80% of all California business buyers never end up buying a business! Many factors contribute to this statistic, but by following the points below and utilizing the "ProBuy Method" of buying a California business you should be successful in locating a business that interests you and completing the transaction!
Know The Types/Sizes/Locations Of Businesses You Want To Buy
Before you start calling/contacting business brokers, owner/sellers, and agents make sure you know what types, sizes, and locations of businesses you are looking to buy. If you seem uncertain about your search criteria, brokers and agents will not spend a lot of time with you. There are many more buyers than sellers on the market and brokers/agents and owner/sellers like to work with buyers, who are serious, motivated, and know what they are looking for. Have available and send/fax/email to potential sellers and brokers/agents an Acquisition Criteria sheet that goes over your current search criteria, it pays off and shows you're serious!
Know How Much Money You Are Willing To Put Down
When buying a business you need to know how much money you are willing to spend on a down payment for a business. Most of the time you will be putting down 20-100% down to buy a California business. Depending on the amount of money your willing to put down determines the size of business you are able to purchase. Also know in advance if you would be willing to pledge the collateral in any real estate you own for a note the seller may be taking back in the deal this will save you a lot of time in the search process and in negotiations.
Know Where The Down Payment/Purchase Money Will Come From
Money for a down payment or purchase can come from many different sources. They are: cash on hand in savings, pulling equity out of your home, your retirement funds, SBA loans, seller financing/note. Knowing where and what you are willing to do upfront will save you a lot of time in the search process. You definitely want to get pre-approved/reviewed for SBA loan and other financing options before you write any offers you need to know what your financing opportunities are early in the process of buying!
Get Pre Qualified/Reviewed For Financing - Leverage That Purchase
Getting SBA Loan Pre-Qualified reviewed for financing by lenders is very important since many businesses want all cash for their business. With financing you only have to put down 20%-30% and you can get financing for the rest of the purchase. You will need to submit personal financial info and a work/management resume to these lenders. In most cases depending on the size and type of businesses you are looking to purchase they can tell you if you would be able to get a loan/financing from their company.
Keep The Negotiating & Communications Moving Forward!
Remember - TIME KILLS DEALS. Make sure when you are negotiating the contract, allocation of purchase price, new or restructured lease, etc. always be moving forward. Don't let any situation sit too long - it will most likely kill the deal!
Confidentiality Agreements Are Important
To view or get any detailed information on any businesses for sale you will probably need to sign a confidentiality agreement. Respect this part of the process and keep the sale of all businesses confidential. There are also legal ramifications if it is traced back to you that you were the one who leaked the word that the business was for sale!
Have Your Professionals Lined Up Before You Sign A Contract
You will be utilizing many resources & professionals to buy a business. Make sure you have a CPA or Due Diligence Consultant to help you look at the financials and paperwork of the business to make sure it is in order. You will also possible need financing (a loan for the purchase), escrow services, an attorney to review contracts and possible other services to assist you in the buying of your business.
Make An Offer If You Like A Business! Get The Process Started!
A majority of business buyers are too timid when buying a business and are not willing to pull the trigger� and sign a purchase agreement to start the process of buying a business. Many serious buyers lose out on great deals because they're too analytical or pensive about writing up an offer. Writing up an offer also usually "locks out" other potential buyers (your competition) for a period of time so you can take a look at important business records and info. After signing the purchase agreement there will be a Due Diligence period with contingencies that will have to be met before the deal is closed. If those contingencies are not met or the books and records are not exactly as represented you are in most instances able to pull out of the deal and go on searching for other businesses for sale - make sure you have all contracts/agreements reviewed by an attorney before signing.
Get The Signed Purchase Agreement Into Escrow
Get the signed purchase agreement into a bulk sale escrow immediately and sign off any contingencies as they are removed- remember TIME KILLS DEALS. Make sure you go through the Allocation of Purchase Price in the beginning of the escrow process not at the end which happens most of the time. By getting into the escrow process usually takes the deal out of play and out of reach for other potential buyers.
Keep The Escrow Moving Forward At All Times!
On good businesses for sale there will probably be multiple offers to buy the business - even when it goes into escrow there will be potential buyers who will want to get in line in case things bog down. You want to make sure you move the process along so that you aren't perceived as getting second thoughts about buying the business! Open communications, setting expectations and keeping things on schedule gets deals to close smoothly.
About The Author: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) consults with buyers, owners/sellers, business brokers, agents, investors, and advisors. Reach him direct at 925-785-3118 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.
Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business
Comments Regarding This Blog Post
All great points, Peter. A buyer should remember to have patience, because the buying process takes time, but do act on an opportunity that makes sense. There have been a handful of businesses that I've sold, which I've thought, "I'd buy that if I was back in the game." I've seen some buyers take too long and be too cautious and ended up losing or passing on a business opportunity that was really good. My advice is that if it looks good then make an offer, a buyer for a business unlike a house does not or should not go into escrow immediately after the offer is accepted, but only until the full due diligence period is over and they are completely satisfied. Sometimes a buyer who takes more than 10-14 days of due diligence ends up frustrating the seller and the deal dies, because the seller wants to get on with the process.