Individuals looking to purchase a business commonly find that the process can be a daunting task. However, an article by the Colorado Association of Business Intermediaries provides a general overview of the process involved in the purchase of a business. Specifically, the article identifies the following steps:
- Get the Basic Facts. The first step is to obtain preliminary information concerning the business such as industry, location, asking price, purchase terms, income and other financial information. This will give you a general idea of whether the business falls within the general perimeters of your criteria. Also, don’t get hung up on the purchase price as most businesses sell for 15-25% less than the asking price and most sales are seller financed.
- Visit the Business. Visit the businesses facilities. Put yourself in the position of a customer or client and see if the business is located in an appropriate location and passes a visual inspection. If not, there is no reason to go any further in the process.
- Get Questions Answered. Meet with the Seller to discuss the general operations of the business. Discuss the history of the business, trends, operational issues, general financial information, and reasons for the sale. Detailed financials are not needed at this point as an extensive review will be performed in connection with the due diligence period discussed below.
- Make an Offer. If, based upon your preliminary investigation, you want to move forward with the process, the next step it to make an offer. The initial offer is typically made in the form of a letter of intent which is intended to confirm whether the seller will accept your general offering terms, price, and proposed structure of the sale. The offer will be contingent upon confirming detailed information in the due diligent period and reaching agreement upon a definitive purchase contract.
- Due Diligence. Now is the time to request and review detailed financial information and other information concerning the business and its products, services, and customers. The seller will typically require a prospective purchaser to sign a confidentiality agreement in connection with disclosing this information.
- Bring in Outside Advisors. Accountants, attorneys, and other professionals will be necessary to assist you in your review of technical due diligence information as well as to draft appropriate purchase documents. It is also typical to have these professionals assist in the preparation of the letter of intent and confidentiality agreement.
If you would like more information regarding the purchase or sale of your business, or if you would like us to review your sale documents, please contact our Business Law Group partner, David A. Closson at [email protected].