How to Buy a Business

1. KNOW YOUR “WHY”

Many business owners have headed in a direction (usually the path of least resistance) out of convenience and with little thought at all. Whether it was buying a food truck or salon and spa, they did so out of reactive impetus not because it donated to their essential goals pertaining to personal achievement or just making a better life for their families.

They did not pause to ask what was the fundamental reason for the purchase of a business, but became content with the feeling of “achievement” that came from a rigorous schedule that’s presented to every new business owner. Consequently, the company begins running them and not the other way around and ultimately leads to professional hardships. However you describe your WHY, it will always serve as a measure to only do what needs to be done and actualize your true intentions.

2. WHAT TO EXPECT FROM YOUR EXPERIENCED
M&A ADVISOR

M&A Advisors prefer to work with clients that have a good and clear understanding of what they are looking for in a business. The process becomes much simpler to successfully find what someone is looking for when as much detail is given of what the client is in search of.

Unlike real estate, it is quite normal for the advisor to represent both sides of the transaction. This creates a “dual agency”; there’s no reason for trepidation if you are represented by a just and reputable M&A advisor. Remember, your advisor is required to represent the buyer’s best interests when dealing with the seller. Dealing with a good M&A advisor is imperative in the overall success of the transaction, as there is a multitude of mixed emotions experienced on both sides of the deal, and it is the M&A advisor’s responsibility to reach a deal that is mutually gratifying.

It is a well-known fact that the best businesses are listed with brokers because of all of the perks and legitimacy associated with a professional representative. All Seiler Tucker M&A Advisors conduct thorough evaluations on all listings before accepting personal ties to the businesses in question. In addition to evaluating the company, our brokers go through an extensive packaging process of the business before creating an offering memorandum. Our brokers also include all financials, the inclusion of all intellectual property, training, and a noncompete clause signed by the seller.

3. STOCK SALE VS. ASSET SALE

Deciding whether to structure a business sale as an asset sale or a stock sale is complicated because the parties involved benefit from opposing structures. Typically, buyers prefer asset sales, whereas sellers prefer stock sales.

In an asset sale, the seller retains possession of the legal entity and the buyer purchases individual assets of the company, such as equipment, fixtures, leaseholds, licenses, goodwill, trade secrets, trade names, telephone numbers, and inventory. Asset sales generally do not include cash and the seller typically retains the long-term debt obligations, which is paid off at closing. This is commonly referred to as a cash-free, debt-free transaction. Normalized net working capital is also typically included in a sale. Net working capital often includes accounts receivable, inventory, prepaid expenses, accounts payable, and accrued expenses.

Through a stock sale, the buyer purchases the selling shareholders’ stock directly thereby obtaining ownership in the seller’s legal entity. The actual assets and liabilities acquired in a stock sale tend to be similar to that of an asset sale. Assets and liabilities not desired by the buyer will be distributed or paid off prior to the sale. Unlike an asset sale, stock sales do not require numerous separate conveyances of each individual asset because the title of each asset lies within the corporation.

4. BEFORE MAKING AN OFFER

Before making an offer on a business, review the following: the M&A Advisor’s offering memorandum, the financials of the company (3-5 years Tax Returns, P&Ls, current balance sheet, AR and AP report), and the lease and/or real estate appraisal. Also, be sure to meet with the seller/sellers to obtain answers to your questions. Many M&A advisors attempt to force buyers into making offers to receive information.

They do not provide a prospectus on the business, gather financial information, or answer the buyer’s question until the buyer’s offer has been accepted. This is a backward and lazy approach. It is the M&A advisor’s job to provide information in a concise order to inform the buyer. We encourage our buyers to gather as much information as possible so you are making an offer based upon education, not pressure. Your M&A Advisor should provide you with an indication of what type of books and records are available for your due diligence.

Many small businesses do not have proper books and records and if financing is needed, it will be very difficult to receive, so laying that out upfront will save a lot of time and effort. Also, many businesses are located at a physical address so there will be lease agreements that will have to be assigned. What improvements might advance the business? What skill sets do you have that might be useful in running the business? What’s going on around the business that might affect it both positively or negatively? These are questions that will help determine not only what the business is doing today but what potential the business will have in the future.

5. HOW AN OFFER WORKS

After all, the selling agent has presented the business in a certain light and you hope that once you start taking a deeper look at the business it still looks the same way. If it doesn’t, however, then you have the option to get out or resubmit your offer based on the new information that you’ve uncovered. Once the offer is submitted the seller can accept it or counter. After an offer has been accepted, then the real fun begins!

6. DUE DILIGENCE

When buying a business, it is your responsibility to make sure the company’s affairs are in order before the purchase is finalized. Due diligence normally happens in the 30-to-90-day period prior to buying a business. You conduct due diligence once you and the seller have signed a purchase offer. Usually, the seller then agrees to give you access to all business data, but at Seiler Tucker, the buyer is already provided with the information at the beginning of the buying process.

This is the main reason for Michelle’s 98% closing rate. The company’s organizational documents should include articles of incorporation, bylaws, names of board members, board meeting minutes, names of shareholders, a list of all the states and countries where the company does business and an organization chart. Also included are mortgages, deeds, leases and other assets or liabilities that may affect your decision to buy a business.

7. ACCOUNT FOR ALL PHYSICAL ASSETS

You want to know the value of all assets so you can determine the appropriate price to pay for the company. Physical assets include: real estate, manufacturing equipment, office equipment and supplies, inventory on the shelf and raw materials, accounts receivable, contracts, etc. It is important to know the status of ownership concerning liens, debts, and quality of merchandise.

8. EXAMINE ALL PERSONNEL, RECORDS, CONTRACTS, EMPLOYEES, & SUBCONTRACTORS

It is important to be knowledgeable on the employee handbook or term of employment before buying a business. Request a list of current salaries, benefits and bonuses for the last 3 to 5 years. Secure resumes and contracts for top-level employees and board members.

9. CLOSING, TRAINING & CONCLUDING THE DEAL

The broker is the glue that holds the deal together. Most deals fall apart at closing due to all of the moving parts and many hands associated with the transaction. At Seiler Tucker, we control the attorneys, CPAs, lenders, and all other resources involved. Once the escrow closes, the training begins; if the business isn’t that complicated and has employees then usually 4-12 weeks will do it.

However, in some cases, the buyer may be very reliant on the seller’s particular skill set that could be taught but requires a prolonged amount of time. In this case an employment contract is made between the buyer and seller for a specified time and the buyer must pay the seller for his time unless it was built into the purchase price. Once the training is over, congratulations you now own your own business!

1. KNOW YOUR “WHY”

2. WHAT TO EXPECT FROM YOUR EXPERIENCED
M&A ADVISOR

3. STOCK SALE VS. ASSET SALE

4. BEFORE MAKING AN OFFER

5. HOW AN OFFER WORKS

6. DUE DILIGENCE

7. ACCOUNT FOR ALL PHYSICAL ASSETS

8. EXAMINE ALL PERSONNEL, RECORDS, CONTRACTS, EMPLOYEES, & SUBCONTRACTORS

9. CLOSING, TRAINING & CONCLUDING THE DEAL

MICHELLE SEILER TUCKER

Ever wonder how much your business is worth? Wonder no more!

ABOVE AND BEYOND
EXPECTATIONS

WISDOM IN CLOSING DEALS AND
CREATING WIN-WIN SOLUTIONS

FINANCIAL SECURITY MEANS
FREEDOM TO SPEND TIME WITH FAMILY

ENJOYING A VERY
COMFORTABLE RETIREMENT

SUCCEEDING
THROUGH ADVERSITY

FOCUSED AND
PERSONALIZED SERVICE

AN EASY AND
REWARDING EXPERIENCE