You may have found the perfect business to buy. Well-established, a motivated seller, and a field that is your passion can be a match that will take you down the path of entrepreneurship.
But what happens next? Buying a business involves a lot of details. From the contract through the closing, you want to make sure that you have the right deal team of skilled professionals in place.
Don’t assume that you can do everything yourself. Your job is to run the businesses once you are the new owner, but you should rely on experts to help you get there and make sure you are protected during the transfer of ownership.
So, what type of deal team should you assemble? Here are the main considerations for buying a business and the people you should have by your side throughout the process.
The Business Valuation
When you look at buying a business, the sale price is going to be a major factor. The seller will have determined a value based on what he/she thinks the business is worth. But how can you determine if the price is fair?
A business broker is familiar with the local market. Often, they specialize in specific industries, so you will want to find one that has familiarity with the type of business you are looking to buy.
Business brokers can also help you determine the valuation of the business compared to the sale price. There are different ways to consider a business’s value, including sales, revenue, or a multiple of the company’s earnings. You’ll also want to think about how a change in ownership might impact the business.
A business broker can also put together an offer to present to the seller. Further, the broker can help you through negotiations and closing the deal. Think of the business broker as your guide through the one-time step of buying the business.
The financials of any business can be complex. In particular, small businesses may not have the most organized financial process, so you will want an experienced accountant to go through the books.
An accountant can look for any red flags and ask specific questions of the seller. The accountant can review past tax returns and determine what obligations the business may have to creditors.
You’ll want to select an accountant that has experience with acquisitions and financial due diligence. An accountant can be another resource for helping you determine the value of the business. Some are also professional business appraisers.
Cash flow is going to be an important part of your business. The accountant can examine the business’s overall cash flow. This will help you to understand what you can expect, especially if you plan to take the owner’s draws or will have a new loan to finance the business.
You may continue to involve an accountant beyond the initial sale. A good accountant can help you minimize your taxes and prepare your business financial statements.
The Legal Process
The final sale of the business must be done legally, and an attorney should review nearly every document associated with the sale. From the terms of the sale to the legal transfer of ownership, your attorney should know what is required to make sure the transfer meets all legal requirements. Moreover, the attorney will protect your interests.
Setting Up Ownership
Your attorney can advise you on the best ownership structure for your business. There are different tax and liability implications for a sole proprietor versus an LLC versus a corporation. Your attorney can help you form the necessary legal entity that will be the owner of your business.
Your attorney will review the terms of the sale. The next steps can include transferring titles, permits, and licenses. Some documents may need to be filed with the court.
You will want attorneys who have experience in business acquisitions, so they know the ins and outs of what needs to occur. In some cases, this may involve multiple attorneys who have different areas of expertise, such as real estate or tax attorneys.
The Business Loan
Unless you are buying the business in cash, you will need a lender who can put together the financing you need to buy the business. Many lenders have expertise in small businesses and know how to assess the risk of buying a business.
When you approach a lender, you will need to bring a lot of documentation. This could include your business plan, current business tax returns, and financials, as well as projections. A lender will need to approve the loan based on their assessment that the business is a good investment.
Not all lenders look at loans in the same way, especially when it comes to small business loans. If one lender turns you down, keep looking for another lender that might be willing to give you the loan you need. Financing can come from a traditional bank, or private lender, or an investor.
Another option for financing is seller financing. This means that the seller helps you with the purchase of the business, and you make payments directly to the seller. This can be in conjunction with bank financing or other private investors that you may have.
Gathering Your Deal Team
As you put together your team to buy a business, think about how the team members will interact with each other. It might be that the business broker and the lawyer have to communicate. Your lender may ask your accountant for information regarding the company’s financials.
If you find one member of your deal team, you can ask that person for recommendations for the other roles. The more solid your deal time, the more smooth your business-buying experience will be.