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Buyer - FAQs


Q. Why should I buy an existing business?

A. An existing business typically has existing cash flow, established customer and vendor relationships, trained employees and market-proven products and services. It is advantageous to buy an established business compared to starting a new one.

Q. What should I know when buying a business?

A. As a prospective business buyer, your major concern will be: why is the business owner selling the business? Business owners sell for a variety of reasons: retirement, poor health, relocation or simply, being ready to move on. If it is a good business for you, the reason for the sale doesn't matter.

Finally, be aware that most businesses sell for much less than their listed price. Therefore, if it's a business you like, don't be afraid to make what you consider to be a reasonable offer.

Q. How can a Business Broker assist me in finding and buying a business of my interest?

A. Business Brokers provide you with access to thousands of business for sale opportunities and they can help identify businesses that suit your monetary and lifestyle requirements and are appropriate for your business skills and experience. Business Brokers will also help you understand and navigate the complexities of buying a business, facilitate negotiations between you and the seller assist in financing and oversee the due diligence and closing process.

Q. What are the requirements for qualifying for SBA loans?

A. The SBA has flexible qualifying standards for its loans as compared to other types of loans; however, lenders will generally ask for certain information before deciding to use an SBA loan program. Generally, lenders will need the following documentation to evaluate your loan request:

Business Profile
A document describing type of business, annual sales, number of employees, length of time in business and ownership.

Loan Request
A description of how loan funds will be used, which should include the purpose, amount and type of loan.

Collateral
Description of collateral offered to secure the loan, including equity in the business, borrowed funds and available cash.

Business Financial Statements
Complete financial statements for the past three years and current interim financial statements.

Personal Financial Statements
These consist of statements of owners, partners, officers and stockholders owning 20% or more of the business. The strength and accuracy of your financial statements will be the primary basis for the lending decision, so be sure that yours are carefully prepared and up-to-date. The most important documents in your financial statements are:

  1. Balance sheets from the last three fiscal year-ends

  2. Income statements revealing your business profits or losses for the last three years

  3. Cash flow projections indicating how much cash you expect to generate to repay the loan

  4. Accounts receivable and "payable aging" breaking your receivables and payables in to 30-, 60-, 90- and past 90-day old categories

  5. Personal financial statements from you and your business partners listing all personal assets, liabilities and monthly payments, as well as your personal tax returns for the past three years
Q. What are the steps of the due diligence process?

A. Due diligence is an extensive and thorough process, we strongly recommend consulting your attorney and accountant for a complete explanation. A sample list of topics reviewed during the due diligence process follows:

General Information
Taxes
Organizational Matters
Material Agreements and Documentation
Litigation
Sales and Marketing
Regulations and Permits
Insurance
Intellectual Property
Employee, Deferred Compensation and Benefits
Financial and Accounting Matters
Environmental Matters
Receivables
Permits and Licenses
Liabilities
Relations with Authorities
Budgets and Forecasts
Miscellaneous

Q. Why is confidentiality so important to the seller?

A. Typically, confidentiality is very important to a seller. It can be damaging to a business if it is known that it is for sale. Customers may not be interested in buying from a business that is up for sale, competitors could use the information to their advantage, and employees generally experience anxiety and often leave.

Q. How are the businesses priced?

A.Though many formulas and tools can help you determine the selling price for your small business, there is no magical solution that will come up with the absolute correct price for every instance. The final price ultimately depends on how badly the buyer wants to buy and how strongly the seller wants to sell.

There are a number of ways to value your company and determine your asking price. For example, find out the selling prices of similar businesses in your area and use them as a starting point.

You can also hire a professional business appraiser. This may lend more credibility to your initial asking price and allow you to keep the reins on sale-price negotiations.

Common valuation methods include:

Market-based valuation. This method is frequently used by business brokers and is based on their past experiences selling similar businesses. The broker may recommend an asking price based on the sale prices of similar businesses in your area and industry. Although this is not a comprehensive valuation tool, because it is quick, inexpensive, and makes sense to buyers, it is common practice for the sale of small businesses.

Asset-based valuation. This takes into account figures such as the book value and liquidation value of the business. These are considered bare minimums in business appraisals and are not generally used as the sole path to an asking price.

Earnings-based valuation. This method takes into account historical financial figures, including debt payments, cash flows (past, present, and projected), and revenues. Earnings-based valuations are often combined with asset-based valuations for a more inclusive appraisal.

Q. Why should I go to a business broker?

A. A professional business broker can be helpful in many ways. They can provide you with a selection of different businesses, including many that you would not be able to find on your own. Approximately 90 percent of those who buy businesses end up with something completely different from the business that they first inquired about. Business brokers can offer you a wide variety of businesses to look at and consider.

Business brokers are also an excellent source of information about small business and the business buying process. They are familiar with the market and can advise you about trends, pricing and what is happening locally. Your business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, consulting other professionals who may be able to assist you.

Q. Should I hire an attorney?

A. It may be advisable to have an attorney review the legal documents. It is important, however, that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling business sales, you may be paying for the attorney's education. Most business brokers have lists of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. Business brokers are not qualified to give legal advice. However, keep in mind the fact that many attorneys are not qualified to give business advice. Your attorney will be, and should be, looking after your interests; however, you need to remember that the seller's interests must also be considered. If the attorney goes too far in trying to protect your interests, the seller's attorney will instruct his or her client not to proceed. The transaction must be fair for all parties. The attorney works for you, and you must have a say in how everything is done.

Q. Where can I obtain financing to help me buy a business?

A. There are a variety of sources available for purchase financing. These range from a typical commercial lending source to asset-based lenders and seller financing. The availability of outside financing will depend upon the asset base of the business, its operating history, collateral availability and projected cash flow - the same issues considered in all business lending. Seller financing is also an option. In this case, the seller of the business takes back a promissory note for part of the value of the company. Seller financing may be a good indication of the seller's faith in the continuing operations of the business. The SBA is a helpful resource when trying to determine what type of financing is available.

See the Financing section of this website.

Seller - FAQs

Q. I am interested in selling my business… What is the selling process?

The following are the general steps we follow while selling your business. You can refer to your Business Broker for more details on the process of selling a business.

  1. Help you identify the goals to be met through the sale of your business.

  2. Market the sale of your business confidentially. Your employees, customers and competitors will be unaware that your business is for sale.

  3. Screen potential buyers before presenting them to you.

  4. Work with you to arrange meetings with potential buyers (this may include evenings and weekends).

  5. Begin negotiations between you and the potential buyer when both parties feel comfortable. Your broker will also help you evaluate each offer when trying to sell a business with his or her knowledge of current market trends, financing matters and business law.

  6. Manage the negotiations, keeping your interests in the forefront, until an acceptable deal is agreed upon and closing legalities are finalized.

  7. Work towards your complete satisfaction in every facet of the successful sale of your business.

Q. What can I do to help sell my business?

A. There are certain things you can do to help us sell your business. They are:

Keep normal working hours.
Make sure your financial records are an accurate reflection of revenues, business expenses and assets/liability levels.
Conduct business as usual. Do not let inventory levels dip below normal.
Keep the business clean and in good repair.
Remove equipment or furniture that is not part of the sale.
Provide us with required information in a timely manner.
Be as accommodating as possible in setting appointments to meet with buyers.

Q. What types of offers should I expect to receive from buyers when I sell my business?

A. Any astute buyer normally offers a low price in order to ensure that they get the best possible price and terms from you. This is normally just an initial offer to "test the waters". It's the first step in the negotiation of an appropriate purchase price for your business. All offers will contain some important contingencies, including review of the financial books and records of the business, obtaining a satisfactory lease and agreement on training and transition periods. Other contingencies specific to your business may also be included. Contingencies are normal and provide the buyer with the opportunity to verify the information presented in the marketing materials.

Q. How long will it take to sell my business?

A. Factors like the asking price, the buyer's ability to secure financing for the purchase of the business, the business' location, local economic conditions, the nature of the business etc. affect the time it takes to sell a business. Consequently, there are wide variations in the amount of time required to sell a business (in some cases weeks or years). That said, a selling period of six to nine months would be average.

Q. How long is the training period for the buyer?

A. You will be expected to provide approximately two to four weeks of training in the business, with possibly equal time of telephone consultation. Remember, if you are financing any portion of the purchase price, you still have a financial interest in the business, so properly training the buyer is in your best interest.

Q. Will I have to sign a non-compete agreement when I sell my business?

A. It depends on they type of business, but generally, the non-compete agreement covers the area from which your current customers are generated and the time period commonly is one to two years.