The 20 Steps To Successfully Buy A Business
- Commitment You make a commitment to purchase a business at a price and with terms that are consistent with the current marketplace.
- Disclosure You sign an agreement promising to maintain confidentiality for all of the information provided to you regarding the businesses we discuss.
- Background Information You provide me with information about yourself, such as a resume and certain confidential financial information. The more I know about you, the greater the chance that I can find you a well-suited business and optimize the terms of the agreement.
- Review You and I will discuss and review various types of businesses and select those that appeal to you.
- Showing I will introduce you to the businesses that you are interested in and discuss any issues and/or important factors related to each one.
- Meeting Usually this is a meeting between you, the Seller and myself. This is your opportunity to ask detailed questions you may have about the business, and to better describe your qualifications to the Seller.
- Offer to Purchase You write, with my assistance, an offer for the business you’ve chosen. Your offer will be a “contingent offer” meaning it is non-binding until the Seller has met all your conditions. Typically, you deposit earnest money at this time to demonstrate your seriousness to the Seller.
- Present Offer We present your offer to the Seller.
- Background We provide the Seller with your (the Buyer) background information, basic financial information, your experience and your point of view in arriving at the offer price, terms and conditions. Favorable background information usually results in favorable consideration of the Buyer’s offer.
- Explanation We carefully explain the terms and conditions of the offer to the Seller.
- Acceptance The Seller accepts the offer as it is written or makes a counter offer.
- Mutual Acceptance When you (the Buyer) and the Seller agree to all terms and conditions of the sale, the offer becomes a Purchase and Sale Agreement.
- Inspection & Due Diligence You (the Buyer) meet with the Seller at Transworld’s office to examine the financial records of the business and all questions are resolved.
- Contingency Removal Once comfortable, you (the Buyer) remove all contingencies of the agreement.
- Lease Assignment We work together with the landlord to get an assignment of the current lease, or negotiate a new lease for you (the Buyer).
- Open Escrow We provide all necessary documents to the transferring agent (Closing Attorney) so that they can prepare the closing papers.
- Lien Search In most states, the escrow attorney will perform a lien search on the business to identify any secured creditors.
- Inventory When applicable, arrangements are made for you (the Buyer) and the Seller to count and price the inventory.
- Closing All parties meet with the Closing Attorney to sign documents.
- Transitional Training In order to insure a smooth and successful transition of ownership, it is customary that the Seller continues to work with new owner for a specified period of time following the closing date. This period varies depending upon the size and complexity of the business that has been purchased
See more on items #7 and 13 below:~
During Due Diligence
- Corporate Tax Returns for the past 3 years.
- Proof of Sales (POS Sales Log, Z Tape Credit Card and Cash Settlement statements
- Invoices (Expenses) by Vendor such as: COGS Bills, Utility Bills, Preventive Maintenance Records & Other Vendors Invoices that could help in the verification of expenses.
- Expenses by Vendor Summary for each year in question.
- Bank Account Monthly Reconciliation with Bank Statement, Check Journal and Reconciliation report.
- Merchant (Credit Card Payment)Monthly Statements.
- Payroll Forms F940, F941, UCT6, W-2, W3, 1099 and 1096 for each QTR/Year with proof of payment.
- Trail Balance and General Journal for each Year.
- Employee Time Record and Independent Contractor (1099 Employees) Settlement Sheet.
- General Ledger by Account Category for each year Separate.
- Profit and Loss for each Year/Month Separate.
- Balance Sheet for each Year/Moth Separate.
- Trail Balance for each Year Separate.
- 1120 S 1065 or 1040 C with all schedules such as ( K-1, SH Basis F4562, & WK Schedule).
- Tangible Personal Property Report for Each Year with the Property Appraiser where business is located.
- FLDOR Sales Tax E File Report by Month.
- Copies of all Leases and Contracts still in existence including lease for premises.
- Copies of all insurance policies and related invoices for the for past 2 years.
- Copies of owner’s W2’s and 1040 for past 2 years.
- Detailed list of all equipment and supplies including invoices where possible.
- Name and telephone number of your Accountant.
- Detailed schedule of owner benefits or Re-Casts including “add-backs” for personal expenses.
- Current Balance Sheet and Income Statement.
- Invoices and detailed list of Leasehold Improvements.
- List of all FF&E (Furnishings, Fixtures & Equipment) that will convey.
Disclaimer: John Geiwitz is not a Certified Public Accountant and does not, nor can NOT, direct what the Due Diligence requirements are.
Choose The Right Broker
Please keep in mind that it is in your best interest to pick ONE Broker (Like Myself) and let me do all the leg work for you. As a commissioned professional, my services are provided at no costs to you. All I ask in exchange is your honesty & loyalty!
As a courtesy, please let me know if you are working with multiple Brokers or if you are currently represented by another Broker.
Why don’t Business Brokers show full financial statements before I make an offer?
Just as you would not want your personal financial documents made available to the public, business owners only want serious buyers to have access to such private information. Your Broker will provide you with summary information including gross sales, lease information, and cash flow. He/she will assist you in drafting an offer based on that information and protect you by making the offer contingent on your satisfaction with that data upon your full investigation. A business offer to purchase simply says, “If everything I assume about this practice proves true, this is what I am willing to do.” You, the purchaser, then have the right to proceed, withdraw your offer, or make a new offer based on your investigation. The seller, once he/she has accepted your offer, must stand by those terms unless you and you alone choose to alter them, see step 7.
More on step # 7 – Protecting Your Interests
Making an offer is a simple process and you should keep in mind that the Offer and Sale Agreement protects you with what is known as the PURCHASER’S OPTION TO CANCEL. Following PURCHASER’S review and inspection of SELLER’S Business Records, Assets and Lease aka: Due Diligence, if PURCHASER IS NOT SATISFIED FOR ANY REASON WHATSOEVER, PURCHASER shall have the option of canceling this Agreement…. A copy of the Offer and Sale Agreement is available upon request.
More on step #13 Inspection & Due Diligence
Once your offer is accepted you will want to consider hiring this local accountant who specializes in due diligence. I can provide you with a list of such accountants who normally charge a flat fee as low as $1,500 (depending on scope of work) and produces a complete report within a few days of starting the process. This is the MOST IMPORTANT part of the process of protecting your interests! Below is a list of some of the documents normally required to be provided by the Seller to your accountant for due diligence. As you can see, this is a very consuming project which is just one of the reasons Sellers don’t engage in due diligence until your offer is accepted.