Determine Funds Available
When buying a business, ideally you will have 15% to put down. However, in some cases, you can put down as little as 10% of the purchase price. Frequently, people access money for the down payment using a home equity loan or using funds in a retirement account. We generally arrange bank financing for people and companies that buy businesses that we represent.
Determine the Criteria for the Business You Desire to Purchase
Allen Business Advisors only sells architectural, engineering, and land surveying businesses; however, you need to determine the focus of the business and the types of clients you desire. Do you want a firm the primarily focuses on consumers, developers, municipal work, institutional, or commercial clients? What type of work do you desire?
Although, you have established your “ideal” business criteria, you will need to make compromises. It is very unlikely, that your ideal business is waiting for you. There may be more or less employees than you desire. The company may be more focused on civil engineering when you desire more structural engineering.
Read our Offering Summary
When we list a business for sale, we write an Offering Summary. It contains the follow:
Background:
- Name of the Owner
- Year the business was established
- Location
Clients
- Client mix – consumers, developers, municipal work, institutional, or commercial clients?
- The percentage of clients that are repeat compared to one and done
- Breakdown by location
Services Provided
The percentage of revenue from each service provided
Employees
- Number of employees
- Title of the employees
- Licenses and certifications
- Years with the Company
- Years in the industry
- Approximate age
- Owner’s belief if they will stay after the sale
Financial Information
The financial information is taken from the federally filed business tax returns or the financial statements provided by the CPA. All figures provided are directly from a source document that can be provided at the appropriate time. The information is provided for three full years.
- Gross Sales
- Total expenses
- Large expenses including the amount spent on payroll and employee benefits
- Owner’s salary (and spouse if they are employed by the business)
- Net Income
- Cash flow
- Assets
- Liabilities (Generally liabilities are paid at the time of the closing. The only liabilities that tend to transfer are leases for a copies, automobile or software.)
Asking Price
The asking price is stated with information to shows how the price was determined.
Real estate
Information if the building is for sale or lease and the asking prices.
Owner desires and commitment
Generally, our seller’s work for the new owner for a year. They typically reduce the number of hours that they work as time goes on. Generally, in the first quarter after the sale, the owner works forty hours per week. In the second quarter they generally work 30 hours per week follow by 20 and ten hours for the third and fourth quarters. Some owners work part-time after the first year.
Owner and Prospective Buyer Interview
This is the opportunity for the buyer to directly ask the owner all of his/her questions. The owner will also take, this opportunity to ask the prospective buyer all their questions. Remember the owner has built the business over years and is not going to sell to someone he doesn’t feel will protect his/her legacy. In many respects this meeting is more about the chemistry between the parties than anything else.
The Offer
Your offer should state what you are proposing to buy and the price. More specifically, does your offer include the account receivables or exclude the account receivable. Your offer should also reference the time period you want the seller to work for you. This is a non-binding document. However, the buyer generally gives a provides a deposit to be held by the Seller’s attorney at this point. The funds are fully refundable.
Due Diligence
Once a Seller has an accepted offer, they are much more willing to disclose the names of clients, provide the federally filed tax returns and other sensitive information.
Apply for Bank Financing
Before we take a business to market, we arrange for financing for the prospective buyer. Prior to you applying for financing we will have provided the bank with the federally filed tax returns and other information on the business. At this point you will need to complete the SBA forms, and authorization to pull credit.
The Closing
Once a Seller has an accepted offer, they are much more willing to disclose the names of clients, provide the federally filed tax returns and other sensitive information.
Post Closing
After the sale is completed, it is time to break confidentiality. The former owner will inform the employees that the company was sold and introduce you to the employees followed by the clients and vendors. Generally, after all of the clients have been informed, the buyer will issue a press release.
