Buying a Business
Buying a business: It’s a brand new ball game
Unless you’ve bought or sold a business in the past, you’ll find that buying a business can be a confusing and even trying experience for the unprepared. Even if you have experience in the corporate world of mergers and acquisitions (M&A), you will still find yourself on unfamiliar ground when buying a small company. That’s why it’s important for you to take the time to read this explanation of the process. And if you’re a veteran in business transfers, and you’ve bought and sold many small businesses, you’ll gain a valuable understanding of the Vanguard Resource Group process that will assist you in working with our firm.
Getting Started: Questions and more questions
The search for business opportunities almost always starts with a telephone call or a visit to a web site like the one we host at Vanguard Resource Group. Sometimes the prospective Buyer is a Corporation, Private Equity Group or a Private Investor who has a very definite idea of the type of business wanted. But, often the Buyer is a first time Buyer and is still in the formative or exploratory phase of the search. Many times a Buyer’s first question is, “What kinds of businesses do you have?”
Well, we have lots of businesses, so that’s a tough question to answer without some idea of the Buyer’s resources, skills and needs. Maybe we just listed Ford Motor Company and you, our prospective Buyer, just happen to have several billion dollars and a background in automobile manufacturing. There’s a match made in heaven, but it’s a match we can’t uncover without questioning you and learning more about you.
So the first and most important step is telling us about you. Be patient when we ask, “How many days per week are you comfortable working?” and “Do you like having employees?” and “How much cash do you have for a down payment?” and many other questions. We’re not just being nosy: We’re narrowing your search and saving you time and aggravation. Our web site Buyer registration offers a message block that is a great way to narrow your search and help us help you find the business of your dreams.
Defining the search: Non-confidential Summaries
After we’ve talked for a while, we can probably begin narrowing the search to a few appropriate business opportunities. At this point, we communicate non-confidential summaries of our exclusive opportunities to you. Vanguard Resource Group non-confidential summaries show our profile number, a description of the business, a summary of financial performance, the reasons why we think it may be a good opportunity and the asking price. We recommend that at this point you focus on the business and not on its financial performance or price. It’s far more important now to find a business type you’d enjoy owning.
Focusing on a few: Digging Deeper
At this point in your search, you’ll find yourself holding one or more non-confidential summary sheets for businesses you want to know more about. This “digging deeper” step takes your business opportunity search to a new level.
This new level is one of mutual trust and obligation between you, Vanguard Resource Group and the Seller(s) of the business(es) you’re interested in. Now you’re being exposed to the specifics about the businesses you’ve been considering and your agreement to keep this information confidential is required. Before we send you confidential information, we require you to send us your Buyer Profile and we require you to sign a Non-Disclosure and Confidentiality Agreement. When you return these documents to us, we’ll divulge to you the name and address of the business you’re interested in. Please note that when you sign the Non-Disclosure Agreement you are agreeing to keep all of the information that you receive from us strictly confidential. And, you are agreeing not to contact the owner of the business except through us and with our permission. We take any violation of this bond of trust between you and us very seriously, and we will not tolerate any breeches of this trust.
The Business Profile: The Facts, & More
A big part of our job on behalf of the Sellers we work with is to do the work of selling their business while affording them the time to run their business. This means that we will work with you to answer your questions about the business before we introduce you to the Seller. We accomplish this in several ways.
The most important element in this process is the Vanguard Resource Group Business Profile. This report on the business you’re interested in is written to give you the information you need to decide whether or not the business is right for you. A typical Business Profile contains a detailed description of the business, summary financial data, additional business facts like lease information, number of employees and much more. After a thorough review of the Business Profile and discussions with your Vanguard Resource Group representative, you will have a good understanding of the business and its operations.
In addition to the Business Profile, Vanguard Resource Group also produces Digital Videotapes (DV) available to prospective Buyers to be viewed in our offices. These tapes typically include a tour of the business and an interview with the business owner, and are produced to answer Buyer questions and to give the Buyer a feeling for the business and its management. For many of our client firms, these tapes replace the need for a working hours tour of the facility.
The Business: Face to Face
After reading the Vanguard Resource Group Business Profile, reviewing financial data and seeing the DV tape on the business you’re interested in, you should be prepared to make an offer for the business. If not, your Vanguard Resource Group representative will answer further questions and may, if indicated, set up a meeting with the business owner prior to your making an offer. This is an important step. Not only are you learning more about the business from the person who knows the most about it, you are also seeking to tell the business owner as much about you as possible since you may be seeking installment terms from the business owner. Often, Buyer credentials are presented at this time.
Making An Offer:
After meeting the business owner and touring the business, the next step is making an offer for the business. Making an offer is not a final step. In fact, it should be viewed as the first of several steps, each of which bring the Buyer and Seller closer to completing the transaction.
Since this is a privately held business, the Buyer is obligated to make an offer before seeing the business’ detailed internal financial records. The Buyer must understand that their offer is always contingent upon the Seller proving his or her representations. Due diligence – a specified period of time during which the Buyer investigates the business fully — is costly and time-consuming, and it must be done only after an agreement on price and terms is reached.
It’s the Seller’s responsibility to prove everything to the Buyer. Put another way, your agreement on price and terms will be “non-binding” until you’ve had the opportunity to see all financial records and we have removed all contingencies.
The Offer: Terms, Contingencies & Conditions
Your Offer To Purchase will consist of the following:
Terms. Price, down payment and agreed-to financing (interest rate, period, etc.).
Contingencies. Approval of books and records, equipment, inventory, assignment of leases or loans and any other items that the Buyer requests to be incorporated into the structure of the agreement.
Conditions. Non-compete clauses, consulting agreements, training agreements and other relevant parts of the structure of the agreement.
Your resume of business background and experience.
Your financial statement.
Your credit report (paid for by you).
And your “Earnest Money” deposit check in the amount of 10% of the offered price. This check is not deposited until the close of the due diligence period and you are comfortable moving forward with your purchase. Typically, your check is cashed upon the opening of escrow.
Due Diligence: Clearing The Way. You and your advisors – attorney, accountant and others – will have a specified period of time to complete your due diligence and remove the contingencies (typically 10 days). When due diligence is complete and the contingencies are removed, the contract is binding. Should the business fail to pass due diligence, you are free to rescind or amend your Offer To Purchase.
Financing: Working with Sellers and the SBA. Almost every deal requires some form of financing. At Vanguard Resource Group we work with Buyers to help obtain the appropriate financing for the business being purchased. Often, this means a Seller’s Note and it also often means a bank loan guaranteed by the Small Business Administration. But whatever the financing requirements, Buyers can expect guidance and assistance from Vanguard Resource Group in this important area.
Escrow & Closing
Escrow typically takes about 3-4 weeks. After escrow receives signed instructions, the escrow officer will contact government tax agencies for clearance and publish your fictitious name filing, enabling you to open business and banking accounts. Also during this time a Notice To Creditors will be published allowing anyone with a claim against the business to step forward.
You’re In Business:
Congratulations Finally, the big day arrives and you open the doors of YOUR business for the first time. There is no bigger thrill, no better feeling than knowing that you are in control of your destiny.
When you work with Vanguard Resource Group, we guide you along the way and help make your transition to business owner stress free and simple. So, now is the time to go back to our “Businesses For Sale” section and get started on your search for your part of the American dream.