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    5 Replies Latest reply on Jan 11, 2011 1:30 PM by jxr0600

    Steps to Purchase an Existing Business

    Newbie
      I am looking to purchase an existing business and run it as an LLC. I will be looking at obtaining a business loan to fund most of the cost of the business. I am considering multiple businesses that are of the same type but different sizes and costs with consistent cash flows from established contracts. What is the proper sequencing of tasks to complete when acquiring an existing business?

      Some of the tasks I can think of but in what order. Any other tasks?
      • Develop business plan (but I think I would need detail seller's financial to complete the business plan)
      • Establish LLC
      • Find business lawyer
      • Select the business to pursue
      • Due dilegence and negotiation with seller
      • Sign letter of intent
      • Apply for business loan (given varying funding requirements can a lender advise you on which situation is most likely to be funded before applying?)
      • Complete and sign purchase agreement
        • Re: Steps to Purchase an Existing Business
          degania Newbie
          Before you spend a lot of time and money, yes, I would start talking to the people you expect to provide you money. Ask them what they would need in terms of:
          • Your skin in the game (you will need to show some commitment)
          • Business performance/profile of your target
          • Why they would give you money

          If you are looking to form your own LLC, you have no operating history. Likely, a lender would tag the funds specifically for the purchase - and that would need to go into the deal documents. And, are you looking for debt or equity financing? Business loans are not easy. Are you buying a business with tangible assets or a service business? What kind of collateral will you provide for the entity financing this venture? Why would they give you money to buy this company? And, why is the owner(s) selling?

          This leads into the issue of the business plan...are you buying a business you intend to turn around? What exactly do you intend to show with a business plan?

          Finally, you mention finding a "business lawyer." You will also need to identify who is going to be responsible for the due diligence and auditing the financials and operations of your target acquisition. Also, you'll need to determine risk: are there pending lawsuits? Is the protection on IP about to run out? Product liability issues? Employee issues? What headaches are you buying along with the revenue stream? How many of the relationships are linked to the owner? To key employees? What contracts will you have in place to ensure they stay on if you need the relationships they manage?

          Once the due diligence is complete, you'll need to determine if you're purchasing the business - or specific assets and/or contracts.

          Best of luck!
          • Re: Steps to Purchase an Existing Business
            Tracker

            Jxr0600:

             


            Degania has given you some great advice. Hopefully, you have done your research to identify the market potential for your business, how the business is performing to the market trends (i.e if the market is growing, is the business, too), your key competitors, the potential for an increase in business and so forth.

             


            I recommend you find yourself a qualified business broker. Verify if you sign with them if they are signing on as your agent or if they are acting as a dual agent (servicing you and the seller). Depending on the complexity of the business, your business broker (if experienced in buying / selling businesses within the same industry) may be able to help you identify how the business is performing to industry ratios and therefore what would be a fair market price.

             


            As degania suggest, make sure that you do a thorough interview(s) with the seller to get a sense of what goodwill (or lack thereof) you will be buying, as well as any issues with employees, suppliers, etc.

             


            I recommend you do the following in descending order:

             


            • market research

             

            • find a business broker / lawyer

             

            • select a business to pursue

             

            • develop a business plan in conjunction with due diligence with the seller

             

            • apply for a business loan

             

            • establish the LLC

             

            • complete and sign the purchase agreement

             


            I hope this helps.

             


            Best of luck!

             


            Doug

             

            The Solopreneur's Guide
            • Re: Steps to Purchase an Existing Business
              Newbie
              You've been given some good advice. Understand that every step you take along the way will give you information you didin't have previously - a great education. And while THIS dream may not come to be - if you keep at it you'll have enough information to put it together one day.

              Put together your business plan - simultaniously, see what your financial boundaries are at the bank and what your seller is willing to take back. If you don't have a professional broker/intermediary working for you, get one. They can help with the seller, the boundaries, the bank, and follow-up dreams when this one comes up short.

              Enjoy your investment in education that will likely one day pay off with enough information to not only buy a business, but run it successfully! Good luck.
              • Steps to Purchase an Existing Business
                Bridge Navigator
                1. Determine what type of business you want to own - can you picture yourself running the business daily?
                2. Get help from a profesisnal business broker who has done this for years!
                3. Screen businesses for sale - they should have complete information memorandum, including history and financials; if they don't run
                4. negotiate basic LOI
                5. Hire attorney - for leagl paperwork - NOT business decisions
                6. conduct due diligence, obtain financing, negotiate final pruchase agreement, create transition plan

                 

                Yes, step 6 takes place concurrently - you will be vey busy.  Best of luck,

                 

                I differ from some of the other posts as I can not see developing a business plan until youknow what business you are going to buy.  The plan will be an extension of waht is alreday there - if you plan to change too much, find another business.

                 

                Greg