Businesses are bought and sold everyday. Each transaction is
unique, yet there are fundamental elements to the purchase
process that are common. The purpose of this article is to
highlight the sequential components of a typical business
purchase plan. Whether you are a first time business buyer, or
a veteran business acquisition specialist, it is imperative to
understand the evolution and eventual structure of a business
purchase transaction.
Purchasing a business is an iterative process. There are logical
and cost effective steps that need to sequentially followed to
maximize eventual purchase success and minimize cost. For the
business buyer the ultimate goal is to find and purchase a
viable business for a fair market price, acquired via most
favorable purchase terms. Following these sequential steps will
get you there:
1) DEVELOP YOUR PURCHASE CRITERIA:
Define all relevant criteria to qualify a business for purchase
2) ESTABLISH YOUR “BUYING TEAM”:
A variety of skill sets and expertise will be needed to cost
effectively locate, evaluate, structure, valuate, fund and
negotiate an equitable purchase agreement
3) DOCUMENT YOUR PROFESSIONAL “CREDITABILITY”:
Providing a written summary of your professional skills,
experiences and successes of your entire buying team will
fortify your image with any business seller you approach
4) FINALIZE AND DOCUMENT YOUR FINANCIAL RESOURCES:
Every business seller will want to quickly qualify your
financial wherewithal early on in the mutual evaluation
process. Secure your finances and document your capabilities.
5) EDUCATE YOURSELF ON BUSINESS PURCHASE TERMS AND CONDITIONS:
Take the time prior to your first business pursuit to educate
yourself on as many common business purchase terms and
conditions as possible. Understanding your purchase deal
structure alternatives will maximize your negotiation
effectiveness.
6) DEVELOP A COST EFFECTIVE MEANS TO LOCATE VIABLE BUSINESSES
FOR SALE:
Decide if you are only going after businesses that are “for
sale” or those that can be bought. Establish a variety of means
to define these businesses.
7) UTILIZE NON-BINDING LETTERS OF INTENT:
If you find a viable business you like, document your
intentions, intended deal structure and what exact information
you need to start your purchase due diligence.
8) EFFECTIVELY ANALYZE ALL DOCUMENTATION PROVIDED BY THE SELLER:
Analyze all financial and non-financial documentation provided
as a response to your Letter of Intent. For subjects that are
beyond your level of expertise, acquire appropriate
professional assistance.
9) IMPLEMENT A STRUCTURED DUE DILIGENCE PROGRAM:
Validate provided information, research appropriate target
markets, gather data on key customers, employees, patents,
legal encumbrances, leases, purchase contracts, pending
legislation, key suppliers and technology trends.
10) UTILIZE PROFESSIONAL, 3RD PARTY BUSINESS VALUATION SERVICES:
Contract with a certified business valuation consultant to
define a fair market value, and equitable purchase term
structure for the business you seek to buy.
11) INVESTIGATE ALTERNATIVE FINANCING ALTERNATIVES:
Based on a valid business value determination, seek and define
as many ways you can to purchase a controlling interest of the
business with as much of other people’s money as is reasonable.
12) PRESENT YOUR FINDINGS TO THE SELLER AND NEGOTIATE A DEAL:
After your due diligence is completed, document your key
findings, organize your information and present your case to
the business seller. Hire a credible 3rd party negotiator or do
it yourself.
13) DOCUMENT THE AGREED UPON PURCHASE TERMS AND CONDITIONS, SET
A DATE:
Put everything agreed to in writing. Finalize the purchase
agreement, have your legal counsel review it. Both buyer and
seller sign a Letter of Intent, committing both to the agreed
upon purchase terms and to set a date and time to close the
deal.
14) SIGNATURE OF FINAL PURCHASE DOCUMENTS:
If the deal is an equitable one and both parties have conducted
themselves in a constructive and honest manner, this should be
a “joyous” occasion for both parties and their representatives.
Today’s successful business buyer is a disciplined person using
a definitive process to find, qualify, value and negotiate for
purchase viable business acquisitions. If a business buyer has
a written purchase plan, any number of other supportive people
can effectively participate, understand their role and
contribute to the buyer’s overall business purchase process and
objectives.
If you understand the fundamental steps involved in a typical
business purchase process you are well on your way to being
able to effectively write a plan you can use to meet your
personal business acquisition goals.
About the Author:
Mark Smock is President of
, the
FIRST international business buyer directory of its kind.
Business Buyer Directory provides a non-traditional means for
proactive business buyers to locate businesses for sale
worldwide that meet their exact registered purchase criteria.
