Be an Unreasonable Buyer
When buying a business always start with an Offer to Purchase and a Letter of Intent. Brokers will want you to sign an Offer to Purchase with earnest money down. You don’t have to do this to start the ball rolling. Keep in mind, the Letter of Intent is not as binding and as an unreasonable buyer, you want to be flexible. The letter of intent basically establishes price and terms so you can start serious due diligence. Of course, if it’s in your best interest to do an Offer to Purchase, immediately by all means, proceed. With your contingencies in place, the Offer to Purchase or the Letter of Intent will give you an out, based on your approval.
You want to bind the Seller to the deal as much as possible. Prior to signing the letter of intent, you, the buyer, should clearly think through the terms of the deal. Pay close attention to the language used in the document. You should write the letter of intent and then fax it to your attorney just to have him read it. You don’t let him try to make a 20 page contract out of my letter of intent. You want his legal advice only. Use the Letter of Intent as a leverage tool to be able to go back and re-negotiate different parts of the deal.
Let’s say the lease didn’t go together like you and the Seller agreed upon. The landlord has nothing to gain by subleasing. A lot of times they will try to increase the amount on a new lease for their gain. This will give you an opportunity to lower the price or get better terms. Remember, you are not emotionally involved in the business yet- Right? You can learn the unreasonable ways to buy a business without using any of your own money and a sample Letter of Intent in my book Who Wants To Be The Boss? Your Letter of Intent must include contingencies with "subject to clauses"; subject to accountant or attorney review and approval, subject to lease assignment, subject to state or federal license transfers, etc. Your "subject to" possibilities are limitless.
Of course the business broker will try to get you to eliminate most of these "subject to’s" because they get in the way of an easy sale. But be sure to include enough outs to limit your liability. You will want 2 to 3 weeks to review the books and financial records. The Seller must agree not to look at any other offers doing this time. You will find that most business brokers will want you to lift your contingencies in around 5 days under normal circumstances. Remember, you are not operating under the norm, so go for the longer period, even if you only get 2 weeks. You might need this extra time to put your financing together. Your no money down strategies sometimes takes a little longer.
Once While studying the profit and loss statements, I discovered that the Seller’s accountant had listed the 41/2 years remaining on the lease as a liability! His accountant had actually left this liability on the statements for people to see. Of course if he thinks it’s a liability, who am I to argue. You can be assured that most Sellers will consider a good lease as an asset, unless you are planning to relocate the business. The point is, look for unreasonable strategies that will help you put the deal together on your terms. Don’t just assume because an attorney or an accountant put together the paper work that it is accurate. http://www.whowantstobetheboss.com
Dave has more than 35 years experience in building, buying and selling businesses. His business accomplishments have been in owning 10 different businesses. He truly understands the need to share the American dream. Business isn't an academic exercise for Dave. He has been on both sides of the counter and this has allowed him the unique advantage of being able to observe and study business success from many vantage points. http:www.whowantstobetheboss.com