Found the perfect business to buy, your next steps are critical.
Firstly, congratulations. With thousands of businesses for sale at any one time it is a challenge to find a business that you think might be right for you.
Next thing to do is to complete the enquiry form and request more information. If the contact is a business broker you will be asked to sign a Confidentiality Agreement or Non Disclosure Agreement and possibly forward a copy of your licence.
If they are not prepared to send you further information such as a Business Profile or Information Memorandum then proceed no further. If they tell you that you must go to their office then proceed no further.
Your time is valuable so don’t waste it with brokers that cannot provide you with the information you need. It may be that they have no information or the business advertised may not be for sale or may have never existed. This happens.
The information should provide you with enough content to make your next decision. Do I want to investigate this further? If yes, make a list of all your queries and contact the broker.
Most queries centre around the financials provided. If the business is making a loss but “add backs” have been included to show a profit, then question these further. Note, getting finance may be more difficult if the business has reported losses or little profit.
Queries in relation to staffing, equipment, leases, and any operational issues should be directed to the broker for follow up.
Ignore the asking price as this is what it is – it’s only an asking price.
If there are significant delays in receiving answers to your queries, be concerned.
If you are satisfied with the answers to your queries and keen to pursue then if possible visit the business. This is easy if a café or restaurant where you can observe the operations as a customer but may not be possible if a professional business or private concern.
Best to make the visit before having physically met the broker or vendor because if they don’t know you, there will not be any special treatment.
Being discreet, astute and observant will provide you information about the business that is not documented in any report.
Still keen, then meet with the broker and arrange a time to visit the business and meet with the vendor.
A good broker will control the meeting. Limited confidential information will be provided until you have committed and paid a deposit but enough information should be provided to satisfy you that the business is a suitable purchase.
Time to talk to your accountant or business buyers advocate. To go to this expense means you’re serious and prepared to pay for advice. Having third party input will help you assess the business and determine a reasonable purchase price with specific terms and conditions.
Remember the asking price advertised is an ambit claim.
Many brokers are just keen to get a deal completed. They want their commission. This is the stage that you take control of negotiations. It is your offer and on your terms. A broker, whilst having the vendor as a client, will be keen to get your offer in writing. They will want this offer to be supported by a deposit, typically 10% of the purchase price.
They will say the deposit is required as it will indicate to the vendor that your offer is serious. What they don’t say is that it is10% because it will cover their commission and possibly a reimbursement of advertising costs.
Don’t be bullied into changing your offer. Prepare a Terms Sheet or Heads of Agreement and have the broker present the offer. If you feel there is room to negotiate, then do so if required. If not and your offer is not accepted, walk away.
The Terms Sheet or Heads of Agreement should include all conditions that need to be met to complete a sale including due diligence, lease assignments (if applicable), trials (particularly if it is a cash business), finance approval conditions and any further requirements that you feel are important to be included.
Whilst negotiations can be stressful for both parties, remember that the end result needs to be a win/win for both parties. If you feel uncomfortable negotiating, engage a business buyers advocate to represent you.
If your offer is accepted, the fun begins.
If you have found a business that you are keen on and would like some assistance, please give Business Buyers Advocacy Australia (BBA) a call so we can guide you through the process.