Value of a Business
- The ultimate value of a business will be the final price that will be negotiated between you and the seller. Before placing a business on the market, a value or range of value must be established so that both parties will have a basis for what and how to negotiate. Ultimately, you will determine what to offer and hopefully your figures will be close.
- There is always an overabundance of buyers for good business offerings. It’s important to determine the right fit for you as the new owner and matching your skill sets to those required to continue operations. Being organized and ready to act quickly is key to successfully contending in an unbalanced market.
- The ultimate value of a business will be the final price that will be negotiated between you and the seller. Before placing a business on the market, a value or range of value must be established so that both parties will have a basis for what and how to negotiate. Ultimately, you will determine what to offer and hopefully your figures will be close.
ENGAGEMENT
- Buyer / Seller Meeting
- The initial meeting between buyer and seller allows the buyer to tour the seller’s facility and to ask the seller questions about the operation. These meetings are of paramount importance to both parties.
- Offer to Purchase / Letter of Intent (LOI)
- After meeting with the owner and completing the analysis on the financial statements, the buyer will (1) pass on a business, (2) ask for more information or (3) prepare a formal contract. The two most common legal vehicles are a Letter of Intent or a Purchase Agreement. The main difference between the two documents is the level of commitment. An offer to purchase is more binding.
- Deal Negotiations / Structuring
- Once the buyer has submitted a legal contract to acquire a business, the seller has three primary decisions: accept, decline or negotiate. Variables such as payment terms, length of training, consulting agreements and allocation of purchase price are just a few items that can be leveraged to make a deal more favorable.
- The initial meeting between buyer and seller allows the buyer to tour the seller’s facility and to ask the seller questions about the operation. These meetings are of paramount importance to both parties.
- After meeting with the owner and completing the analysis on the financial statements, the buyer will (1) pass on a business, (2) ask for more information or (3) prepare a formal contract. The two most common legal vehicles are a Letter of Intent or a Purchase Agreement. The main difference between the two documents is the level of commitment. An offer to purchase is more binding.
- Once the buyer has submitted a legal contract to acquire a business, the seller has three primary decisions: accept, decline or negotiate. Variables such as payment terms, length of training, consulting agreements and allocation of purchase price are just a few items that can be leveraged to make a deal more favorable.
CLOSING
- Due Diligence
- Due diligence is a time to learn more about the seller and their business and determine if you are compatible. The normal range of due diligence can last between 7 to 45 days, with the average length being around 21 days.
- Finalize Purchase Agreement
- Both parties should have their own legal and tax representatives review the final purchase agreement. This process can take time to get all parties to reach agreement about the final “definitive agreement.”
- Secure Financing
- The buyer needs to have already started securing the financing required to acquire the business. Once the seller accepts the buyers offer and everything checks out in due diligence the buyer should be able to quickly finalize the financing process.
- Closing
- This is when all the hard work is paid off and the buyer is handed the keys to their new business.
- Due diligence is a time to learn more about the seller and their business and determine if you are compatible. The normal range of due diligence can last between 7 to 45 days, with the average length being around 21 days.
- Both parties should have their own legal and tax representatives review the final purchase agreement. This process can take time to get all parties to reach agreement about the final “definitive agreement.”
- The buyer needs to have already started securing the financing required to acquire the business. Once the seller accepts the buyers offer and everything checks out in due diligence the buyer should be able to quickly finalize the financing process.
- This is when all the hard work is paid off and the buyer is handed the keys to their new business.