SME Business Buyer Services

The Buying Process

When you work with Sunbelt, the process of buying a business is greatly simplified, but there are still a number of factors to be considered. The following paragraphs provide a straight-forward, step-by-step summary of how we can assist you in finding the right business to purchase.

  1. The first step is to contact your local Sunbelt office and schedule an appointment. Your local office will typically require you to come in for a face-to-face meeting.
  2. You will be required to sign a Confidentiality or Non-Disclosure Agreement. This helps to ensure the confidentiality of buying and selling a business.
  3. You will be asked some basic questions about yourself so that we can develop an accurate profile of your goals and expectations - this will include an assessment of your ability to finance and operate the type of business you have in mind.
  4. We will then direct you to businesses that match your criteria, each presented with a Confidential Business Review (“CBR”) that contains key decision-making information including market and industry data operating performance and other financial information.
  5. After your assessment and decision to proceed, a meeting is arranged to view the business and to meet the Seller with your questions. Typically, this is a discrete visit, arranged after hours, to preserve confidentiality.
  6. If you are satisfied with the results of this meeting, and interest is still high, you are at a point where we can assist you in preparing an offer or requesting further information.
    • At this time, any reasonable request for additional information will be honored; however, due to confidentiality issues, some information may not be released until after your offer has been presented and accepted. Your Sunbelt broker will be in a position to best determine the feasibility of your information requests.
    • One needs to realize that an offer is just that, an offer, and is typically subject to many contingencies. A seller therefore, may restrict some of the information they are willing to provide to you until such time as they determine the seriousness of your interest.
  7. Your offer, when prepared by a Sunbelt broker, will adhere to our standard format that provides for your protection throughout the offer process. Your broker will also know what is likely to be agreed upon by the seller thereby avoiding much back and forth. However, you should expect some typical negotiations in the process.
    • Your purchase offer will typically be a conditional offer or in the form of a Letter of Intent (“LOI”). It will also contain specific requirements for the Seller as far as training and transition and non-competition clauses.
    • A reasonable deposit based on the purchase price typically accompanies the offer.
    • Additional funds are often deposited as requests are satisfied and/or contingencies are removed. The purchase offer typically contains other provisions such as a stated due diligence period, deadlines for obtaining financing and a specified closing date.
    • The due diligence period allows you and your advisors to verify and review the information given to you including any information that may have been withheld prior to your offer.
    • Similar to a real estate purchase, funds held on deposit will be made via certified check to an escrow account administered by an agreed upon third-party escrow agent or law firm. These funds will be applied toward the purchase price of the business.
  8. Upon removal of all contingencies the offer becomes firm and binding.
    • The details of your accepted offer or letter of intent will be forwarded to the lawyers for both parties for drafting and review of  a Contract of Sale  Agreement.
    • The Contrcat of Sale Agreement is the actual agreement of purchase and sale. It typically includes all of the conditions and clauses in the original offer or LOI plus any additional clauses and conditions you and the seller agree upon.
    • This agreement is typically drafted by the sellers lawyer and usually costs about 2% of the purchase price. This may vary substantially based on your lawyer, location, business, extent of back and forth between lawyers, negotiations etc.
  9. Your Sunbelt broker will work with lawyers and other professional advisors who may become involved to ensure that all details concerning various forms, applications, directions, assurances, releases, assignments, instruments etc. are detailed to your satisfaction. It is important that you identify this to your advisors and lawyers so they know that your broker will be responsible for managing the transaction to a successful close.
  10. Once the Contract of Sale Agreement has been accepted by both legal counsels and agreed to by you and the Seller, all parties are ready for the closing. At this point any other agreements, such as non-compete agreements, training and transition contracts, lease or sale of premises (if applicable), vendor notes, security agreements etc. are also executed. Additionally, any funds required from the buyer to meet the agreed upon down payment are deposited into escrow and these funds are conveyed to the seller.
  11. Often there will be an adjustment period that is specified in the Contract of Sale Agreement where some of the funds will be held in escrow pending final invoices being settled and other similar adjustments.
  12. Congratulations! You are now the proud owner of your new business.

The Buying Advantage

There are significant advantages to buying an existing business versus starting a new business. What better way to maximize the probability of success than to review actual operating results rather than projections? If a business has been successfully owned and operated by the same owner for a number of years, and if that business has been the source of income for his family, you can be reasonably sure that the business will be viable long-term.

Here are a few of the many other advantages of buying an existing business:

  • Immediate cash flow. No expensive advertising to lure customers - the cash register starts ringing the first day you take over, just like it did the day before for the seller of the business.
  • Trained employees. When you take over the business, you will have a complete crew of trained employees to run the business with no down time for training and no customer dissatisfaction with untrained employees.
  • Established suppliers and credit. For the most part, existing suppliers will continue to do business with you without missing a beat. Remember that they have been supplying the business for a while and they know it is a good business. They do not want to lose your business; they want you to succeed and purchase additional goods and services from them!
  • Established customers and referral business. Your customer base is already in place and accustomed to doing business with your company. Assuming you continue to deliver the same (or improved) levels of service, they should refer additional customers your way.
  • Existing licenses and permits. In many cases, all you have to do is transfer the licenses and permits to your name. In those cases where you have to re-apply for a license or permit, you have the comfort of knowing that the business, in its current location, was approved for the license or permit (for example, a liquor license for a restaurant).
  • Training by the seller. In addition to the trained employees, you will receive training from the seller on how to operate the business. You will be introduced to customers and suppliers and will get the benefit of the seller's extensive experience in running the business. You will not have to make the same mistakes the seller made!

Choosing The Right Business

Buying a business with a strong financial and operational track record is no guarantee that you will experience similar success as the new owner of the business. In a small to medium-sized business, those results are often a record of what the previous owner did, and may be only a very poor predictor of how you will perform in the business. By way of example, you may not want to purchase a hospitality business if you have no experience in dealing with the public, or buy an engineering business if you are a pastry cook, just because it was profitable for the previous owner. Below are some suggestions to help you successfully locate a business that suits your background, skills and desires.

  1. Choose a business where you have an advantage by way of qualifications, or experience. Business these days is generally highly competitive, and you need to be at least as good as your opposition, to stay in business.
  2. Choose an occupation that you enjoy. Small business often involves long hours, and requires great enthusiasm to motivate staff, and deal successfully with clients. This can become very tedious if you are not happy at it.
  3. Check the Seller's reason for selling. There are many legitimate reasons for selling a perfectly good business, such as retirement, marriage or partnership difficulties, health issues, other business interests, or even just simple "burn-out". But sometimes, there can be a more sinister reason, such as impending problems with a lease, technology changes, new competition, demographic or infrastructure changes, obsolescence, impending major capital outlays... the list is infinite. This is where it could be advantageous to have someone experienced working on your side. Every business has its problems; the trick is to know what they are, and have a strategy for dealing with them.
  4. Understand clearly the nature of the business, and how much capital is required to run it. In addition to the cost of purchasing the business, you need to have sufficient capital to finance inventory, accounts receivable and overhead costs. Working capital requirements differ substantially between retail, wholesale and manufacturing companies.
  5. Understand the cash flow characteristics and any seasonality of the business, and any seasonality. A year-end profit does not necessarily mean that there will be cash available at critical times to meet necessary costs, such as interest, taxes, and your living expenses.
  6. Ensure that you have the means to purchase, and operate the business, and fund any planned growth or development of the business.
  7. Try to get to know the Seller, to gauge whether you can successfully "fit into their shoes" and run the business at least as well as s/he did.
  8. Try to meet the key employees to make sure they intend to stay, and that there will be no major personality clashes. In many cases, Sellers will not want you to talk to the staff until negotiations are at a fairly advanced stage. If this is the case, you may wish to include appropriate provisions in the purchase agreement.
  9. Avoid major changes to the business during the transition period, unless you are very sure of what you are doing. A smooth changeover with minimum customer impact is the usual road to success.