Three steps to making the perfect offer when you buy a business

You may have just found the perfect way to buy a business. The business seems to be in the perfect genre and you think you will be passionate about running a business in this domain. You may also have performed initial reviews, done background checks and even had a face to face meeting with the seller. After all of these formalities is the time to make the purchase offer to buy a business. Here are some ways to do that.

a. Know the true value

One of the first steps to buy a business and make the purchase offer is to know the true value of the prospective business. Doing so enables you to be in the power to negotiate. If you need to know the value of the business for sale you can ask your own accountant or even contact business brokers to estimate the real value. This value will be the foundation of the price you ask. The process of setting a value on a potential business for sale is complex and tricky at times. If you are leveraging your accountant’s expertise on this aspect, ensure that you understand their methods and approach towards estimating value. 

b. Terms and conditions

The other aspect, which you need to consider are the conditions of the contract. While the price will be crucial, it will not be the sole factor in drafting out the contract conditions. Here are some conditions you should lay down in the contract:

• The buyer: It needs to be made clear in the contract whose decision it is to buy a business. If you are personally making this purchase offer then your name should be listed as the buyer and if it is your corporation, on whose behalf you are making this offer, the company name should be provided. The deal structure can play a crucial role in your liabilities.
• The object of purchase: Make sure to list down if this purchase offer is being made as a stock or asset sale. Also ensure to include the other relevant terms such as whether partial or full assets and stocks are being used. Make it clear in the contract is the inventory is also inclusive in the deal or not. Understand clearly about WIP inventory or ones, which are still in progress, and if so, who will be owning it. 
• Finance from seller: Make sure to also mention in the contract if you are using any financing from this seller. If this is so, ensure to mention the exact amount. Mention the conditions, path to be taken in cases of defaults, if you are held liable personally for such defaults, if the financing from seller comes after lender financing etc.
• The date of closing: This sets a definite timeframe to close the purchase offer deal.
• Non-competing: This kind of an agreement should also include the geographical scope and timelines.
• Receivables payables: Ensure to elaborate if these are included in the transaction or not as well as their method of handling.
• Training: If you want the business owner to stay on to train you for sometime, mention it in the purchase offer before you buy a business. Also, mention the timeframe and compensation if applicable.

c. Deal closure

This is the last but most crucial step when you buy a business. While you want to ensure that you have thoroughly scrutinized all the steps involved you also want to think of the business for sale from the seller’s perspective. The seller may have invested much of his time, passion and energy towards his businesses for sale and thus there is the emotional aspect involved as well.