Once you have an accepted offer, the clock starts on the due diligence period which ranges from 17 to 30 days according to the terms of your Purchase Agreement. Some of the items to review are:
Three year's tax returns on the business in one of the following formats:
a. Audited /best
b. Reviewed /better
c. Compilation letter /good
Three year's profit and loss statements plus the year-to-date P&L
Sales tax reports, if applicable
Lease on the business
Bank Statements for the previous year and year-to-date
Contracts with vendors and employees
Lease agreements on equipment
Other items that are business specific, i.e.; franchise agreements
The above materials should get you started on the road to due diligence and buying a business. Another good strategy during this period, if agreeable to the sellers, is shadowing them to get a good look at the business operation. The due diligence period of a sale is the dating period for the buyer and seller. The close of escrow is like exchanging vows-- once you close escrow, it is too late to reverse the sale. As Davy Crockett once said "be sure you are right, then go ahead, and never look back". It's the same principle with a business sale; you like it, you review it, you buy it, then you make it successful.
Determining cash flow is the most important goal of the due diligence process. For all intents and purposes you are buying a job and must be sure the business will meet your expectations. Cash flow is considered the total amount of money an owner can get out of the business. This includes items such as salary, taxes, insurance, autos and auto expenses. Additionally, non cash items such as depreciation and amortization, profits, entertainment and travel, retirement fund, parties, gifts, and any expense items that are incurred at the owners discretion and not required to run the business.
In my experience, buyers project improving the business 10 times better than the seller's current efforts, and in most cases they do end up with greater numbers than the previous owner. Sellers often get tired eyes after a few years of operating a business. Once you've been in business for a few years, let's face it, you've most likely tried everything at least once. Buyers will probably try the same things again and then some, but with a different twist, or at a different time. Fresh eyes and energy are what make a business succeed.
Due diligence is a process to make sure you are getting what you expected, laying the foundation where you can invest your new enthusiasm to grow the business. There is nothing better than being your own boss and driving your own success.
About The Author: Bob Hughes is a business broker in the Coachella Valley (Riverside County) and San Diego County areas assisting business buyers and owner/sellers throughout the Inland Empire. You can reach Bob by phone at 760-323-8311.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Joanne Weber, Broker - Preschool Specialist - Southern California
The Ryan Craig Company is in its 35th year as the recognized expert in Southern California, dealing exclusively in the sale of preschools, Montessori schools, day care centers, and private schools. Our extensive list of references speaks for itself. Phone Joanne at 818-760-3684 for more info.
|Peter Siegel, MBA, BizBen Founder, ProBuy, ProSell Programs
Founder & President Of BizBen.com (since 1994) & BizBenNetwork.com. I am the Lead Facilitator for the ProSell & ProBuy Programs on both websites. I consult daily with buyers, sellers, and intermediaries daily about buying and selling businesses. Call 925-785-3118.
|Mike Brewer: Liquor License Broker, ABC Consulting Service
Liquor license brokerage and consulting services. We provide: Alcohol License Transfers Application Consulting & Processing, Liquor License Purchases & Sales, City Zoning Permits & Land Use Entitlements, Public Convenience or Necessity Findings and Letters. Phone Mike Brewer direct at 800-437-1100.
|Lee Petsas, Business Broker - Southern California Area
Lee Petsas has been selling businesses with UBI Business Brokers in Southern CA since 1981. In 1999 he became the Owner and Broker for UBI. He has been approved multiple times by Courts as an Expert Witness in the area of Business Valuations.
|Jack Oh, Business Broker: LA, Orange Counties
Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.
|Bob Hughes, Business Broker: Coachella Valley Area
Bob Hughes is a business broker & is President of Hughes Properties. Hughes has a wide variety of entrepreneurial experience with the personal ownership & sale of numerous businesses, and has sold over 200 small & mid-sized businesses in the Riverside County marketplace. Call Bob at 760-323-8311.
|William Park, Business Broker - Southern California
Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.
|Mani Singh CBB, M&AMI, Business Broker, Southern California
I have successfully represented clients sell & acquire multitude of businesses ranging from Gas Stations, Liquor Stores, Markets, Super Markets, Smoke Shops, Postal Stores, Restaurants, General Retail, Auto and Construction related. Phone me for assistance with selling or buying at 951-296-7646 Cell
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