Frequently Asked Questions by Buyers

What are the advantages of buying an existing business?
You may consider starting your own business or taking a more risk-averse approach by choosing to purchase an existing business. The advantage to buying an existing business is that you are taking over an ongoing business concern that has established cash flow and profits. On day one you’ll have an established customer base, a solid reputation in the community and employees who know their jobs, the business, and the customers. Ideally you won’t have to reinvent the wheel by being able to utilize existing policies, procedures and systems that have been proven and perfected over time.

It is typically easier to get financing to purchase an existing business than to start a new one. Investors or lenders may be more likely to provide funds to a business with a proven track record. If you are looking at a more technical business, you may also acquire the rights to intellectual property (IP), copyrights or patents, which could prove very profitable over time. The business may also come packaged with receivables, real estate, and other key assets such as specialized equipment.

What business might be the right fit for me?
The first step to buying the right business is to consider your passions, skills, experience. and goals. Though you may want to buy a business for its attractive financial performance or a certain expected return on investment, it is always beneficial to think about the role you will perform in the business and the day-to-day lifestyle you will expect to have as the new owner. Are you willing and capable of learning a new industry or would you prefer to stick to something firmly within your existing skills and capabilities?

Another thought to consider is what size of business or how many employees do you want to take on? Is there a geographical area you would like to stay within or are you open to businesses in any geographic area? Once you have chosen some businesses that match your interests, you should investigate a few businesses that seem to meet your requirements, and a Murphy Business Broker can certainly help you do that. Typically, a business broker or transactional advisor is hired by the seller to find qualified buyers in a confidential manner and to help keep the process moving forward. Business brokers can also help buyers with their search criteria and to identify appropriate potential target purchases, while helping them to avoid potential issues along the way.

What information should I look at before making an offer?
The company website and social media pages are a great place to start. Businesses represented by business brokers typically have an offering prospectus that includes detailed financial information often called a CIM (Confidential Information Memorandum) or CBR (Confidential Business Review). With some businesses it may be appropriate to request tax returns or financial statements. In many cases it is appropriate to meet the owner and ask questions about operations and financial performance. Rest assured offers are typically contingent upon a further detailed review of financial documentation once the offer is accepted, so there will be ample time to satisfy all of your detailed concerns at the next stage; this is called due diligence.

How do I conduct due diligence?
Whether you go about purchasing a business on your own or using a business broker, you definitely need to conduct ‘due diligence’ by reviewing and verifying all relevant information available on the business you are thinking of buying. You need to understand what you are buying and who you are buying from, so it is advantageous to work with a Murphy Business Broker, a qualified attorney, and/or your accountant.

Another thing to consider is the reputation of the company and the strength of its business relationships. This is accomplished by talking with the seller and their broker about existing suppliers, vendors and customers. Be certain to ask the seller questions such as “How do you ensure repeat business from your customers?” and “What percentage of sales revenue comes from your top three customers”? You can also investigate online reviews or even consider contacting the Better Business Bureau (BBB), confirming there are few complaints concerning the business. Most sales are highly confidential in nature, so it is critical that you have the seller’s permission before speaking with anyone about the business.

What does a business transition look like?
It really depends upon the needs and desires of both the buyer and seller. Typically, most small businesses are offered with a standard transition period lasting for a month or two during which time the seller will inform the new owner of all operational details they will need to continue the business. After this transition period, most sellers will agree to be available for phone consultation for a defined period. Some buyers will want to offer an employment contract or consulting agreement to the sellers to encourage them to stay on for a longer transition especially if the seller is a very key part of the operations. The details of the transition period are typically negotiated in the final legal documents.