How Do I Purchase a Business? If you are interested in purchasing a business, the first step would be to identify what type of business you are looking to buy by narrowing it down to certain industries or based on the financials of a company such as its pre or post expense revenues. The prospective business must align with your strategic objectives such as how much involvement you want to have in running the business, how much experience you have in a particular industry, market expansion, or diversification. There are various business listing websites where you can go to identify businesses for sale, the asking price, and contact information of the seller or their representative. You can also reach out directly to business brokers or investment bankers who typically represent sellers of businesses who will have businesses that they are actively looking to sell. Once you have identified one or more prospective businesses, you typically will sign a non- disclosure agreement with the Seller. This allows the buyer to receive preliminary information about the business, particularly the financial statements, and gives the seller comfort that the buyer is not going to use that information to the seller’s detriment. By obtaining the financial statements, the buyer can determine if the seller’s asking price for the business is justified. If you are not experienced in analyzing financial statements, then you can engage a business valuation expert to be on your team and look at the financial statements from your perspective. Valuing a business can be done many ways and is more of an art than a science, but it typically involves some combination of looking at the past three years net income of the business and multiplying that by a multiple that is standard for the size of business and industry. Investing in an expert at this stage can save you lots of time, money, and stress later in the process. If a value can be agreed upon by the buyer and the seller, the parties will then enter into a letter of intent. The letter of intent states basic terms about the transaction and provides the buyer with an opportunity to structure the transaction
in a way that fits their strategy. If the buyer hasn’t done so already, they will need to secure financing for the purchase. This can come from a variety of sources including debt financing, cash, or other outside investment. Throughout this process, the buyer will conduct due diligence on the seller and ask for a variety of information to ensure that they are getting what they think they are buying. Due diligence is an extremely important process that an entire article could be spent on. The goal as a buyer is to pay a fair price for the business and minimize the risk that something might go wrong after closing. If everything goes smoothly, the buyer and the seller will negotiate a purchase agreement and move towards closing. What If I Want to Sell My Business? For sellers, the process is similar. It involves engaging some type of investment banker or business broker to help you value the business, list it, and enter into a letter of intent with a buyer. Ideally, prior to entering into the letter of intent, you will want to engage an attorney to represent you throughout the process. The journey of selling your business starts quite early. If you think you might want to sell your business, you should prepare a couple of years in advance to ensure your financials and the rest of your business can be packaged up nicely and presented to a buyer. The goal as a seller is to maximize the price you can get for your business and walk away with as much cash as you can at closing.
M&A as a Strategy for Business and Entrepreneurship
Business transactions can be a powerful tool for accelerating growth, expanding reach, or gaining a competitive advantage in the marketplace. Whether you are just beginning your business journey or are an established business owner looking to expand, leveraging M&A can unlock benefits and strategies that might be difficult or less efficient through organic growth alone.
29 The Acumen
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