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|
|George Lanza, Business Broker, At Plethora Business Sales
Plethora Businesses, a division of A Premier In Services, Inc., is a Business Intermediary Consulting Firm headquartered in Orange, California. Plethora specializes in the listing and sale of small and medium sized private businesses.
|Bob Hughes: Business Broker, Palm Springs 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.
|Mani Singh, Business Broker, Inland Empire
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
|Michael Davidson, Business Broker - Southern California
Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.
|Chris Seaman, Business Broker - San Diego County Area
Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.
|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.
|Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance
For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.
|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.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Buying A Restaurant With Financing: 5 Options For Restaurant Business Buyers
In this Discussion, Peter Siegel MBA (Business Purchase Financing Advisor at 866-270-6278) discusses financing of purchasing a small to mid-sized restaurant business (with or without real estate). When it comes to financing a restaurant, potential restaurant buyers have many options to choose from.
|FREE Weekly Webinars: Buying, Selling Southern California Hospice Businesses
Ralph Santos is a broker specialist in the health care sector specializing in the hospice & home health care agency industry in the LA County and Ventura County areas of Southern California. He'll cover all topics relating to buying and selling hospice care businesses in these FREE weekly webinars.
|Why Restaurant Buyers Typically Fail: Best Pro Tips For Buying A Restaurant
Buying a restaurant (no matter what type) can have many pitfalls, and potential restaurant buyers should know how to avoid getting burned! Several restaurant intermediaries and advisors weigh in on this BizBen Discussion about the best way to find, purchase and run a restaurant successfully!
|Buying A Car Wash - Three Successful Types Of Car Washes To Consider Buying
One of the most popular buyer requests are car washes. Considered easy to run, the number of cars on the road continues to increase, while it doesn't seem that car wash installations are being added to keep pace. Peter Siegel, MBA (BizBen ProBuy Program & Financing Expert) at 866-270-6278 explains.
|Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses
Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 866-270-6278 shares his views.
|Purchase A Business With Limited Or No Cash - Financing Tips For Buyers
Purchasing a business with no money down can be difficult, but not impossible. Financing a business purchase or down payment can often be accomplished with these strategies from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 866-270-6278.
|Business Purchase Financing Expert Gives Tips On Proving Cash Flow
What are the actual "provable" adjusted net earnings (cash flow) of a small to mid-sized business being purchased? Buyers need to look carefully at all financial info for the "real" adjusted net income or cash flow. Peter Siegel, MBA (business purchase financing expert) at 866-270-6278 explains.
|Podcast/Vlog: Business Purchase Financing Chat: SBA Loan, Non SBA Financing
Ever wonder what is involved in obtaining business purchase financing to buy a business or franchise? Peter Siegel, MBA who has over 20 years advising and obtaining all types of financing for business buyers in this video/podcast - SBA loans, Non-SBA Financing, Alternative Financing Sources.
|See All News, Tips And Events|