BizSale Small Business Blog. Small businesses for sale.

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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Here are some pointers of questions to ask the seller when looking into buying a particular business.

• The first and most crucial question to ask is why is the seller selling? The immediate response (watch the body language) to such a direct question will be quite revealing.
• Has the seller offered to give you a handover period after the sale to help with the transition, and have you discussed payment for their services during the handover?
• Make sure you request to look over the certified financial statements of income, cash flow and balance sheets for the last three years. If you plan to borrow from a bank to purchase the business, the bank will want to see them.
• Ask to see the company’s (and not the owner’s personal) tax returns for the past three years. The bank will need this information as well.
• Request a copy of all documents of all outstanding creditors like accounts payable, property and equipment leases. Again the bank will require this.
• See if you can pick up anything about the quality of customer relations at the business? Is there good rapport between the business and customers?
• Have you gathered anything about the relationship between the business and its suppliers?
• Find out about the conditions of the working environment. Are there any hazardous situations or is this a well-kept workplace? Once you have handed over it will be your responsibility to make sure it is a safe place to work for the employees.
• Lastly, find out about the conditions of existing fixed assets, for example, office equipment, machinery and vehicles. Does the existing staff (if any) demonstrate good maintenance and cleanliness of company property?

Finally for a comprehensive list of over 1000 questions to ask a business seller refer to our page at http://www.business-sale.com/nresourcediligence.html

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