Unless you’ve bought or sold a business before, you’ll find that buying a business can be a confusing and trying experience for the unprepared. Even if you have experience in the corporate world of mergers and acquisitions, you will still find yourself in unfamiliar territory when buying a small or mid-sized company. It is important to take the time to read this explanation of the process. If you are experienced in buying and selling small to mid-sized businesses, you will gain a valuable understanding of the VR process that will assist you in working with our firm.
The search for a business opportunity almost always starts with a phone call or visit to our web site. Typically, the first question from the Buyer is “What kinds of businesses do you have?”
Our response is that we have lots of businesses for sale. We need to understand the Buyer’s resources, skills and needs so the best match can be made. We need to understand the Buyer. There will be lots of questions to help us narrow your search and to help us help you find the perfect business.
After talking, we should be able to begin narrowing the search to a few appropriate business opportunities. We then communicate non-confidential summaries of our exclusive listings to you in several ways. If you are viewing our web site, you can read the non-confidential summaries by clicking on Businesses For Sale, Featured Listings. We recommend at this juncture that you focus on the business and not its financial information or price. It is far more important to determine a business type you would enjoy owning.
By now, you should find yourself in possession of several non-confidential summaries for businesses you want to know more about. The next step is one of mutual trust and obligation between you, VR and the Seller(s) of the business(es). You will now be getting specifics about the business and your agreement to keep this information confidential is mandatory. Before we provide this confidential information, we require you to send us a Confidentiality Agreement, Financial Statement and a Buyer Profile. These forms are on our web site, Forms & Resources. We take any violation of this bond of trust between you and us very seriously, and we will not tolerate any breeches of this trust.
A big part of our job on behalf of the Sellers that we work with is to do the work of selling their business while they continue to operate their business. This means that we will work with you to answer your questions about the business before we introduce you to the Seller. We do this in several ways.
An extremely important element is the VR Business Profile. This profile provides you the information you need to decide whether or not the business is right for you. The Business Profile contains a detailed description of the business, summary financial information, additional business facts like lease information, number of employees, description of equipment and much more. After reviewing the Business Profile and discussions with your VR Intermediary, you will have a good understanding of the business and its operations.
A tour of the business is next in order. This is when the Buyer and your VR representative visit the Seller’s business. The purpose of this meeting is so the Buyer and Seller can meet. Not only are you learning more about the business from the person who knows the most about it, you are also seeking to tell the Seller as much about you as possible since you may be seeking financing from the Seller. Another purpose of this meeting is for the Seller to give a tour of the business and explain the general flow of the operation. At this time the Buyer can ask general operational questions. This is not a due diligence meeting.
After seeing and understanding the Business Profile, meeting the Seller, touring the business and getting answers to all your questions, the next step is to write an offer. The Buyer must understand that their offer is always contingent upon the Seller providing the detailed financial records and proving his representations. Due diligence, a specified period of time during which the Buyer investigates the business fully, is costly and time consuming and it must be done only after an agreement on price and terms is reached.
It is the Seller’s responsibility to prove everything to the Buyer. The Buyer needs to remove all the contingencies for the agreement to become a binding offer for purchase and sale.
An offer to purchase is just that - an offer. If it is not accepted by the Seller within the time limit you set, your offer is void. Most offers to purchase have contingencies – that is, they become void unless certain things happen. All offers are contingent upon or subject to a variety of factors: your price and terms being accepted; books and records approved (to your satisfaction); all equipment being in working condition; assignment of lease; the business sold free and clear of debt; ability to get necessary licenses and permits; business passing necessary inspections; Seller providing a non-compete agreement; Seller agreeing to a specified training period and Buyer producing a resume, financial statement and credit report (paid by Buyer).
Your earnest money deposit check in the amount of 10% (at least) of the offered price is deposited in an escrow account. If after the close of the due diligence period you are not comfortable moving forward with the purchase, for whatever reason, your deposit will returned and the offer is void.
The due diligence period is usually 10 days. During this time you and your advisors (attorney, accountant and others) will remove the contingencies. When due diligence is complete and the all contingencies are removed, the contract is binding.
Almost every deal requires some form of financing. At VR we work with Buyers to help obtain the appropriate financing for the business. This often means a Seller’s note and a bank loan guaranteed by the Small Business Administration (SBA). Buyers can expect guidance and assistance from VR in this important area.
The escrow or closing attorney is completely neutral. He represents neither the Buyer nor the Seller. He will not represent the one party against the other and he does not represent the broker. He will create all necessary closing documents, performs a lien search on the business to make sure clear title can be given, makes sure that secured creditors are satisfied, files and records documents with appropriate authorities and complies with Bulk Sales provisions of the Uniform Commercial Code/Bulk Sales Act or other provisions when applicable in the state or province. These provisions are designed to protect against an owner selling the business and leaving the buyer to clear up the debts.
At closing all parties meet to sign documents. Congratulations, you are in business!