BizSale Small Business Blog. Small businesses for sale.

Seeking the right company to purchase is a very competitive process. Often, money is the most critical weapon a business buyer has to differentiate themselves from all the other business buyers, who have found the same business that is on the market.

When you find a business that ticks all the right boxes but initially exceeds your budget, you will have to be creative and resourceful before you can commit to buying.

Here are some ideas of how you can get the necessary funds for your business purchase:

The buyer’s personal funds:

1. Cash savings
2. A private loan from a friend or family member
3. Advances from personal credit cards
4. Obtain a bank loan secured with high value personal assets, such as your home or car(s)

Other funding sources:

1. Bank loan to the business
2. Asset loan to the business
3. Loan from current supplier(s)
4. Finance or sell off all existing excess stock owned by the company
5. Sell high value assets and lease them back or finance them
6. Sell high value equipment outright and time share or borrow other like equipment
7. Sell the car park land or your business’ allocated spaces
8. Sell or sublet the part of the building (if owned) and get advance payments

Negotiate outstanding business purchase balance arrangements:

1. Defer the initial payment for as long as you can
2. Assume more or other liabilities not originally in the purchase contract
3. Let the seller retain all receivables
4. Negotiate extended payment terms with your new suppliers

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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.

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In this two-part blog, the first part to be posted today and the next the following week, are ten steps to assist you when buying a business, based in part from James Halloran’s book “The McGraw-Hill 36-Hour Course on Entrepreneurship”. Here are the first five tips:

1. The business that you are interested in buying must align with your personal and financial objectives. Before looking for a business to buy, create a “target business profile”, have specific criteria for what you want in a business to buy. For example, how much are you prepared to invest, what level of risk are you willing to take on, what is your minimum expected return, and how much time can you dedicate to learning and managing the business.

2. Aim to identify business opportunities with the potential to grow and which offer an attractive return on investment. It may be tempting to buy the first business that fits your needs, however it is important to always consider an attractive business objectively.

3. In an initial meeting with the business vendors or brokers they should be able to provide you with brief financial reports, history, price, and reason for sale. This will give you a good overview of the business, and give you an indication of any financial adjustments that needs to be made if you go ahead with the sale process.

4. If you are happy with your initial judgement of the business and believe it to be sound, request additional appointments in order to gain more information which will allow you to consider the business from other angles

5. Visit the property from which the business is currently run, this will give you the crucial opportunity to judge how well it has been managed and maintained. If it is a service business you are looking to purchase for example, it would be beneficial to talk with the employees and perhaps customers if the opportunity arises. A prepared checklist of information needed could include:

• The complete financial accounts of the business’s operations, to include all income tax returns and state sales tax forms for the past three years and a list of all assets to be transferred to the new owner.

• Records of any legal action past or pending against the business.

• A copy of the business lease or mortgage.

• A contact list of all major suppliers to the business with the name of person/s who have been dealing with the company.

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