Be In The Know Before Buying, Selling A Business
Prospective buyers should do their homework before approaching a seller or broker
, who will ask buyers questions about their interests or passions, geographic preference, monthly or annual income requirements, and available time and cash on hand for investment. Brokers also maintain listings of businesses for sale and, as such, can help close deals in 30 to 180 days.
Sellers also can benefit from a consultation with a broker, who will review financial records, assets and existing contracts for the past three years to provide guidance related to setting the asking price and terms, and determining buyer suitability. Cash flow or gross sales are typically used to arrive at the value of the business and the right price, since a business for sale that's priced inappropriately will drive buyers away.
Established independent businesses or franchises tend to offer more security than startups, especially for risk-averse buyers. Franchises, in particular, provide built-in brand recognition, proven business plans and marketing strategies, and training. But initial fees can be costly for such launch elements as brand licensing and advertising.
Most deals require a 40 percent down payment and fall between $30,000 and $100,000 for, say, a single-location restaurant. In most instances, the seller will provide financing for the balance.
Many sellers are willing to offer financing to close a deal, since traditional lenders are reluctant to loan money for the purchase of a business that includes a brand name, logo, slogan, equipment and customers, but no collateral, like real property. The upside, however, is the buyer jumps through fewer hoops. But if the buyer defaults on the loan, the seller reclaims ownership of the business, the way a bank would foreclose on a home mortgage.
Still, if buying the facility where the operation is housed can be done, do it. Owning will be cheaper than renting, and the property will continue to generate passive income long after the business is sold.
Ultimately, the beauty of seller financing is the seller has a stake in the buyer's long-term success to ensure the loan will be repaid. The seller will remain part of the buyer's team, helping to train and answer questions, and staying in touch to facilitate a smooth transition.
Sellers will conduct a background check on qualified buyers and ask for financial records, credit history, and proof of past work or business experience to separate the lookers from the real prospects.
For buyers, access to real numbers is a crucial part of the negotiating process. But a business owner is usually reluctant to share company records, and rightfully so, even if the business is up for sale. All sorts of strangers contact the seller and ask to see the company's private documents. Some just look. Others are interested but lack the financial capability. Some have the money but are unwilling to pay the asking price. Or worse, a competitor may send a spy in the guise of an interested buyer to check up on the business. How does the seller identify serious buyers?
Serious buyers
A prospective buyer, who is serious, will present a written offer and earnest money to obligate the seller to expose the guts of the business, such as expenses, payroll journals, tax returns, profit and loss statements, and lease agreements, after the parties have executed a confidentiality agreement. An offer sets the wheels in motion, though it is non-binding and tentative, and includes clauses to pull out of the deal if the numbers are inaccurate or if the buyer fails to secure financing.
A broker may offer a standardized or ready-made form called the Broker's Proposal or Offer to Purchase Form that covers most of the customary clauses. But the buyer should sign prepared documents only after consulting an attorney never before or use such forms as a draft or guide to craft an offer.
Keep in mind, it's always a good time to buy. It's always a good time to sell. A business broker can help. If you find the right fit, owning your own business can be a life changing experience and a great way to make a good living.
Armen Nazarian is a business broker with Capital 1 Business Brokers in Farmington Hills. He can be reached at (248) 855-7753 or at armennazarian.net
by:
Creating On-line Business Concepts Use Of Social Video On Your Business Website Why A Legitimate Home Based Business Is Your Secret To A Happy And Secure Future? Doing Business Online Can Change Your Life The Right Attitude To Building A Successful Home Business E-commerce Website- Fundamental Source Of Online Business How Does Your Business Awning Supplier Measure Up? Significance Of Business Telephone System In Big Sectors Hong Kong Slowly Becoming Most Important Global Business Hub Innovative Ideas For Small Business Unsecured Business Loans Same Day- Financial Assistance For Your Small Business Is Dreaming Big Hurting Your Business? How Can We Make Use Of Facebook For Our Real-estate Business