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Guide for Buyers

How long does it take to find a business?

Investors often do not know what they would like to buy. Often they know what they are not interested in acquiring and work backwards by process of elimination. It is not unusual for investors to take up to 12 months to close their first business.

Things to consider when looking for a business

  • Determine your own strengths are you good at administration, operations or sales?
  • Do you have enough skills for a particular industry or do you need assistance in complementing your skills
  • What is your background and can you use the contacts that you have developed in prior businesses for new opportunities. For example, if you have developed good working relationship with buyers in the baked good section of retail stores, finding a business which could leverage these contacts would be advantageous.

When a buyer and seller want to consummate a deal, how do they proceed?

  • Buyer must prepare a letter of intent
  • After the conditions of the letter of intent are completed, the purchase and sale agreement is prepared
  • If the investor is buying assets of the vendor, the closing date of the sale will happen on one day
  • If the investor is buying the shares of the vendor, there is usually a two step closing. There is an interim close subject to the completion of the financial statements of the company. Often, a purchaser will indicate the purchase price is based on a predetermined amount of equity remaining in the company after the financial statements have been completed. If the net equity after preparing the financial statements is higher, the purchaser owes more money to the vendor, if the equity is below the required amount, the vendor owes the purchaser a refund of a portion of the purchase price.

What is a letter of intent?

  • Letter of intent is a non binding document which outlines the terms of the potential sale.
  • Often it provides an outline of the potential purchase and sale
  • Letter of intent usually states conditions which must be satisfied before moving to the preparation of the purchase and sale agreement
  • Letter of intent discusses amount of retainer required, if any, and the terms and conditions of the retainer, when it can be returned in event the deal is not consummated

Examples of conditions in letter of intent

  • Subject to due diligence
  • Checking to see if there are any liens on assets that are being sold
  • Subject to fire department inspection
  • Subject to tax clearances
  • Subject to transfer of leases
  • Subject to financing
  • Subject to being approved by franchisor , if franchise being purchased
  • Subject to attending a training course, if franchise being purchased
  • Subject to interviewing key personnel
  • Subject to completing a mutually acceptable purchase and sale agreement
  • Subject to being able to discharge existing financing contracts

What is due diligence?

Due diligence is the buyer’s ability to review the financial affairs of the company to determine if there is a material error from the financial information presented to the buyer. Items which are looked at during due diligence. Please note that this is sample and not an exhaustive list of procedures done during due diligence.

  • Potential undisclosed liabilities
  • Determining if there are any liens on assets that may not be sold to the new owner until discharged
  • Valuation of assets owned by the company, including by not limited to the collectibility of receivables, the value of inventory and fixed assets

In general, due diligence is used by the potential buyer to find out what the vendor did not disclose to you and to confirm the information that was provided was more or less correct, at least within your level of tolerance of errors

Length of time required to complete selling process

  • Once a buyer and seller have agreed to proceed, it takes approximately 1 to 2 weeks for the lawyer to agree on the wording in the letter of intent
  • Once the letter of intent is signed, the buyer usually has a period of time to complete their due diligence. For smaller transactions, this is usually 2 weeks and will increase depending on the size and complexity of the company being acquired
  • Once all the conditions of the letter of intent have been met, the lawyers will then proceed to write the purchase and sale agreement. For smaller transactions this usually takes two to three weeks to complete but can increase depending on the size and complexity of the Company being acquired

Advantages for investors to register on the website

The purpose of the website is to introduce buyers and sellers together. If you are registered on the website and have provided a very informative description of your likes or dislikes, the size of the business, how you value businesses, then if a potential vendor sees your listing, they may register their business on the website in order to contact you.

The website works two ways, you can register if you want to contact a vendor or you can let potential vendors know that you are searching for a specific type of company and hope that vendors will contact you. The first email that you will receive from an email from a vendor who wants to contact you will be a generic email which states that they believe that their company meets your investment strategy.

Please keep in mind, you will be only identified by an ID number. You control if you will reveal your name to a vendor. There are no fees for investors to be registered on the website.

Need assistance?

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