What are the steps involved in the right way to buy a business?
When speaking of simply buying a business--as opposed to corporate buy-outs, acquisitions, take overs and mergers--knowledgeable sources confirm that the "right" steps involved in buying a business begin with narrowing the field of possible businesses, being careful in "due diligence" and successfully completing the closing. Many sources break the process into seven to ten steps. Some of these are:
1. Selecting the industry in which to buy a business.
2. Selecting or defining the "parameters" of the business, including size and location.
3. Qualifying the business to see that it is honestly represented. Some put an informal "due diligence" in this early step while others put only meeting the sellers at this early step.
4. A letter of intent (LOI) follows here, which may include a potential price, otherwise the LOI contains only the agreement that the seller and buyer are bound to pursue the potential sale/purchase exclusively for a period of time. It is not a sales contract. The LOI requires the services of a business attorney to draft.
5. Valuing the property through expert financial analysis and appraisal comes now as part of due diligence. Due diligence is the process through which the business is examined by a CPA and a consulting firm to disclose any irregularities.
6. After this comes negotiating price and paying for the business, a process that requires an attorney since there are many paying options including "deferring consideration." Drawing up the final contract comes here. Some use "heads of agreement" here instead of the earlier LOI. The purpose of both is the same: it binds both parties to a time of exclusivity to see the deal through.
7, The final steps are the sale and purchase agreement and closing the deal. The sale and purchase agreement specifies details of price, how and when transfer will be made and the rights and responsibilities of each party. Closing is when you get the key and order a new neon sign.