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The Process of Buying a Business

The Process of Buying a Business - Buy a Business in Texas

There are several buyer types that are hunting for businesses to buy. This scope includes private investors, individual buyers and strategic buyers. Each group has different investment goals and the process in which they acquire companies can also change. To keep things simple, we will review the basic steps that are involved with the process of buying a business.

The Process of Buying a Business

Step 1 – Finding a business to buy

There are several ways to begin searching for a business to purchase. If you are looking for a small business, $1 – 10 million in price, then you can check on listing sites such as bizbuysell or hire a business broker to find the right brokerage firm that meets your requirements. Larger businesses are bought and sold by large investment firms and companies.

Step 2 – Sign a Non-Disclosure Agreement

Seller’s will require buyers and investors to sign a non-disclosure agreement (NDA) in order to keep their company information confidential before releasing it to interested parties.

Step 3 – Review Basic Company Information

After executing an NDA, the seller will offer up some basic information about the business such as financials, tax returns and number of employees. If the seller is represented by a broker or M&A advisor there will usually be a confidential information memorandum (CIM) available to review.

Step 4 – Set up Seller Meeting

If a buyer is still interested after reviewing information, they will set up a meeting with the seller to meet. Then, they will ask deeper questions and possibly tour the business facility if applicable.

Step 5 – Submit Letter of Intent

Following the seller meeting, the buyer will then draft and submit a letter of intent. This can be done by an attorney or the buyer can draft it themselves. The LOI is a proposal that details the terms of the offer for the business.

Step 6 – Buyer Qualification

The seller or business broker will receive the LOI and if they terms are desirable, will request to qualify the buyer to ensure they possess the financial strength to do the deal.

Step 7 – Due Diligence

The next crucial step in the buying process is due diligence. Due diligence is important because at this stage there is risk that the buyer could back out of the deal after uncovering some disappointing details about the company. The buyer will be granted access to all information about the business. This could include any leases, assets list, employee chart, customers, vendors, etc. The information is usually stored in a secure data room to be reviewed.

Step 8 – Purchase Agreement

If the buyer is still engaged post due-diligence, the negotiations will kick off. The buyer and seller will usually hire an attorney to lead the negotiation process for them and draft a purchase agreement. At this stage we are still not to the closing table and a buyer can back out they are not happy. If an experience business broker is at the center of the deal, you can expect a higher chance of getting a creative deal done that satisfies both parties.

Step 9 – Close the Deal

Once the purchase agreement is signed a closing day is set. If there is financing involved then that will have to be approved and the lender will attend the closing. A title company will be present to make sure all of the necessary documents are signed and safely delivered to their destination. Finally, the funds are wired and you have yourself a business.

Benefits of Buying a Business

Product/Service Validation – the product and service is already market tested. You can decide if it is a valuable businesses that creates demand.

Save Time – buying a business instead of building one yourself will significantly reduce start-up time. This means you can focus your time on business operations. Rather than going through the headaches associated with product development, supply chain, brand building, etc.

Established brand – a business will usually have created a recognizable brand name that customers have grown to know and trust. Referrals and repeat business are valuable components of a well-known brand.

Financeable – businesses with a successful history appear favorable to lenders due to having less risk as compared to say a start-up.

IBB Makes The Process of Buying a Business Easy

The business brokers at Investment Business Brokers will bring their knowledge to the process of buying a business. They will provide you guidance on business terms, the paperwork necessary, terms of the deal, and more. Additionally, they will help you understand the current market conditions and walk you through every step of the process of buying a business. Our business brokers will also help you compare different business purchase opportunities to determine your best choice. If you have no experience in taking a loan to buy a business, our team can even help you decide which financing option is the best for you and assist you through the application process. Our business brokers are experts in the art of negotiation and setting the terms of the deal. They can help you modify a previous offer that you no longer want and execute a purchase agreement.

If you need a broker in Texas, Investment Business Brokers gets deals done. Whether we are selling your company, helping you plan for a transition, or leading you to your ideal investment opportunity, we bring the experience of our best team to bear. Call Investment Business Brokers at 972-266-4525 to learn more about our business brokerage services.