In my book entitled, Entrance: A Guide to Buying a Business, I offer advice to buyers interested in purchasing a company.
The availability of good businesses to purchase is always less than the demand. In the first chapter, “Getting Organized,” I give suggestions on how to prepare to beat out “competitor” buyers.
- Be Prepared
- To meet competition head on, purchasers need to act quickly when buying a business. If the buyer sees a listing that meets his needs, the first step should be to immediately communicate with the listing or advertising business broker, sign a non-disclosure agreement, and provide information showing financial capability.
- All parties involved in the purchase must be in agreement as to the size and type of business that suits their needs prior to entering the market so that when the opportunity is presented, there is no hesitation in moving forward.
- Meet the Seller
- If you like what you see based on the materials provided to you by the listing business broker, set up a meeting with the seller. Too often, I see buyers procrastinate at this stage. Often, buyers take weeks to look before taking steps to either meet with the seller or make an appointment to tour the business. It’s important when buying a business not to let the time lag. In many cases, delaying can result in losing the deal to a more aggressive buyer.
- Offer an LOI
- A solid performing business with good cash flow, that is properly priced, will not be on the market very long. A buyer must be ready to move forward – working with your Business Broker keeps the deal on track. After meeting with the owner, the next step is to issue a Letter Of Intent (LOI). Quality businesses typically receive several LOIs, and those offers come in quickly during the process.
- LOIs can be developed by an attorney or by the business broker. It is the road map for moving forward, although it is not binding. It does, however, take the business off the market for a stated period. This time, often referred to as the “no shop” period, allows the buyer to dig in and do the necessary due diligence on an operational as well as a financial basis.
- Due Diligence
- The due diligence step is perhaps the most important step as this is the analysis phase of the buying process… but a buyer may never get this far if he is not organized and ready to act quickly.