Buying Business FAQ
Why are the Businesses for sale?
Any person or entity such a corporation etc who owns the business, they can sell the business for the several reasons. However here are the following few reasons.
- Retirement of the owner
- Merger of few companies
- Major health issues
- Partner ship dispute
- Family relocation
- Burned out or Tired and Sick owner
- Negative cash flow
- Unable to manage
- Looking for the better opportunity
- Local law changes / Zoning or Area changes
- Changes in the neighbor hood
- Licenses violations
- Land Lord Problem
- Lease problem
- Employee problem
- Unable to compete with competitors
- New similar business built in the neighbor hood
- Bad locations
Like this there are so many reasons for the sale. Each business sale story is varying from each other. The prospective buyer has to carefully read and understand the risk nature.
When can I buy a Business?
There is no time frame or age frame to buy the businesses. The purchasing of the business is the personal or family decision when to buy, where to buy, why to buy etc. However the most of business purchases analysis reports shows that the most of the buyers who are buying the businesses who all read have some kind of working experience / exposure on the businesses, such experience / exposures is either directly or indirectly related to the businesses or business related works.
Why should i buy a Business?
This is one of the most vital steps to establish the financial freedom world. Owing a Business or having a business is a one of the great instrument for the financial security. The business will run as per your ideas, ways and controls and all this will bring a cash flow to achieve. / fulfill your dreams. You’re guiding or deciding your life style and financial wealth.The following are the commonest reasons
- To Make Money
- To work for your self
- To control your financial and wealthy world
- To leverage your skills and abilities
- To provide an employment opportunity
- To make more comfortable
- To pass on to your hirers
The successes of a person are made of many components. One of the key to success is Pride of Ownerships. When you buy the businesses you will run either by your self or by the employee but the bottom line is cash flow. The opted business have to bring positive cash flow from the business and such cash flow has to pay all your current bills and pool the money for your future needs. The world successful story tells and proves that the business owners are happy as they are Bosses and they are controlling the wealthiness.
What is the best business to own / buy?
Beauty is in the eye of the beholder. Most of the prospective Buyers want to own a profitable and well-managed business in the business industry that holds a personal interest for them. On the other side, some prospective Buyers may look for opportunities that offer turnaround potential, where they can apply their special skills. In realty, that there is no industry says this is better than another. Your financial advisors / brokers can recommend and consider those before buying the businesses. A case study shows that there are specific businesses that are more successful than others - even in the same industry.
What kind of business can I buy?
As we said earlier, that there are no restrictions to buy any business. However the prospective buyers should only consider the business he or she can feel comfortable to own it and operate it. The time and effort how much you are going to contribute will be also an important factor before looking to buy a business. Besides these you can also consider such as the amount investment, risk tolerance on of the business, nature of the business, viability of the business, rate of returns, and experience of the business and on the type business etc.
Do I need to discuss with my family members before buying the business?
First and fore most steps is talk with your family members and tell your idea why you are planning to buy the business. As they are you part of family and ultimately they are going to receive the benefits and also they are your hirers to take care your business. With family discussions and family approvals can also bring the family support run the business and also brings new ideas which strengths your business which lead to more and more positive cash flow.
Do I need to take advice from the professionals before buying the business?
It is always to be good idea to talk with your financial advisers such Attorney’s / Financial Planner/ CPA etc regarding the purchase of business. They can evaluate your financial needs and also they will find out the available cash source to buy a business. This certainly makes more comfortable and confidence to buy a business to increase your financial freedom and wealthiness
Can I start the Business rather than buying an existing business?
Yes you can and you have every right to start a new business. However in order to
start the business you need to identify the location, get a master lease, apply
for the Permits, apply for the licenses, and needs Direct cash to improve the premises.
It takes any ware bet weeks 3 to 6 months time. In some cases you may not get all
the permits and licenses as they are selective and zoning or Area restrictions.
In any newly opened business requires 8 to 12 moths or even more to establish good
sales. Where as an existing business has a proven track record. The failure rate
in small business is largely in the start-up phase. The existing businesses have
demonstrated that there is a need for that products or services in a particular
area or locality.
Besides these financing is one of the key factors. To establish a new business financial institutions are relevant to lend as there is a higher Risk involved. Where as in the existing business as track was proven the financial institution will incline to lend due to lower Risk.
Do I need a Business Broker services to buy a Business?
Brokers are Qualified and Licensed Persons / Entities who are specialized / authorized
to conduct the buy / sell/ financial transactions. They conduct the business transactions
very professionally and legally. They can provide / assist with all kinds of services
such as selection of the bushiness, writing the contract, helping the requested
information form the seller or other broker, getting the licenses and permits, providing
the right place to complete the transactions to protect your funds, transferring
the business by coordinating with all parties etc.
Brokers are the excellent source of information about the businesses as they are familiar with markets, can advice about the trends, pricing, local area changes, etc
Besides these they always coordinate / handle with all of the matters in a right direction and coordinate with all parties till the successful transfer of the business.
What kind of Business Broker I have to select?
Read the profile of the broker, read and review his works and public comments on the public records. You can also check the government authorities to see about the license status. Once you find the list of the broker talk with them to see who can match your criteria and select them to represent to you. Before signing any documents get the copy of license and E&O. And make sure you should get copies of all signed documents. It is always to good idea to hire brokers who have specialized in the particular area of business sales and also preferably a local broker who can have more knowledge on the local businesses sales and local market trend.
Do I need an Attorney?
In realty you many not however with bets interest of you It is always to good to take an opinion from your attorney for all contracts, such a lease, franchise agreements oil supply contracts, indemnity contracts, assuming the notes, seller carry notes, reviewing of CC&R etc. This service could cost some money however their opinion can erase future problems and keeps you more confident and comfortable to take the business. But it is always good to hire an attorney who is practicing business related laws / contracts as they are familiar with all kinds of clauses.
Do I need a CPA/ Accountant?
In realty you many not if you have enough knowledge on the taxation however with bets interest of you It is always best to conduct a financial audit by your CPA/ Accountant for Federal Tax, State Tax, Local Tax, VAT, UST, Other taxes, Invoices, balance sheets, profit and loss statements, POS reports, etc , . This service could cost some money however their opinion/ Audit will tell the profitability and risk of the business. This gives an assurance on the business cash flow and also gives the value of the business. But it is always good to hire a CPA/ Attorney who is practicing business related booking as they are familiar with all kinds of business taxes
What is the Business worth and what is the difference between value and worth?
Both are closer or inter linked relation but both have different definitions.
The Business worth is a market value of the business given by the Appraiser / Broker Price Opinions / Other Valuation professionals based on the combination of Tangible and Non Tangible assets. Where Value is the income generated by the particular business without considering the fixed assets. Surprisingly in the market it is very common to see some of businesses value is more than worth and in Vice Vera also
What should I do once i like the business?
If you have broker, ask him to write an offer with all of your conditions and submit to the seller with all necessary documentsMost of the offer contain following document
- offer letter / contract/ purchase agreement
- Proof of the funds to wards the down payment
- Buyer CV/ Resume
- Pre Approval Letter
- EMD Check
What is the FMV (Fair Market Value?)
It is the Value of the business in the current market. To know more about the FMV, CASH FLOW, VALUATIONS, WORTH Please read the Business Valuation column you will get in detail information
What is the confidential agreement (CA /NDA / SA/ CDA/ PIA /CA) and why should I sign?
This legal mutual contract creates a confidential relation between the two or more parties / entities/ or both to exchange the confidential materials, knowledge, business trades, and secrets etc between them. This protects the both parties for all kinds of misuse of the received Non Public information. Few peoples call it as Non Disclosure Agreement (NDA) / Confidential Agreement (CA)/ Confidential Disclosure Agreement (CDC) / Proprietary Information Agreement (PIA), or Secrecy Agreement (SA).
Why should I sign NDA/ CA etc?
These are the commonest reasons why the sellers / Brokers want to sign the NDA/ CA/ SA/ PIA etc
- To prevent misuse of Business Information
- To see the seriousness of the Buyer
- To avoid losing of Business
- To avoid losing employees
- To prevent actions or adverse campaign by the competitors
- To avoid general disruption caused by uncertainty
- To give a consent and authorization to sent to the expertise to review of the seller information
What can I do once I sign the NDA/ CA etc?
- Contact the Broker /seller from time to time for all necessary information’s
- Arrange series of meetings with owners in the presence of the Broker / Mediators and clarify each and every time pertaining or related to the Business such relation may direct or indirect
- Get experts opinions and reviews on the Business
- Work on Good Faith Estimate manner
- Respect the Seller and his confidentially
What are the things can not do once I sign the NDA/ CA
- Talking with employees, clients, vendors, or competitors without written consent and approval from the Seller or Sellers Representative such a Broker/ Attorney
- Never visit the store in the absence of the seller or seller representative
- Disclose the fact that the business is for sale except with professional advisors.
- Never contact the owner directly without consent and approval of the Broker
- Do not waste time As the Time is Essence
What is mean by DD (due diligence)?
An investigation or audit by the buyer / buyer representative. Due diligence serves to confirm all material facts in regards to a sale. This a systematic and professional investigation process which includes both quantitative information, such as daily sales, monthly sales reports, invoice, paid in, paid outs, monthly, quarterly years taxes, of local, sales, vat, block, state, federal and other related tax data and qualitative information, such as an assessment of the existing management, operations, existing licenses, permits, violations, zonal changes, lease , etc for an acquiring and analyzing information buy buyer or buyer agent whether or not to proceed with a proposed business purchase transaction.
What are the adverse signals on DD. (due diligence)?
- Imposing of unrealistic time frame for the Close of transaction.
- Hiding the key information.
- Limited or No access to information which is vital to take the decision
- Unclear or Unacceptable explanations for the delay of providing the documentation/ reason pertain to sale etc.
- Misleading or false information / Documentation • Not showing the books / licenses/ copies etc.
- Un cooperative seller with No Good Faith Estimate work..
What I have to do if see the adverse signals while I am doing DD. (due diligence)?
- Notify to the seller / Broker
- Ask your representative on timely manner for all important documents
- Increase the time frame for the due diligence procedures to ensure a realistic assessment of the business.
- Ask for the additional information to get the real analysis of the business to find out the extent of the risk of the business
- Arrange meeting with owner in the presence of the Broker / Representative and clarify each and every time pertaining to the Business
- Must get experts opinion / Third Party verification / Audit on the Business
What I have to do once my due diligence tells the business if good to buy?
As per your contract you have to open escrow and deposit the funds as per the contract. Now apply for the license and permits as per the business requirements and coordinate with all person concerning the business such as appraiser, attorney, lender, cpa etc. Once every thing set, the escrow will do all necessary paper work to transfer the owner ship on your name. As the time is essence you and all have to work on good faith estimate and timely manner.
What is the EBITDA?
EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization
What are the DE /SDE?
This is commonest word used in the business industry which means Discretionary Earning (DE) or Seller Discretionary (SDE) which is an estimate of the total financial benefits of a full time Owner Operated Business would come from the given business on an annual basis. It can also call as Cash Flow (CF), Adjusted Cash Flow (ACF), Owner Benefit (OB), Owner Profits (OP) Recast Earnings (RE) or Normalized Earnings (NE).Annual Earnings (AE) This is an important factor used by the Seller /Broker / Appraiser can be used for the valuation of the business.
What is financing and how many types are available in the market?
This is an amount of money required to buy / acquire the business Owner ship. Currently there are two types are available in the market. A. Seller financing is usually the best, fastest and easiest to obtain. It also tells the Buyer that the seller has confidence in the business. There are no loan fees and the interest rate is usually lower than the bank rates, but the term of the loan is often shorter. Seller carry notes are the fastest close of escrow and 99% such businesses are successful. B. Banks/ Financial Institutions will loan / lend money on businesses that show a strong earnings history on the tax returns. They require a lot of documentations and the payment of upfront fees. In recent years, besides the business as collateral, the financial institutional may ask additional collateral such as a real property. It is time consuming procedure but the financial institutions will investigates more than the buyer to ass the risk of the business. Longer duration, less interest rate etc are the advantage.
May I need to keep Book Keeper/ Accountant?
The most importance thing to the business owner is bookkeeping. This not only tells about your business track record, you can also check or verify at any time to know your business direction. There is no specific law state that the business owner should have bookkeeper or accountant that is up to the business owner discretion. Based on the market survey 99% of successful business are have bookkeepers / account. They are highly professionals maintain records sales, invoices, profit and loss, employee pay role, inventory track, all expense bills, etc such as very important for any business. They can also represent you for all kinds of problems. And also these records are needed to file your tax returns which are federal, state, local, ust, vat, sales tax etc. It also is necessary to get credits from the vendors or loans from lending institutions. Even if you ever plan to sell your business, you will need to the records and once you have you can sell and you will get FMV based on your records. Talk with you local Accountant / Bookkeeper to set you up on a good bookkeeping system.
How can I run my business profitable and successfully?
There is no special to run your business in a profitable manner. However the world business market analysis says there few common things influence your success of the business.
- Read and review your current business model and analysis it and built your own business plan and apply it
- Compare with market trends and watch your competitors business what they have, what you do not have. Once you know the gaps please fill it out.
- Most of the small businesses will be successful because of owner involvement. Spend some time a day on the business review the operational methods and adopt new one which makes sense and money
- Train the employees and keep the premises as much as possible clean and neat which always attract the customer.
- Good customer service. Treat the clients with respectful way and make them to comfortable talk with you and your employees which increase your sales greatly If you think if you are customer for the business what you expect and implement it SUCCESS IS YOURS.
Comments reasons for the failure of business?
There are so many reasons for the failure of the businesses however these are the few comments reason for the failure
- Highly paid price than the market value.
- Poor business analysis before taking over the business.
- Improper management
- Bad customer service
- Lake of right products
- Change in the neighbor hood
- License violations
- Outdated products
- Lake of marketing
- Unsafe environment
- Poor Visibility
What is the Escrow and why should I use it?
Escrow companies are licensed third neutral parties which can help you changing of the owner ship. Some time they may either attorney/ broker, who can conduct the escrow services. They are familiar will all local law, state laws, and the business, and they are coordinate with all parties involved in the transactions to close the transactions successfully. The escrow service cost the money however it protects the all parties and gives piece of mind.
What are the down payment and how much I need to buy the business?
Down payment is the amount of the hard money / cash investment or injection by you in order to buy / get the ownership on the business. This amount will be varying from transaction to transaction and rest of the money of the purchase will be coming from the financial institutions as loan or the seller will do financing. The case study shows that these amounts will usually 20 to 40% of the sale price
Do I need to pre qualify to buy the business?
It always good to pre qualify by the banks / financial institutions as every seller want to see the seriousness of the buyer and also you will reviewed by the financial institutions and they will tell what max amount that they can lend on you. With that you can look the business in that price range and also that helps to close the transaction at said time.
How much cash or down payment I need to buy a business?
There is certain minimum amount however most of the cases you may need any where between 20 to 40% down payment of the total purchase price, and rest either seller carry financing or institutional financing. More the down payment is always fair chances to accept your offer by the sellers and also lenders are more comfortable to lend with lower interest rate.
Finally some sellers or broker are not responding my calls or email?
Most of the sellers or brokers are returns your calls are emails but here are few common reasons why they did not call you back
- May be you did not fax or send an NDA
- May be they are out station for any reason
- May be you did not you give correct call back number
- May be your requested information is already on the web
- May be your requested information is not clear
I got enough information but still I am not satisfied how can I get more information on the buying business?
To get further more information regarding the purchase of business and related services please read our Buyer resource column in that you will get in detail information regarding the buying business. Besides these please send an email email@example.com we can ask one of the Free Business Professional Advisors who lives in you area to contact you, to help you to find the business.