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BUYING PROCESS TABLE OF CONTENTS(Printer Friendly Page) .....Locating the Right Business Locating businesses for sale. Shopping for a business is not like house hunting. The need for confidentiality while a business is for sale conceals its availability to the general public. You can drive around town all day, passing dozens of viable businesses, which are in fact for sale, and never see a sign or any indication that the owner is ready to sell. You won't find businesses listed in the newspaper or on the Internet, at least not "identified" businesses. And approaching business owners personally is almost always futile. The seller may not be interested in selling and even if they were, why would they tell you? They don't know if you're a serious prospect or even qualified to make such a purchase. For all they know, you're just a curiosity seeker or worse - you're out to get some news that could compromise the vitality of their business. The bottom line is, the best place to find a variety of businesses for sale is where business owners go when they want to sell, a business broker. Saint Louis Group Business Brokers/Sunbelt provides prospective buyers with access to the area’s best business opportunities. Finding the right business for you. Just any old business will not do. One of the biggest mistakes a new business owner can make is getting into a business that doesn’t suit their skills, personality, interests, and needs. Therefore, we take the time to get to know you and understand your goals. Next we introduce you to a business that meets your criteria, and then we facilitate a process through which you become acquainted with the business and your questions are satisfied. Before you commit to purchasing a business, there is ample opportunity to consider all the variables and feel comfortable with your decision. We have a vested interest in seeing sold businesses continue to thrive under their new ownership, so we take every practical measure to help you choose the right business. Acquiring the business. Locating a business that meets your criteria may seem like a dream come true. Unfortunately, finding the business is only half the battle. Acquiring that business requires: drafting and negotiating a purchase agreement, obtaining financing, meeting contingencies and contractual obligations, and finalizing the deal with al the necessary closing documents and procedures. Your Saint Louis Group Business Brokers/Sunbelt broker will guide you through this process with skill and diligence. You will be hard pressed to find a better system anywhere, providing every resource you need to locate, assess, and purchase businesses in the St. Louis market. As a prospective buyer you will want to know what the purchase price includes as well as how the price was derived. In general, businesses sold through Saint Louis GroupBusiness Brokers/Sunbelt include the following: • The business name (including signs, telephone numbers, etc.) • The fixtures, furniture, and equipment used by the business • The customer base (though not guaranteed, this typically remains constant) • The building / Real Estate is transferred by purchase or lease assignment • Employees typically stay through the change of ownership • Inventory on hand at time of sale is purchased at cost • Contracts with vendors/suppliers are renewed or left intact • Owner training over a specified period of time There are many factors to consider when determining the value of a business, and every business is different. All too often people rely on blanket formulas to assess the value of a particular business, or they look at the owner’s salary, and nothing else, to determine what the business is worth. Unfortunately, these methods are unreliable and inaccurate in that they don’t consider numerous, unique aspects of the business. The result is often a price that doesn’t reflect the true business value. An unrealistic business price is either unfair to the buyer or the seller and will probably not result in a sale. Therefore, we have developed a line-by-line, exhaustive method to determine the real value, or fair market value, of a business. Prospective buyers can see for themselves exactly how the listing price of the business was determined. Our brokers are trained to look at every aspect of a business, the positives and negatives, and the past, present and future aspects of the business, before determining it‘s fair market value. We encourage all prospective buyers to fully understand what they are buying before committing to the purchase, and we make ourselves available to answer any questions you might have. FINANCING THE PURCHASE OF A SMALL BUSINESS Contrary to conventional thinking, most small business transactions occur with little or no financing from outside lenders. The reality is that financing can be very difficult to obtain from lenders who are limited to making loans based solely on collateral. By neglecting considerations like cash flow, the true value of a business is not reflected. Banks and institutional lenders, while considered the traditional source for financing, in the case of small business transactions, are often the cause of good deals falling apart. This is especially true when buyers, who think they are improving their chances of acquiring a business, seek financing before locating a business. The likely result is that the lender, once the transaction is on the line, will be unable to follow through, which can be fatal to the deal, and to the buyer / seller relationship.Buyers should not rely on outside financing, unless as a last resort. Therefore, buyers should be prepared to present as much as fifty percent of the business value, between down payment and operating capital, to close the deal. In many cases, sellers who recognize a committed buyer, finance a significant portion of the balance, if not the entire difference. When a committed buyer connects with a motivated seller over a business that suit’s the buyer’s criteria, then a win-win scenario is possible. The crucial elements at this point are a good relationship between the buyer and seller, and a smooth transition, facilitated by the broker. Establishing this vital relationship requires an effort from all parties. Be prepared. If a buyer is unwilling to risk personal assets, it is very hard for a seller to take them seriously. Remember that the buyer / seller relationship is crucial, especially if the seller is expected to finance a portion of the transaction. One of the best steps a buyer can take prior to making an offer on a business is to apply for a home equity line of credit. The advantages to a home equity line of credit are that you make no payments until you actually use it. In addition, your house is kept separate from the business. Saint Louis Group Business Brokers/Sunbelt regularly works with lenders specializing inthese loans. After a 45-minute interview they will make a commitment, with funding tofollow in approximately ten days.Preliminary meeting with the owner. The first time a prospective buyer meets the owner is a time to get acquainted with the business and the owner, nothing more. This is not the appropriate time to attempt to negotiate a deal - coming on too strong can be a real turn off and a bad start to a vital relationship. There will be ample time and opportunity to address issues of concern, and negotiate without compromising the buyer / seller relationship. Subsequent meetings with the owner. Every meeting with the owner should be carefully weighed and measured. While it’s important to develop a rapport with one another, too much of a good thing can lead to misunderstandings down the road. Communicate through the broker when possible. It is typical in buying a house or an automobile for the seller to allow a little room in the price for negotiating. Therefore, logic dictates that bartering is reasonable and it expected. After all, if the two parties cannot come to an agreement, there is always another house or car on the market. Purchasing a business is different. The supply of businesses for sale, especially those that meet an individual buyer’s unique criteria, is limited. Therefore, a buyer should think twice before over-negotiating a business that is priced at fair market value. The loss of time, opportunity and effort may be impossible to regain. There are likely to be number of contingencies to be met in order to secure a transaction. This is normal. During this time the buyer, the seller, and the broker have a lot on the line. Each stands to either achieve their ultimate goal, or to lose a considerable amount of time and effort if the transaction doesn’t close. Therefore be forewarned, meeting contingencies often requires dealing with a variety of people, including lenders, landlords, friends, and family members who are critical to the transaction closing. There can be delays and hang-ups, which is also normal. The worst thing we can do is to let a normal, minor obstacle become a major barrier by overreacting or by involving more people than necessary. Keeping your broker updated will allow us to do what we do best - solve problems. Patience, and trust in the broker, who is skilled at resolving these issues, can be the difference between success and failure. We won’t give up on any transactional as long as all parties are willing to pursue it. Saint Louis Group Business Brokers/Sunbelt conducts all business purchases through the office of a neutral Escrow Attorney. The Escrow Attorney does not represent one party against the other and does not represent the Broker. The role of the Escrow Attorney is to carry forth the agreed upon intentions of the buyer and seller by drafting all the necessary legal documents to secure and close the transaction. The introduction of attorneys hired on behalf of the buyer and the seller may create an adversarial environment in which each attorney tries to sway the terms and conditions (already agreed upon by the buyer and seller) to favor his client, which can be disastrous to the transaction. The Escrow Attorney, who specializes in the practice of business transfers and is neutral, allows for an avoidance of an expensive, time consuming, and non-productive atmosphere. If desired, the buyer and seller may have their own attorney review all documents prior to closing. QUESTIONS BUYERS SHOULD BE PREPARED TO ANSWER 1. Why do you want to own a business? 2. Is there anyone else involved in the decision making process? 3. Are you married? 4. What do you expect this business to do for you and your family? 5. Do you already own a business? Have you ever owned a business? 6. Do you have a timetable? 7. What kind of business are you looking for, established or franchise start-up? 8. Is location important? 9. How do you plan to buy a business? Will you need financing? 10. How long have been considering this move? 11. What skills and experience do you possess that will be a benefit to your business? 12. What appeals to you more, a strong business, or a struggling one that can be virtually stolen? TIPS FOR A SMOOTH BUYER / SELLER MEETING 1. When you tour the business with your Saint Louis Group Business Brokers/Sunbelt broker, start at the back door and finish at the front door. 2. Tell the seller about yourself. 3. Ask the seller how they got into business. 4. Ask the seller, based on his/her knowledge and experience, what it would cost to start this business from scratch today including, the facility, the fixtures, furniture and equipment, the inventory on hand, employee training, and advertising. 5. Ask what the typical monthly / weekly gross is. 6. Inquire about key employees. 7. In the seller’s opinion, what is the biggest downside to the business? 8. What excited the seller about the business in the early days? 9. Why is the owner selling the business? 10. What does the business need, and what can you offer to improve the business? 11. Does the seller know of any changes coming about in the industry, area, or in the business itself that will affect the business? 12. What is the seller’s managing style verses yours? Can you improve the business? STEPS TOWARD OWNING A BUSINESS 1. Commitment. The buyer is committed to the process of purchasing a business at a price and terms consistent with the marketplace. (THE RISKS ASSOCIATED WITH BUSINESS OWNERSHIP)2. Personal Assessment. The buyer has identified his/her goals and objectives and communicated those to a Saint Louis Group Business Brokers/Sunbelt broker. (QUESTIONS BUYERS SHOULD BE PREPARED TO ANSWER) 3. Confidentiality & Financial Disclosure. The buyer agrees to confidentiality and accurately discloses what funds he/she has available for the purchase of a business. (CONFIDENTIALTY / AGREEMENT) 4. Review. A Saint Louis Group Business Brokers/Sunbelt broker introduces appropriate businesses to the buyer, and the franchise broker discusses the franchise opportunities available. 5. See the Business. The buyer and a Saint Louis Group Business Brokers/Sunbelt representative tour the most appealing business. (TIPS FOR A SMOOTH BUYER / SELLER MEETING) 6. Offer to Purchase. The buyer writes an offer with the assistance of a Saint LouisGroup Business Brokers/Sunbelt broker. Offers are made on the Saint Louis GroupBusiness Brokers/Sunbelt Asset Purchase Agreement, specifically designed for small business purchases and customized to suit each unique transaction. (ASSET PURCHASE AGREEMENT) 7. Offer Presentation. Saint Louis Group Business Brokers/Sunbelt presents the offer to the seller and answers any questions about the offer and about you, the buyer. By this time, we should know you well enough to give the seller a good feel for what you can bring to the business, and the higher the seller’s confidence is in you, the more likely the transition will go smoothly. 8. Offer Acceptance. The seller accepts the offer as written or writes a counteroffer. 9. Contingency removal. Saint Louis Group Business Brokers/Sunbelt helps make arrangements to assign loans, equipment leases, due diligence contingencies, or franchise agreements and meet any other contractual issues. We encourage buyer and seller to spend as much time together as possible during this period. 10. Closing. A neutral third party attorney facilitates the closing procedure. (NO SURPRISES) (THE ESCROW ATTORNEY) |
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