Proposal to Buy a Business: Everything You Need to Know
A proposal to buy a business happens after you've looked at a variety of businesses that are for sale and have chosen the one that you want.3 min read
2. Approaching the Seller
3. Pre-Offer Due Diligence
4. Preparing the Offer to Buy a Business
5. Due Diligence at Closing
6. Tire Kickers and Business Spies
A proposal to buy a business happens after you've looked at a variety of businesses that are for sale and have chosen the one that you want. You might feel a little nervous making the offer, and the seller might also be feeling a little nervous about sharing sensitive information related to the business. From the seller's point of view, listing the business for sale and considering offers are part of a big decision, possibly an emotional one, and the seller may have as many or more concerns about the transaction as you do.
Best Practices for Buyers
Buyers don't usually have to prove to the seller that they're the best potential buyer for the business. Business owners do, however, want the assurance that the business they built and worked hard to get going will stay in business after the sale. The price offered is usually the biggest determining factor of who buys the business. There are, however, some best practices to employ when you're making an offer to buy a business.
Best practices for buyers include:
- Properly approaching the seller.
- Doing due diligence before making an offer.
- Properly forming your offer.
- Confirm due diligence before final closing.
Approaching the Seller
No two business deals are precisely the same, and anyone who is involved in the acquiring or merging of a business might note that interactions between buyers and sellers are important factors when it comes to sealing the deal. Having someone you know, who also knows the business owner, introduce you to the business owner can help get the transaction off to a good start.
Business networking increases the confidence of the seller, and it can even help make the whole transaction go faster. Plus, if a company isn't listed for sale right when you're looking at it, proceed cautiously to find out if the owner is interested in selling if you offer the right price.
Pre-Offer Due Diligence
When you're the potential buyer of a business, it pays to look into its value and its potential for growth. That can mean doing things like:
- Interviewing current employees.
- Examining the company culture.
- Checking the news for trends in the industry.
- Looking at opportunities for expansion.
- Checking customer feedback on online review sites.
- Exploring the competition.
You want to make sure the business is healthy and has a lot of growth potential, and you also want to make sure you're the best person to take it over. This is, first, likely to impress the owner, but your research can also help you formulate an offer, and it can give you strength when it's time to start negotiating.
Preparing the Offer to Buy a Business
When you're getting ready to make an offer to buy a business, it can help to know what metrics the current owner tracks. For example, before you go through negotiations, it can help if you have an idea of what the seller considers when assessing the value of the business.
To find out what the seller values, ask which performance indicators the owner tracks in order to determine how healthy the business is and if it's growing. If the seller tracks something like the recurring monthly revenue and how it relates to the customer base, then that gives you a way to assess what the owner values about the business.
Due Diligence at Closing
After you've negotiated terms of the sale, it's still a good idea to confirm the financial and business information that was provided by the seller. You might need to hire an attorney or an accounting firm to help you examine the information, but if your earlier due diligence was thorough, you shouldn't find any unexpected or unwanted surprises.
Tire Kickers and Business Spies
One problem sellers can run into is when people look at business's without ever really intending to buy. These people are called ‘tire kickers.' They can look at business's for years and never make a purchase. Others might have a real interest, but don't have the financial ability to buy.
Then there are the ones that have the financial ability, but they're not willing to pay the owner a fair price for the business. Finally, sometimes competitors send people in to find out private information about a business, and those people go through the seller's financial records and report back to the competition.
If you need help with a proposal to buy a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.