Depending on the circumstances of the sale, buying a business can be relatively brief, or it can take months. If you already know which company you want to buy and the owners are willing to sell it to you, the process may be fairly swift. However, if you are shopping around for companies to purchase while also securing funds to buy it, the road can be a lot longer. Here is a rough timeline of what you can expect when purchasing a business.
Time of Reflection
Just because you are feeling the entrepreneurial spirit doesn’t mean you should plunge right into the business-owner pool right away. Take the time to figure out what type of company would best encompass your skills, knowledge and passion. You probably don’t want to buy a mass manufacturing business if you are more comfortable in small-business setting. Also, consider your finances. This part of the equation should include both how much money you have to spend on the purchase as well as what kind of income you’d like to glean from the company after you buy it. Think about whether you have the time and energy to run a company and about how much personal risk you are comfortable taking on.
Once you’ve taken a personal and financial inventory to see what resources you can devote to purchasing a company, it is time to start shopping. Many potential buyers choose to work with a business broker who does the legwork in finding companies for sale. Brokers present you with the prospectuses for business that match your criteria and financial resources. If you decide not to work with a business broker, you may start your search by looking in trade publications, newspapers, court filings and by asking for personal recommendations. Regardless how you meet the seller, it is likely that you will have to sign a nondisclosure agreement before you get to look at any of the business’s financial information.
When your list of potential purchases has been winnowed, you should plan site visits for all the candidates. You’ll want to tour the facilities and look at the buildings, equipment and operations. This usually happens after hours to avoid alerting employees or members of the public of a possible sale. Only by seeing the operations yourself can you gauge whether the current valuation of the company seems accurate.
This part of the process might be the most time consuming. You likely will need the help of professional advisors, analysts and attorneys to get it done properly. Because due diligence is such an in-depth process, you only want to undertake it if you are certain you are serious about the purchase. You will indicate your seriousness by making an earnest money agreement. This document lists the likely terms of the sale and includes a payment that is a portion of the potential sales price.
The other elements of the due diligence process include reviewing the company’s financial documents, assets, liabilities, past and projected performance and employees.
When the due diligence process is complete and both you and the seller agree to the terms of the sale, it will be time to close. An escrow officer will check for outstanding liens and prepare the sales documents. This paperwork is extensive and includes lease transfers, noncompetition clauses, a bill of sale and several other items. When the sales documents are signed on the closing date, you will provide a cashier’s check for the full amount of the purchase.
Because the process of buying a business can be time-consuming and involves a lot of factors, you should not expect to breeze through it quickly. This timeline should give you a realistic idea of what you are facing when you consider purchasing a company.
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