A Basic Outline: The Process of Buying a Business

This outline was created to help buyers understand, at a high level, each stage of buying a business.

When it comes to buying a business, there are complex transactions. Each stage will have its own timeframe based on the unique complexities of each business.

It's important for buyers to understand that selling a business requires sellers to disclose confidential information. A good business broker will control the amount of information released to help limit the seller's exposure and protect the confidentiality of the sale.

Stage 1: Initial Inquiry and Response

• Making an Inquiry: Contacting the business broker.

• Initial Response: Business broker provides a Non-Disclosure Agreement  (NDA) and buyer profile to be completed by the prospective buyer.

• Purpose of NDA: To protect the confidentiality of the business’ information. It also prevents the prospective buyer from contacting the seller directly.

Stage 2: Receipt of Preliminary Information

• Type of Information Shared: At this stage, the prospective buyer is provided with the confidential business review (CBR). The CBR is a confidential document meant to provide enough information for a potential buyer to determine their interest level in pursuing the acquisition further. It's a mix of qualitative and quantitative information designed to present an overview of the business.

Stage 3: Further Investigation and Expression of Interest

• Clarifying Questions: Asking for additional information or clarification.

• Virtual or in-person meeting: The business broker can help coordinate a meeting between the prospective buyer and the seller so that the prospective buyer can learn more about the business.

Note: Highly confidential information, such as employee records, business tax returns, landlord contact information, etc., will be disclosed during the due diligence period in Stage 5.

Stage 4: Making an Offer with a Purchase Agreement

• Drafting the Purchase Agreement: The business broker will work with the prospective buyer to put together the terms and contingencies.

• Common terms include the asking price, owner transition period, and non-compete.

• Typical contingencies include securing the transfer of the lease, the buyer obtaining financing, and the buyer's approval of the information provided during the due diligence process.

• The agreement is presented to the seller, who can accept, counter, or decline the offer.

Stage 5: Conducting Due Diligence

• Deep Dive Into Business Operations: Financial records, legal compliance, customer contracts, employee information.

• Seller and buyer disclosures.

• Professional Assistance: Hiring accountants, lawyers, or business advisors if necessary.

Stage 6: Setting Up Escrow

• Purpose: To hold funds securely until the transaction is complete.

• Agreement Terms: Deciding on the escrow terms and conditions.

Stage 7: Finalizing Financing (if applicable)

• Securing Funds: Finalizing loans or other financing arrangements.

• Proof of Funds: Providing evidence of financial capability to the seller.

Stage 8: Closing the Deal (escrow will manage most of this process)

• Final Review: Ensuring all conditions are met.

• Legal Steps: Signing all necessary documents and transferring funds.

Stage 9: Post-Closing Transition

• Transition Period: Time frame for the previous owner to assist in the transition.

• Training and Knowledge Transfer: Learning the intricacies of the business.

Additional Information:

Blog: How to buy an existing business: 7 steps to a successful purchase

Blog: Avoid These Common Mistakes When Buying a Small Business

If you have any questions about the process of buying a business, contact us today for a consultation.