So, you’ve found a business you are excited about purchasing. What next? Buying a business is no small feat: research must be done, communication must be had, and preparations must be put in place. Business buyers should bring a fair offer to the table while still being within their means. Make sure you know how to make an offer on a business using the guidance below.
Making an Offer to Purchase an Existing Business
Potential buyers need to do preliminary research, and that involves asking the right questions. Have you seen the company’s tax returns and other financial documents, reviewed their current cash flow, and agreed with their valuation? If all of these items check out, don’t be afraid to make your first offer.
Your purchase price can be structured using three factors: listing price, down payment, and financing. Determine how much cash you can put down while still maintaining your current lifestyle and ensuring you have enough working capital to run the business after signing off on the purchase agreement.
Your initial offer shouldn’t be as much as you can pay, rather a starting point. Never start out with a full asking price offer. You want room to adjust if the seller comes back with an offer that’s less than ideal. Buying a business is a back-and-forth conversation full of negotiations for setting terms and conditions. The seller knows their ideal offer, but if you feel that the price is too high, start lower. They’ll likely make a counteroffer, which will indicate whether or not you two can reach an agreement that will benefit and protect you both.
Once you settle on an amount, you’ll want to put your official offer in writing. A verbal agreement can be lost or refused, but it is hard to retract the written word. Using a business broker to help you draft your written offer is an extra step toward protecting yourself and making sure the agreement is fair and legal. A broker can also help you negotiate a fair purchase agreement and keep communications between you and the seller confidential and organized.
Here are some guidelines for what to include in your letter of intent:
- Your offer including a sum of earnest money (a refundable deposit made in good faith that can be held in escrow by your business broker or attorney)
- Your purchase offer
- What you can afford to pay as a down payment
- Terms and conditions on the balance due
- A recommended monthly payment amount and schedule
- A date for the first payment (a number of days after the closing date)
As the buyer, you are assuming most of the risk. Take these factors into consideration when you are drafting your offer:
- All financials are open for review
- The equipment and real estate is in good working condition
- There is viable inventory
- Seller financing is available at the time of closing
- A non-compete agreement can be reached if necessary
- Buyer and seller can come to an agreement on transition and training terms
- In the end, it is your offer. Don’t be afraid to ask the business owner to address questions or concerns, so you feel more confident in your purchase.
If you’ve found the right business for you but still feel hesitant about making an offer, reach out to an expert at a Sunbelt Business Brokers office near you! We are here to make the buying process as easy as possible for buyers and sellers.
Source: Sunbelt Business Brokers