Franchising

It is important to understand how the seller arrived at the purchase price when considering a business purchase. Many sellers and their brokers choose the business purchase price, so it is crucial to determine if the asking price is fair. A business broker can provide data on similar businesses that have sold in order to help determine a fair price.

Business values are often determined by using a multiple based on different factors, such as the seller's discretionary earnings or annual gross revenue. There are several factors that can affect the asking price of a business, such as inventory, tenant improvements, furniture, fixtures and equipment. By reviewing comparable sales data and understanding the multiples of sales from similar companies, you can make an informed offer to the seller.

Some businesses qualify for financing through the US Small Business Administration (SBA). The SBA was created in 1953 as an independent agency of the federal government to aid in the financing and promotion of small business ventures, both existing businesses and new start-ups.

The best option that fits your particular needs will be largely based on your current financial situation and the circumstances of the seller.  Some other options for funding are commercial loans and seller financing. If you are considering an SBA loan, you should first check if the business has been SBA approved by the seller and their broker. This can save a lot of time, and is usually a good sign that the business is financially viable.

Buying a business with cash can sometimes get you a discounted purchase price.

The due diligence process is key to ensuring that the business information provided by the seller is accurate. If any discrepancies are found, they must be addressed.

A due diligence checklist should be created with the assistance of your broker and other professionals to ensure that all essential aspects of the business information are reviewed and verified.

It is essential that you protect your company's confidential information. This information may include:

• Employee contracts and independent contractor agreements
• Payroll information and employee tax forms
• Employee benefits, retirement plan and insurance
• Patents, trademarks and copyrights if included
• Proprietary formulas, recipes, or technical know-how if included
• All rights to data and digital information ownership
• All work-for-hire or consulting agreements

By safeguarding this information, you can help ensure that your company's confidential information remains confidential.

After reviewing all documents, you will be required to send the balance due for closing by wire transfer. If you have a lender financing the purchase, their funds will be wired to the closing attorney as well. If seller financing is involved, the term sheet and promissory note will be executed at this time as well.

If you are entering into a new lease for the business location, that document will also be presented at closing to be signed on behalf of the landlord.  There are often times situations where certain items cannot be transferred to the buyer until after the closing has occurred. In these instances, agreements will be written and signed detailing the processes that need to take place after the closing. Usually, a portion of the seller's earnings will be "held back" in escrow until all of the post-closing requirements have been fulfilled