Business Buyers – Is The Price Fair?



As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price. How much are you willing to pay for the business, and how does the seller arrive at their asking price? These are important considerations, and as you progress through the due diligence phase, you will be deciding if you think the price is fair. What parts of a business will you need to consider when determining the price you are wiling to pay?

 

thinking businessman in suit making decision

 

Inventory

What is the inventory? The inventory includes any materials and products that are used for resale or for client services.

It is very important that you personally, or a trusted and qualified representative (like your business broker), are present for and participate in any inventory examination.

You will need to know the inventory status in order to give it a proper evaluation. You should also request the inventory counts from the end of the previous fiscal year.

You may need to have the inventory appraised if you are unable to properly appraise it yourself. The inventory counts as a hard asset, so you will need to know what dollar value to assign to it.

An important point to keep in mind is the value of the inventory is something that can be negotiated. If the inventory is incompatible with your future target market, or in poor condition – these are points to be brought up during negotiations.

 

Equipment and Furnishings

These parts of the business are important in terms of value because they are considered hard assets, so you will need to know what furnishings, equipment (like kitchen appliances in a restaurant), and office equipment is part of the deal.

For any equipment you will need the name and model number for each piece, the present condition, the value when purchased, the current value, and whether the equipment was leased or bought.

You will also need to consider what kinds of changes and improvements to the building will be needed in order to suit your future business plan.  Find out what the seller invested in terms of maintenance and leasehold improvements so you will know what it will take to keep the facility in good condition.

 

Financial Records and Contracts

You will also need to examine financial statements, sales records, and tax returns for the last few years.

This is a great time to enlist the help of your business broker and possibly an accountant who is familiar with analyzing business transactions. Both will have the experience necessary to determine what the records really show in terms of how the business has been doing. It is impossible to gauge the health of a business  by simply looking at the bottom line of tax returns – more analysis will be necessary.

Have your business broker determine the operating ratios of the business, as these ratios can be a good indicator to compare against industry standards.

Examine any and all contracts and agreements the business currently has. These include purchase agreements, leases, contractor agreements, and any other legal instruments.

 

The price of a business may change based on the economic climate or on the motivation of the seller, but in all reality the price of a business is what a buyer is willing to pay for it. Take a good look at the inventory and other hard assets, along with the financial records of the business before you head to the negotiation table with a number you consider fair.

 

Do you have more questions about how you as a buyer can determine if a price is fair? Would you like to know more about what the financial records of a business can tell you? Ask us! Please feel free to leave any questions or comments and we would be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


3 Steps to Buying a Business – A Guide For Business Buyers



Ready to buy your own business? Here are three steps you will need to take on your road to business ownership.

 

Step 1 step 2

 

Step 1: Arranging Financing

One of the most important steps in the process of purchasing a business is financing. How are you going to pay for your new venture?

There are several resources available which you could tap in order to put together the financing needed for your journey into entrepreneurship. These options consist of gathering funds from family members/friends, financial institutions or seller financing.

No matter what the source of funds, all lenders are going to have conditions which you will have to satisfy if you want to be approved for the funds. They are going to require you to have adequate cash readily available for the down payment in addition to having sufficient working capital to sustain the business.

You will need to be aware of and account for costs like closing fees. It is possible to either pay for the closing fees up front or plan to have them incorporated within the amount that you will be financing.

Having financing or at least a down payment in place before you begin your business search will simplify the process of finding the right business for you.

 

Step 2: Making an Offer

You found a business and have finished going over the initial financial records. You think this might be the business for you. It is time to make an offer, but how do you determine what that offer should be?

First, consult with your business broker. There are considerations that influence price such as the amount comparable businesses have actually sold for, the value of inventory and contracts – the list goes on. By consulting with your business broker you can consider all aspects and decide whether the asking price is fair and how much you are willing to offer.

 

Step 3: Due Diligence

After an offer is accepted, the offer you submitted essentially becomes the purchase contract – and you will move to the next stage – due diligence. This is a crucial step when purchasing a business.  It is due diligence which enables you to figure out whether or not this business is for you. It also helps to determine what price you will be prepared to pay for it.

The evaluation of the business will begin with examining the previous three years of financial records. You need to reveal any unresolved legal actions, relationships with vendors and clients, intellectual property rights including copyrights or patents, as well as any future liabilities.

Once you have all the necessary information you can make an informed decision about whether or not to proceed. This is the nature and necessity of due diligence.

The evaluation will need to be modified to take into account any details uncovered while in the due diligence phase. Developing a complete picture of the value of the business will allow you to determine whether or not to move forward as well as the highest price that you are prepared to spend.

As soon as you have arrived at what you feel is a complete picture of the business and have also arrived at a price that takes into account what you found during due diligence – you and the seller will negotiate to amend the purchase contract and proceed to the closing table. The purchase contract might be quite a few pages long due to the fact it itemizes each and every component of the sale. This step commonly requires using the services of your business broker, a CPA along with an attorney to guide you in the process.

 

Do you have more questions about the steps required to buy a business? Would you like to know more abou the due diligence process? Ask us here!

 

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Doing Due Diligence On Yourself – How Smart Sellers Stay Ahead



Group of Business People Working on an Office Desk

 

You might think you are ready to sell your business, but few small business owners actually are. Do you have all of your books in order, have you made any necessary repairs or paid off all of your business debts?

 

Preparing a business for sale is a lot like preparing a house for sale. You need to make it look aesthetically pleasing and fix what’s broken.

 

There is, however, one major difference. Due diligence.

 

Once you have accepted an offer from a buyer, the due diligence period begins and you will be opening up your financial records, contracts, leases – everything – for that buyer to inspect.

 

Any problems found during due diligence can lead to one of two outcomes. Either the deal is dead and the buyer walks away, or they come back to you with a lower offer to compensate for the problems they’ve found.

 

No seller wants a perfectly good deal to fall through, and you want to get the best possible price for the business you’ve worked so hard to build – so how do you avoid due diligence issues?

 

Do due diligence on yourself.

 

Before a buyer has a chance to peek behind the scenes and go over your books with a fine-tooth comb, you should do this yourself. By performing due diligence on yourself you will see your business through a buyer’s eyes and will be able to address any potential problems long before a buyer finds them.

 

Don’t think you have any issues that will come up in due diligence? Think again. All small businesses have a few skeletons in the closet, and they can’t be hidden. Buyers always find issues, so the best way to deal with this eventuality is to solve the problems before they are found.   

 

How do you do due diligence on yourself? Ask your business broker for guidance and perhaps employ the services of a business transaction CPA. Some questions you could address?

 

What documentation do you need to be going through?

Do you know where all of your documentation is?

What financial information will buyers be interested in?

What are your possible due diligence issues and how can they be addressed before a buyer finds them?

 

Performing the due diligence process on yourself will help you and your business to stay ahead of the game during the transaction process and will also help you get the biggest return on your business sale.

 

Do you have questions about what buyers will want to see during due diligence? Would you like to know what problems we’ve seen in due diligence in the past? Ask us! Leave any questions or comments and we would be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


3 Financing Options For Small Business Buyers



Partnership and bisiness flat concept

 

If you are looking at buying a business, you may not have the full amount you would need to make an all-cash offer – so financing options might need to be considered.

 

What financing options are available for those who are looking to purchase a business?

 

Traditional Loans

You may be thinking that you can just head down to your local bank and take out a loan to help you buy a small business, but this option will probably have to be taken off the list. Traditional lending institutions are very gun-shy about financing small businesses. 

 

If you are entering the world of small business ownership you already know that starting a small business is a risky venture. You are trying an unproven product or service in an unproven location with unproven operating methods.

 

Buying an existing small business removes the “unproven” part of the equation – good news for business buyers – but a traditional lending institution is only looking at the risk. For most prospective business buyers, a traditional loan from a traditional lending institution probably isn’t on the table.

 

The Small Business Administration (SBA)

Some businesses on the market and some buyers who are considering those businesses will qualify for a loan from the U.S. Small Business Administration – just be aware that because this is a government program it comes with its fair share of paperwork and red tape.

 

Both the business and the buyer themselves will have to meet the qualifications necessary, but in some instances this can be a great financing option for those looking to buy a small business. If you would like to know more about financing options from the SBA, read Business Buyers: A Guide to Financing and the SBA (U.S. Small Business Administration).

 

Seller Financing

Most small business transactions involve this third type of financing, where a buyer puts down a down payment (typically 50% or more) and the seller finances the rest.

 

This is a great financing option for several reasons. A seller who is willing to keep some skin in the game speaks volumes about their confidence in the future of the business – and it gives opportunities to future business owners who may not have been able to find more traditional lending options.

 

If you can’t get a traditional loan, and SBA financing isn’t in the cards – talk to your business broker about the possibility of seller financing and about what businesses on the market are currently offering this type of financing. Want to read more? Read The Business Buyer’s Guide to Seller Financing.

 

The opportunity to buy a business can come in many forms. The financing option that suits you best and is available for the business you are interested in will vary – just ask your broker about your options.

 

Do you have questions about how to qualify for a loan from SBA? Would you like to know what currently available businesses are offering seller financing? Please feel free to leave comments and questions here and we would be happy to help.

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Business Buyer Questions – Keep The Deal Alive



Business transactions are complicated beasts, and as such they fall apart more readily than they stay together. If you are looking at buying a business, you will need to do your part to keep your deal together if you ever hope to make the jump to business ownership. Here’s how.

 

Confused businessman looking at question mark

 

Are you really, really sure that you want to buy a business? Small businesses are very rewarding ventures, but they are intense in terms of time and effort that you will need to invest. Are you sure you want to make the move from a 9 to 5 job with two weeks of paid vacation to a life where the buck stops with you? Yes, small business owners decide what hours they work – but the hours necessary can be very long. Is your family ready to sacrifice this time with you? Consider the changes that will happen before they do.

 

Do you have realistic expectations? Buying a business is absolutely nothing like buying a house, and understanding how businesses are priced is not like pricing a car. Buying a business also takes a lot of time and patience. It also requires many, many moving parts and a good deal of negotiation. Talk early and often to your business broker about managing your expectations during the purchase of a business so you will know what to expect.

 

Have you done your homework? Do you have the background and experience to own the type of business you are considering? It is far easier to go into business ownership in an industry where you have some practical experience because you will already know something about how the business is run and the typical operating procedures that you will need to have in place. If you are trying to enter a completely new industry, then you will need to do some serious research into how that type of business runs on a day-to-day basis. You don’t want to give yourself an incredibly steep learning curve the moment you take over as owner.

 

The complexity of business transactions also means it is important to remember some other key points. First, honesty is the best policy. Second, trust the judgment of your business broker. Third, keep your expectations in the realm of reality. Lastly, be patient with the process. If you as a buyer are serious about getting the deal done, any potential problems can ultimately be resolved.

 

Do you have questions about the business buying process? Would you like to know what industries would be right for you? Ask us! Leave comments or questions here and we would be happy to help.

 

 

 

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com



Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907




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