The Buying Process: How to Buy a Business

A frequent question asked by business buyers is
“How do I buy a business?” or “What are the steps in buying a business?”

VR outlines the process of buying a business. The more a buyer knows about this process, the more satisfied he or she will be with the ultimate decision. With Valued Representation, we explain what to look for, what to question, what to expect throughout the transaction, and therefore help you fulfill your dream of business ownership.

20 Steps for Buying a Business, How to Buy a Business

1. Commitment: It starts with your commitment to purchase a business at price and terms consistent with the marketplace. Buying a business is rewarding, but it can be a major undertaking and it requires your complete commitment to be successful.
   
   
2. Non-Disclosure Agreement (NDA) or Confidentiality Agreement: You sign a NDA thereby promising to maintain confidentiality for all of the information provided to you on the businesses we review, discuss or present.
   
   
3. Buyer Profile: By completing the Buyer Profile, you are providing us with information about yourself including a resume, financial statements, and available capital to investment. The more we know about you, the more likely it is we can find a business for which you are qualified to acquire. The more information we provide to the seller and financing sources, the stronger your negotiating position.
   
   
4. Opportunity Review: Together we discuss and review various types of industries and specific businesses, and select some that appeal to you and which you are qualified to acquire. You will have the ability to review confidential business profiles that, in part, summarize the business, its financial information, facility and lease information.
   
   
5. Business Presentation: We present to you the businesses you are interested in and discuss the opportunity surrounding each. These initial presentations can vary from digital presentations in our boardrooms, to actual on-site visits as the information process moves forward. It is critical to remember when visiting any business, that the fact the business is for sale is highly confidential and you must be very careful to maintain this confidentiality during the visit.
   
   
6. Meeting with the Seller: A meeting between you, the seller and your VR intermediary may take place if you are interested in obtaining more information regarding the business, and seriously consider it as a candidate for acquisition. This gives you the chance to ask questions you may have about how the business operates and allow the seller to feel comfortable in who is acquiring their business.
   
   
7. Offer to Purchase: With the assistance of your VR intermediary, the next step is to prepare an Offer to Purchase on our standard Purchase Agreement for the business. A Letter of Intent may be used on larger transactions. An Offer to Purchase or Letter of Intent will include an earnest money check along with contingencies that are to be satisfied during Due Diligence.
   
   
8. Present Offer: Your VR intermediary presents your offer to the seller and takes the time necessary to explain the terms and conditions of your offer to the seller and their decision makers.
   
   
9. Background: With your approval, your VR intermediary provides to the seller your background, financial information, experience and point of view in arriving at the offering price, and terms and conditions. Favorable background information about you will result in favorable consideration of your offer.
   
   
10. Acceptance or Counter Offer: The seller will either accept the Offer to Purchase as it is written, or will present a Counter Offer. Once buyer and seller agree to all the terms and conditions of the sale, sign all counter offers, and amendments (if any), you have mutual acceptance and it then becomes a Contingent Purchase Agreement.
    
    
11. Due Diligence and Inspection: At this stage the examination of financial records and other operational information, inventory, management and lease reviews take place. The due diligence and inspection stages are critical for the buyer to confirm that what the seller has claimed to be is truthful and accurate, and meets the conditions of your offer.
    
    
12. Contingency Removal: You remove all contingencies as each is resolved or met in the Agreement. Once completed, it is a binding agreement.
    
    
13. Escrow: Your VR intermediary will send the Purchase Agreement and other documents to the escrow company or closing attorney who then drafts the closing documents and deposits the earnest money deposit into their trust account. Escrow is “open” as soon as both buyer and seller have signed the documents. Depending on the state in which you live or are acquiring the business, this process may be handled by parties other than an escrow company. Your VR intermediary can inform you in detail what to expect in your local market.
    
    
14. Lien Search: In most states the attorney for the buyer, or the escrow company, performs a lien search on the business to identify any secured creditors. Liens to secured creditors will be removed prior to closing. During the lien search there will also be an investigation with state and federal tax agencies for tax clearances.
    
    
15. Business License, Permits, etc.: During the escrow period the buyer, with the aid of their advisors, will be obtaining liability insurance for the business, workman’s compensation insurance (if required), all necessary business licenses and permits, EIN/TIN (Employer Identification Number/Tax Identification Number), and form the appropriate business entity (corporation, LLC, etc).
    
    
16. Lease Assignment: The seller’s landlord may require the assignment of the existing lease or an entirely new lease. You will, with the seller and landlord, obtain the necessary documentation for closing. This is another critical step and one of your remaining contingencies. It is important to provide the landlord with a complete personal financial statement, resume, and lease application promptly to ensure your new lease or assignment is complete in time for the closing.
    
    
17. Note & Equipment Lease: Your VR intermediary will work with you, the seller, and an escrow officer/closing attorney to have any agreed upon notes and equipment leases assigned to you and your new corporate entity.
    
    
18. Inventory: Arrangements are made for you and the seller to count and price the inventory if it applies to the business you are acquiring. If it is a large or complex inventory it may be necessary to outsource this function to an inventory service.
    
    
19. Closing: Signing of the final closing documents may be done at escrow, in person, or in many cases, via courier, email, or fax. These arrangements will be agreed upon by all parties prior closing.
    
    
20. Training: Agreed upon training with the seller commences after the closing and during the change of possession. The terms and length of seller involvement training is agreed to as part of the executed Purchase Agreement.