Ten steps to buying a business from James Halloran
Following on from last week, here are the last stages to buying a business, based in part on James Halloran’s book “The McGraw-Hill 36-Hour Course on Entrepreneurship”.
6. Once you are satisfied with your assessment of the business, you will need to go through financial and legal particulars with the following people:
• An accountant to interpret financial information you have gathered from the business owner/seller.
• The mortgage holder or landlord in order to find out about the transfer of the property to a new owner. If the property is leasehold, the date of expiry needs to be discussed and if possible renegotiated to the intentions of the new owner. An on-site review of the facility will need to be conducted at this point to assure it is in good condition.
7. Request permission from the seller to allow you to spend some more time at the operation observing and surveying customer satisfaction. This will give you a better indication of the present quality of service and the efficiency of current procedures.
8. Decide on your offer for the business. The accepted approaches for valuing a business include book value and the capitalization-of-earnings approach. Before you make your offer to the seller, find out what financing arrangements are available to you through a bank or the seller.
Formalise the offer in writing and then present it to the seller. Negotiation will usually take place at this point. You may be required to explain the offer and the benefits to the seller of accepting the offer. Do not pin all your hopes on this one business in case any obstacles present themselves, significant enough to force you to abandon the purchase.
9. If an agreement is reached it is then time to begin a due diligence process on the business you intend to buy, with your accountant and solicitor. It is particularly important to find out if there are any debts attached to the property. Also make sure that all assets are examined to check that what is represented is true.
10. Finally, the buyer should be present when a final inventory count of assets is taken before signing a sales contract.
If you enjoyed this post, make sure you subscribe to my RSS feed!