It's similar to buying a home without a broker.You have to sort through legal paperwork and financial statements to find a business.A good team of legal and financial advisors can point you in the direction of a good business deal.
Step 1: Pick the type of business you want.
If you want to work in an industry that is for sale, you should narrow it down.Do you want to own a retail establishment, restaurant, or both?You should not jump into any business deal that doesn't suit your interests and skills because you might be excited to start as a business owner.You should not enter a business field with no experience.You might have worked in retail, but that doesn't mean you can run a restaurant.Think about where you are.Some areas are booming while others are in decline.Talk to business owners in your area to find out how their industry is doing.
Step 2: You can find businesses for sale.
Without a broker, you have to do some digging to find businesses.Ask people in the industry if they know anything for sale after you identify the type of business you want.When owners are thinking of selling, they don't list the business publicly.You can search online.Businessforsale.com has over 50,000 listings in 130 different countries and is a good website.Smaller businesses can only advertise in the newspaper or onCraigslist.You can reach out to your local Chamber of Commerce.Ask if they know of owners who want to sell.
Step 3: There is a letter of intent.
You will have the first communication with the owner.You can make a general offer if you identify yourself.A letter of intent is not a binding contract.It's an important document.Your proposed price and the assumptions that price is built on will be outlined in your letter.You might think the business has a certain amount of sales.The price you ultimately offer will probably be lower if that turns out to be incorrect.You can acquire the business by buying assets or stock.How much will be paid.You might want to trade stock or an all-cash deal.It's up to you whether you want an exclusive clause.The buyer agrees not to consider other offers while you do due diligence.Your due diligence timelines.You should have time to go through the financial records of the business.Let the seller know how much time you need.Anything else is important.If the seller signs a non-compete agreement, you might only want to buy it.An appraisal of the business is something you might want to do.Anything that might be a deal breaker should be included.
Step 4: You must submit your letter of intent.
Pick out which parts of the offer are binding and which are non-binding.The price should be non-binding, but the exclusivity clause will probably be binding.Wait to hear back from the seller when you submit the letter.
Step 5: A confidentiality agreement should be signed.
You will need to look at important financial documents when buying a business.You will probably have to sign a confidentiality agreement if you want to keep these details private.It is standard for an agreement to last one to two years.After reviewing business information, you will probably have to agree to destroy it.
Step 6: Hire a lawyer.
You might want to skip a lawyer if the sale is small.You should consult with an attorney if you have any questions about the law.If the business costs a lot, you should hire a lawyer.You should get a referral from your nearest bar association if the lawyer has experience buying businesses.Some lawyers do not.A lawyer can help you get your business off the ground.You might need to file reports or request licenses.A lawyer needs to know where to look.
Step 7: Hire an expert.
Business records and assets can be looked at to come up with a realistic estimate of the business' worth.An appraiser is an essential team member since you don't have a business broker.A business appraisal can take up to 50 hours to complete and cost between $3,000 and $35,000, though the exact amount will depend on the size of the business and its location.Small businesses will cost more than $3,000 to appraise.Before hiring, you should get an estimate.Look to see if the appraiser has an appropriate professional designation.The credentials show that the person has passed the exams.
Step 8: Financial records to be analyzed.
Balance sheets, cash flow statements, and accounts payable and receivable can be requested for the past three to five years.The seller should give audited statements.If the seller doesn't give you financial records or if you find errors, then that could be a sign that the purchase is off.Request tax returns for the past three to five years.Check to see if the income has gone up or down.
Step 9: An accountant will help you.
You should hire an accountant if you don't know how to read financial records.They can look at the financial documents to see if the business is sound.Asking another business owner if they would recommend their accountant is a way to get a referral.You can contact your state's accounting society in the US.
Step 10: There are business documents to check.
The contracts of the business should be judged on how favorable they are.Some contracts might have cost increases built into them.Ask the seller for copies of the following and analyze them with your accountant.
Step 11: Look at inventory.
You will buy everything on the shelves and in storage if the business sells goods.The inventory is in good condition if you look at it.Accepting the seller's word for it is not a good idea.You can lower the price if the inventory is in poor condition.
Step 12: The business has a good reputation.
Inquire about the names of existing vendors, suppliers, and customers.Ask them if they have a relationship with the seller.You can check with the Business Better Bureau to see if any complaints have been filed.Request the company's credit report.Dun & Bradstreet is one of the three business credit reporting agencies.The seller can give them to you.
Step 13: There is a complete list of liabilities.
It is a rare business that does not have liabilities.They need to be included in your analysis.Refer to the following with your lawyer and accountant.You can check for UCC filings with the Secretary of State if the seller gives you this information.The business has liens against it.Someone might have won a court judgement against the business.They can make a claim on the business assets.There are employee benefit claims.Lawsuits.You can find court records in the county where the business is located.You can use the business name to find databases in the courts.
Step 14: The business has a safety record.
It could turn into a huge liability if the business is unsafe.Go over the information with your lawyer.If you are buying real estate, you will most likely be responsible for any environmental clean-up.You should check to see if an environmental site assessment has been done.You should be aware of any known dangers, even if you don't want to pay for it.There were OSHA violations.Look at OSHA safety reports.You can inspect the business with an OSHA inspector if the seller hesitates.There are workers compensation claims.Check if a lot of claims have been filed.What is typical for the industry can be researched by your lawyer.
Step 15: Make a list of what assets you will buy.
You can either take over the entire business by buying the stock, or you can only buy certain assets.The seller might not want to sell all of their assets.Determine what you will buy.If you buy assets, you can not assume the business's liabilities.The asset purchase is more expensive than the stock purchase.
Step 16: Get a fair price.
You have a better idea of what the business is worth after diving into the financials.You stated in your letter of intent that you would offer more or less.To reach a fair price, negotiate with the owner.
Step 17: The closing date should be set.
Give yourself time to complete the transfer.You may need to re-title assets to transfer ownership, and it can take a while to prepare the documents.You will need to purchase insurance and get financing.
Step 18: Find financing.
You should pay cash and finance the rest.You can get a loan from a traditional lender.You should stop into any bank you have done business with and tell them you are thinking of buying a business.You can ask the loan officer if you qualify.Get seller financing.You pay back over five to seven years if the seller is willing to finance 30 to 60 percent of the purchase price.You can get a loan from a bank.You can use your savings.You may be able to use your retirement accounts to fund the purchase.
Step 19: The sales agreement needs to be reviewed.
The key terms of the sale are contained in this contract.Before you sign, your lawyer should review it to make sure your rights are protected.Your agreement will affect the substance of the contract.If the seller has agreed to stay on as a consultant, there should be an employment agreement.Assets excluded from the sale should be listed in the agreement.You should list all the liabilities you assume.There is a statement to be made if you assume no liabilities.Look for any warranties from the seller.The seller should have clear title to all their assets and that their financial records were presented fairly.You can demand compensation if they weren't.
Step 20: Attend the closing.
Signing many documents at the closing is necessary to transfer the sale.The documents should be reviewed together by you and your lawyer.You may need to sign a bill of sale, which transfers the business assets to you.There is a closing or settlement sheet.You have to file tax forms with the government to document the sale.A note for your loan.A security agreement is used as a security for your loan.