Step-by-step

The process of buying a business broken down, step-by-step

What does buying a business really involve? What are the different stages that you the buyer can expect to take? There are many questions you will have to ask and many hurdles you will have to overcome in buying your business. In partnership with BusinessesForSale.com, here's bCentral's step-by-step guide to the main stages.

Decide what you want

If you want to buy a business, you have to ask yourself some searching questions to decide what your priorities are. Make a list of where your strengths and interests lie, how much capital you can access and what types of businesses really excite you. Here are some questions to consider:

•	How independent do you want to be?
•	How much are you prepared to shoulder responsibilities?
•	What do you need to achieve in order to feel fulfilled?
•	How much stress can you tolerate?
•	What skills do you already have that will be useful to you?

Find a business

Ask around your own networks – your relatives, friends, neighbours, current co-workers, lawyer, accountant or banker. You should also check out trade associations and trade magazines if there is a specific type of business you are interested in.

•	You can cold call a business to see if the owner is interested in selling
•	Search local newspaper adverts
•	You can call a business broker or business intermediary
•	You can check out the internet and sites like BusinessesForSale.com

Evaluate the business

Once you've found a company you like the look of, try and learn as much about it as possible. Find out:

•	How the business was started
•	How its mission may have changed since inception
•	What past events have shaped its current form
•	The business's methods of acquiring and serving customers
•	How the functions of sales, marketing, finance and operations interrelate
•	What the financial statements say
•	What the operating documents and practices say about the business

Please note, it may be wise to hire an independent business evaluator to make sure everything is checked thoroughly.

Value the business

Many factors determine value but these are the big ones to look at:

•	The recent trading history of the business – turnover and profit
•	The general condition of the company (such as condition of facilities, completeness and accuracy of books and records, morale and so on)
•	The market demand for the products or services that the business offers
•	The economic conditions (especially cost and availability of capital and any economic factors that directly affect the business)
•	The ability to transfer goodwill or other intangible values to a new owner
•	The future profit potential

Finance your purchase

�You must make a down payment, which is typically about 10% - 40% of the selling price.�

You must make a down payment, which is typically about 10% - 40% of the selling price, and be sure that adequate working capital sources are available.

If you do not have the funds needed for the down payment readily available, you must look for financing from an outside source such as loans from family or friends, a bank, a business angel, or venture capitalist.

The vast majority of businesses, particularly smaller businesses, are purchased with a significant portion of the purchase price financed by the owner.

Negotiate

Price is just one aspect of the transaction to be agreed. The terms are just as important, particularly the period of time over which any debt is to be repaid and the allocation for tax purposes of the purchase price.

Sellers naturally have the upper hand in negotiations since they best know the business. You should minimise the seller's advantage by learning as much as possible about the company. Both parties must understand each other's motivation for wanting to buy or sell, and each other's plans after transition takes place.

Make an offer

�An appraisal of the business can be used to establish a pricing floor.�

You should determine a range of value for the business. An appraisal of the business as is can be used to establish a pricing floor. A pricing ceiling can be established by using an appraisal that capitalises projected future cash flows under new management.

You should have access to all records needed to prepare an offer. An offer may take the form of a purchase and sale agreement, or a letter of intent. The first is usually binding the second is usually non-binding. The purchase and sale agreement is a complex document and it is a good idea to get professional help in its drafting.

Close the deal

After you and the seller have entered into a binding contract, there are usually several conditions to be met before the sale can close. They often address issues like assignment of the lease, verification of financial statements, transfer of licenses, or obtaining financing.

A date is set for meeting the conditions of sale and if a condition is not met within the specified time frame, the agreement is invalidated. Business settlements, or closings, are usually done either by an attorney or an escrow agent.

What next?

•	You can search for suitable businesses, and get more advice about buying a company from BusinessesForSale.com.
•	Read about unusual businesses that have been up for sale.