Typical Buyer’s Process
Priscilla Dakin, Dakin Business Group
Acknowledging up front that the typical anything is really not what happens, small businesses have a fairly routine buyer process and it looks like this:
- The buyer demonstrates interest, represents capability to purchase the business and signs a non-compete and do-no-harm agreement.
- S/he receives the marketing package
- S/he asks me additional questions
- If still interested, s/he talks with the seller and me, often by phone
- If still interested, the buyer can ask for additional information and the seller can release this information or not (the seller needs to feel comfortable that someone is not a tire kicker and really is likely to come up with money. )
- Routinely, I write an offer based on the buyer’s specifics and including contingencies such as due diligence, securing a lease with seller’s help, seller’s non-compete, financing, etc. The offer comes with escrow funds of 3 – 5% that are returned if the lease is not secured or if due diligence turns up something fishy that remains unresolved. If seller financing is required, then the offer comes with buyer’s net worth statement and copy of credit SCORE, not credit report
- Seller counters, agrees, or does nothing
- Assuming there is agreement, the buyer proceeds with financing, due diligence and at the very end, usually just before close, the buyer and seller talk with landlord
- Seller and buyer use a neutral attorney with my guidance to complete the closing documents and share the fee, typically $2,000 a side (all plus NM GRT) This is a rate that has been negotiated with a business attorney/escrow agent in NM
- From accepted offer to close is typically with smaller businesses, 30 days for cash offers and 3 – 4 months for bank-financed transactions.
- New owner begins operations and transition with the seller.
- All live happily ever after
These are some tips to help buyers be ready to take over at close, some are coordinated with the seller. ‘Some’ is emphasized because each business has different requirements. Consider these and consider what additional may be required with your consultants and the Seller.
I. Often transferred by seller cancelling and buyer initiating new:
Utilities, phone numbers, alarm systems
II. Often transferred by seller:
URLs, email addresses, websites, vendor relationships, customer arrangements
III. Often required by the buyer’s initiation, no transfer
Business entity, employer and tax identification number from the state and federal governments, municipal business licenses, fire inspections, environmental/health department certifications, insurances, bank accounts, merchant services accounts, online payment systems (e.g. PayPal,)
IV. Don’t be short of cash that may be required to take care of business before the sales generate enough cash to cover routine business expenses.
Know that in most transactions, there are some expenses paid by the Seller for business after you have taken ownership. You will likely be required to write a check to the Seller to reimburse. Examples include – rent deposit, prepaid advertising, and alarm systems.
Note: Priscilla provides services to assist with this. Just Ask.
Getting to Close and Professional Assistance:
Generally, I, the business intermediary, will write an offer for purchase or a purchase agreement, this latter if the terms are fairly solid. Sometimes the offer is done in a less comprehensive fashion, a Letter of Intent or Term Sheet and followed after some contingencies are met with one of the Comprehensive Agreement.
Further the record review or due diligence process (Review), when the buyer asks for details about the business to help assess reasonableness to buy. As the intermediary, I will assist with this process, working between the parties and providing platforms for document sharing and guidance for reasonableness.
The seller may also be reviewing the purchaser’s credit worthiness, if seller financing has been requested to provide some financing. This would be a contingency of the agreed offer.
During this Review, a contingency of the agreement to buy/sell, other determinations may be necessary such as allocation of purchase price, lease agreements, and plans for transition post sale.
My professional assistance is often engaged with lenders to secure proper documentation to support the lending decision.
Finally, as we approach close on the sale, a neutral escrow agent and transaction attorney, will ask the parties to sign off to close, ensuring payment for professional services s/he is to provide for drafting closing documents, holding and distributing funds held in escrow. (Note – from time to time there are other processes and professionals engaged.)
Throughout, the parties should be engaging their own accountant and attorney for additional professional opinions and assistance.