1. Meet with a Gateway Broker
Once you find business listings you are interested in, a Gateway Broker will discuss the process of purchasing a business. Confidentiality is critically important during the sale of a privately held business. You will sign a confidentially agreement for each business you are interested in before you can see any details about it. During this meeting, you share with the Broker your goals and the criteria for your search. This meeting will help the Broker narrow the field and introduce you to businesses meeting your criteria. Your Gateway Broker will also educate you about available funding sources and transaction types.
2. Review Business Information
After signing the Confidentiality Agreement, you will receive a Confidential Business Review (CBR) for each business you are interested in. The Confidential Business Review contains the Seller’s motivation, business activities, staffing information, equipment list, financial information and photos. After reviewing this information, you are prepared for a Buyer-Seller meeting and tour of the business.
3. Buyer/Seller Meeting
Your Gateway Broker will coordinate the Buyer-Seller meeting. This meeting is an opportunity for the Buyer and Seller to gain information about each other. The meeting usually takes place at the business, outside of operating hours. You will have the option to ask questions directly to the business owner and gather more in-depth information about the operations from the Seller. Be prepared with a list of questions for the most productive meeting. The objective of the meeting is to determine whether to make an offer on the business or to continue your search.
4. Make an Offer
There are two ways to make an offer on a business: write an Offer to Purchase or write a Letter of Intent (LOI). Both types of offers will be replaced with a Definitive Purchase Agreement when due diligence is completed.
A) The Offer to Purchase is a standardized form which becomes a legally binding after removing the contingencies through the due diligence process.
B) The Letter of Intent is a non-binding letter that expresses the Buyer’s interest in purchasing the business.
5. Negotiate Offer
Negotiation is a normal part of any transaction. Keep in mind that you and the Seller both share the same objective of transferring ownership of the business. Both parties will need to be flexible to achieve a mutually acceptable Definitive Purchase Agreement. Your Gateway Broker is skilled at making sure that both the Seller and Buyer continue to move forward through the negotiations to reach the end goal of a mutually acceptable Definitive Purchase Agreement.
6. Due Diligence
Due Diligence is the investigation phase of a transaction. Your legal and financial advisors need to inspect the financial statements, market, and business information to make sure the Seller accurately represented the condition of the business. The Seller also performs due diligence on you to be sure they are making an informed decision, too.
7. Definitive Purchase Agreement
At the completion of due diligence, the Definitive Purchase Agreement (DPA) will be drafted. The parties will negotiate the finer points of the deal including allocation of the purchase price, representations and warranties, and the non-compete agreement(s). This document records all the key terms and conditions for the purchase and sale of the business. The DPA will need to be reviewed and approved by the legal and financial advisors for both Buyer and Seller.
Since all of the documents have been negotiated, reviewed, and approved by the attorneys for the Buyer and the Seller, the closing should purely be a ceremony. At the Closing table you again review then sign all necessary documents to transfer ownership. The supporting documents include Bill of Sale, Corporate Resolutions to Buy or Sell, Promissory Notes, Abandonment of the Assumed Name, Assumed Name Certificates, UCC filings, Lease Assignment, Settlement Statements and other documents specific to your transaction. All prior steps culminate into the funding of the sale and transfer of ownership. If a 3rd party lender is involved, the funds are transferred after all the executed documents are reviewed by the bank.
9. Training & Transition
During the training and transition phase, the Buyer and Seller work together to transfer operational knowledge in order to establish employee and client relationships to the new management team. This phase can last from a few days to a few months. The expectations and specific details on how the transitional training will occur should be discussed between the Buyer and Seller and included in the Definitive Purchase Agreement.
An outline of a successful transitional training: The Buyer and Seller will work on-site in the business together. One of the objectives is to transfer employee and customer relationships to the new owner. Initially, the Seller will lead activities and processes in order to teach the new owner. The new owner will then step in to lead the activities and processes with the Seller on-site. Seller continues to support the new owner as needed. Finally, the new owner will completely take over the leadership on all activities. The Seller will be available by phone or email to answer questions or provide guidance as needed