Let’s assume the buyer is now committed to buying your business. They are financially capable, understand the risks and rewards, and have found your business suits their background, skills, needs and goals. Or perhaps you are a buyer looking for a business. What is the process from this point on?
The parties have shared information, signed the confidentiality agreement, and reviewed the prospectus. Generally, the next step is to tour the business at a time when employees are not involved (often before or after operating hours). After the tour, there are usually many new questions. It is best to get these on paper, then schedule a meeting to review them, and then discuss how value is derived.
At this point, it is up to the purchaser to make a written offer. This offer should include a reasonable Earnest Money Deposit and will most likely contain many of the following contingencies:
Due Diligence: There must be time for the buyer to do a detailed review of all claims made and verification of facts and numbers. Often, this requires the assistance of a third party, such as an accountant.
Legal Review & Document Preparation: The purchase and sale contract must be reviewed or drawn up, leases or real estate transfer procedures must be prepared and reviewed. Details of the non-compete agreement need to be determined. Decisions on incorporating or other form of ownership must be made.
Financing: Whether through the seller or the bank, qualifying and preparation of the loan package needs to be complete, reviewed and accepted. This can be both detailed, and time consuming.
Inspections: Building and equipment inspections must be done, inventory counted, and records reviewed with a critical eye.
Training: A proper training and transition plan for the business must be considered and agreed upon.
The next step is to tackle and sign off on these contingencies, one by one. Sure, it takes a lot of time, resources, and sometimes expertise, to do this. That might be why only two of every 100 buyer inquiries leads to a closing on a business. Some sellers choose to list with a broker to market their property. But for my money, I’d list with a business broker who not only markets effectively, but is also skilled in getting it closed!