Over 80 percent of all buyers of a business never end up buying a business. There are many factors that are contributing to this statistic, however, by following some important point, you can be successful to locate and buy a business that will interest you and will complete the transaction.
Knowing the types, locations, and sizes of the business you want to buy
Before you begin contacting or calling business brokers, sellers or owners and agents will make sure that you know what type, locations, and size of businesses that you would like to buy, it is a great way to get the word out efficiently and quickly to all parties that sell the businesses. If you seem to be uncertain about your search criteria, agents and brokers will not be spending lots of time with you. There is a lot more buyers than sellers in the market, and there are lots of broker and agents, or sellers would like to work with the buyers, who are motivated, serious and those who know what they are really looking for. You should a sheet of Acquisition criteria and you should send or fax or email to possible sellers that goes through your existing search criteria.
Knowing how much money you would be willing to put down
When you are buying a business, you should know how much money you would be willing to spend as a down payment for a business. Mostly, you will put down a minimum of 30 percent down in buying a business. It depends on the amount of money that you are willing to put down on how to determine the size of the business that you can purchase. Also, you should know in advance if you are prepared to pledge the collateral in every real estate that you own as a note if the seller takes back in the deal, this is going to save you lots of time in the process of searching and in negotiation.
Matters of preliminary negotiations and discussions
It is significant to review or know important things before you actually start negotiating with the other party. There includes the calculations of the value of the business. The financial condition of the seller which is the balance sheets, expense and income statement and the loss and profit statements are also included on some things that you need to know. Another thing is minimum price that the seller is prepared to accept, and the maximum price that the buyer is willing to pay.
In the initial phase, the parties should decide and discuss some matters. One of these is the documents that are needed but were not being examined in the stage of pre-negotiations, like the state and Income Tax Returns for the previous 5 years, leasing of equipment, leasing of the real property, union contracts and the contracts of employment for potential employees. If the approval of the board of directors or the shareholders is being required, you should determine the latest date in which the approval had. Then if the approval of the government is what they are requiring, like a certificate of good standing that is determining what is a responsible party for attaining the approval.
If there would be any key employees of the seller have been retained by the buyer, the buyer may need to draft new contracts of employment, however, if not, the seller may need to compensate those employees, all when the deal are going through. If there would be any contracts requiring the approval of a third party before the buyer could take them over, such as loan agreements or leases, you should set a time by which you can obtain the approval.
Due Diligence
Due diligence is also done at this stage, in which an intensive investigation of all the aspects of the seller such as its liabilities and assets. The idea would be to ensure that the company is everything that it says and everything that it appears to be. At a time like this, a letter of intent is usually written. It is showing that the parties are being serious about the deal. It will help you to make sure that you won’t waste time and money to perform due diligence and negotiate a formal agreement. They are usually non-binding, that is, you can’t be able to force the other party in selling or buying based upon the letter.
Furthermore, you will be able to make parts of the letter that is enforceable and binding, and it would be a great idea to do so. Usually, the letter contains how the seller and the buyer would be willing of keeping the deal open. The buyer’s binding promise is not about disclosing trade secrets, like customer lists and recipes, and some other sensitive information of the company, being called as a confidentiality agreement. The seller’s binding promise is not about negotiating a sale with some other buyer prospectively for a specific period of time.
Having a lawyer during this significant matters
One of the important things in considering to buy a business are the earnings that are stated more than the actual, each kind of hidden debts, employee relationship, pending lawsuits, and inventor that is wrongly valued. If you have made the mistake of not identifying the hidden facts, it could a matter of worry for on the later part. Therefore, it would be advisable to hire an expert and experienced lawyer, taking his services so you won’t have any regret later. A lawyer to tell you some peculiarities like a specific land has been contaminated because of the toxic materials or it is hard collecting the receivable account of that the stocks are backdated or defective.
Even you will only buy a small business, you should not hesitate taking the services if a business lawyer. In each step of business acquisition, a lawyer could be your guide and mentor. To consult to an individual in the same industry would also be helpful in obtaining the correct value of a business that you want to buy out. It would be the responsibility of both the seller and the buyer to assign value to each asset and send a report to the IRS.