Business Buying FAQ

FAQ To Help You Buy A Business

Most frequent questions and answers regarding business buying FAQ

Most start-ups fail! If a business survives it’s 5-year anniversary, it’s likely to continue. An existing business, on the other hand, has already demonstrated that there it’s product or service in a particular location. An existing business also provides financial records along with other information on the business which documents it’s performance. Moreover, sellers will train the new owner on the intricacies of running a business. Buying an existing business the reduces risk of business ownership which optimizes the buyer’s chances of success.

Business Brokers provide expert guidance on matching you with a business that aligns with your skills, abilities, resources, and realistic financial  capabilities.

Business brokers inform and educate clients about  the business buying process. They are familiar with the market and can advise you about local trends, pricing, escrow and financing.

Business brokers  handle all of the details of a business sale. They guide clients toward a successful close including other professionals for specialized assistance as needed. 

Business brokers perform business valuations usually based on the last 3-5 years of tax returns and the most recent profit & loss statement.  From this information, a business broker will determine the discretionary earnings.

Additionally, depending on the industry, the business broker will apply a multiplier derived from comparable business sales to the discretionary earnings to determine a realistic listing price. So if a seller’s discretionary earnings is $100,000 and their industry multiple is 2x, then the recommended valuation will be $200,000 (DE x 2 = valuation). 

Of course this is a simple characterization. Most valuations are much more complicated and involve a number of variables.  Mission Peak Brokers have extensive experience in performing business valuations. 

For more information on valuations, check out:

Liquor Store Valuations

Gas Station Valuations 

Restaurant Valuations  

The business seller can approve your offer, reject it, or issue a counteroffer.  If your offer is rejected but you are still interested in the business, your business broker can investigate to find out the reasons for the rejection.  If your offer is countered, you can reject, accept or issue a subsequent counteroffer.  Once your offer is accepted, you issue a deposit check into a business escrow that is opened for the transaction. Thereafter, the due diligence process begins.

Due Diligence is a process where the buyer is permitted to investigates the facts of the business to assure that it matches the seller’s claims and that is a suitable purchase for the buyer’s needs and interests. Often buyers will hire professionals to help them with the due diligence process such as accountants, attorneys, and specialized professionals.

On successful completion of due diligence, formal escrow instructions are signed by the seller and buyer and the business escrow officer coordinates all transactional, funding, regulatory, lease and municipal documentation to assure an effective and smooth transfer of ownership. After the escrow process concludes, the seller and buyer jointly work on the business transfer process. The seller will also provide the buyer with on-the-job training to help the buyer acclimate to the their business.

Nearly all businesses require 3 attributes to continue the success of the business.  First, buyers need to have working capital and financial reserves. You need capital if you plan to make improvements, expand marketing, increase hiring, etc. Financial reserves are necessary for the buyer/new business owner to sustain themselves for at least the first few months of becoming self-employed.   Second, you need to be willing to work hard and put in long hours. A business owner often wears many hats and may need to be the janitor, employee, bookkeeper, etc. To continue success, you must plan on rolling up your sleeves and make your new business ownership your top priority. Third, your mindset must be focused on success and your actions must be in accordance with your mindset. When you become a business owner, the buck stops with you. Successful small business owners have a “can do” attitude which goes a long way to sustain and increase a successful enterprise.

It depends. 

Though business brokers are not qualified to give legal advice, they are often highly knowledgeable and skilled in all aspects of efficient and effective business sales and transfers. If you want to be clear about your risks and assure your best possible outcome and/or if you have a highly complicated transaction, then it may be advisable to include an attorney in the transaction. If you do hire an attorney, make sure that the attorney you hire is familiar with the business buying process and has the time available to handle the paperwork on a timely basis. If the attorney does not have experience in handling a business sales, you may be paying for the attorney’s education. On the other hand, an experienced attorney can be of real assistance in creating a successful outcome for you.

Keep in mind that most attorneys are not qualified to give business advice. Attorneys are trained to look for risks and zealously protect their clients.  An aggressive attorney may go too far in protecting your interests and could derail the business deal altogether by alienating the seller. Most business sales are designed to focus on the bargain to assure a fair transaction to both parties. While an attorney can identify all the potential risks to the buyer, the key is that they may just be potential issues. Buyers might end up with analysis-paralysis and fail to move forward with buying a business that is perfectly fine. With every business sale, the buyer must make the final decision by taking an educated “leap of faith”. Buying a business takes courage and for those that take that step, the rewards can be life-changing.

Business Brokers provide expert guidance on matching you with a business that aligns with your skills, abilities, resources, and realistic financial  capabilities.

Business brokers inform and educate clients about  the business buying process. They are familiar with the market and can advise you about local trends, pricing, escrow and financing.

Business brokers  handle all of the details of a business sale. They guide clients toward a successful close including other professionals for specialized assistance as needed. 

Skip to content