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Why should I use a business Broker? |
 Buying a business is an important decision. You need someone who is properly trained and experienced in the complexities of buying a business so that you get through the process comfortably and efficiently. Business Brokers facilitate the buying and selling of businesses. The Broker will educate you, negotiate terms and act as a safeguard against all the emotions that come along with these types of transactions.
The Broker will manage each step of the process (finding a business, pricing the business, negotiations, documentation, due diligence, securing financing, etc.) by confidentially coordinating the players including your attorney, your CPA and, most importantly, the Seller. The Broker will have already qualified the business for sale based on your criterion, which will save you time. The Broker will have already worked with the Seller in gathering the necessary financial and company information. The Broker will do his or her best to prepare the Seller psychologically and logistically. The Seller pays for a Broker's services, so, a Broker can structure a transaction that it is in the best interests of all parties.
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What kind of financing is available and how are deals structured? |
Financing is available through the Seller, a bank or the Buyer's personal resources (i.e., family). Seller financing is usually cheapest and easiest to procure. Furthermore, it indicates to the Buyer that the Seller has confidence that the business will succeed. Additionally, loan fees don't exist and the interest rate is usually lower than banks. The term, however, will often be shorter. Securing financing through the Seller is the most common business financing.
Banks will finance the purchase if the business has a solid financial foundation (i.e., strong earnings). Banks will require a lot of paperwork and documentation. Fees will be charged upfront to administer the loan to the Buyer. Bank loans have become increasingly popular and more available in recent years.
Family is also a source of financing. Financing is ultimately up to the buyer, but there are obviously a lot of issues that come along with financing through a family member. There are many benefits, but you must weigh those benefits with the negatives.
The down payment varies depending on the type of Buyer, the Seller's circumstances and the Buyer's ability to put a payment down. A down payment will drive the sale of the business and can range from 15% to 50%. In most cases, the larger the down payment offered the Seller, the lower the total price. However, the Seller will understand that a Buyer must keep some cash available for operations once the business is sold. Sellers prefer to receive all cash at closing. Finally, placing a down payment shows commitment to the lender because there is a vested financial interest in the success of the business.
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Should I use a Broker if I'm uncertain what type of business to buy? |
Yes. Your Broker has the ability to match your criterion with available businesses for sale. You will want to purchase a business that interests you, arguably the most important step. Your Broker will assess your interests, past experiences, background, etc. and then present a variety of businesses to you. You should also consider location, the amount of cash you are willing to commit upfront, and the cash required once you own the business.
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