Seven Buyer Questions


Should a buyer purchase an existing business or start a new one?

An existing business has a track record and has demonstrated that there is a need for that product or service in a particular market. Financial records are available along with other information on the business, its market and competitors. Additionally most sellers will not only stay and train a new owner but will also supply some financing. These last two factors are very important considerations. Having a knowledgeable person teach a new owner the intricacies of a particular business and who is also willing to finance a portion of the sale can make all the difference between success and failure. On the other hand, failures of start-up businesses occur largely during the first three years of their existence.

What does a business broker do?

In an initial meeting the buyer and KNZ establish the buyer’s criteria for a business and his or her financial qualifications and business background. The prospective buyer then completes a confidentiality and non-disclosure agreement so confidential seller information can be revealed to the buyer. Potential acquisition candidates from KNZ’s listings are then identified based on the buyer’s criteria. If a listing is available that meets the buyer’s criteria, pertinent details of the listing are provided to the buyer. If the buyer elects to pursue the opportunity KNZ arranges a meeting with the seller at the sellers facility or at KNZ’s offices.

During this initial meeting a buyer should be prepared to ask the seller about all aspects of the business to include a request for any additional financial information that may be required. If after this initial meeting the buyer wishes to pursue the opportunity with an offer, the buyer then submits a purchase offer to the seller. A purchase offer should be pursued only after the buyer has made a complete inspection of the business and has determined that this is the business that he or she wants to purchase. KNZ works as an intermediary in negotiating the purchase contract between the buyer and seller.

During the period where the buyer examines the seller’s business and financial information in detail, the “due diligence period” as provided by the asset purchase contract, KNZ works with the seller in helping provide the buyer with the needed information. Due diligence includes not only an examination of the books and records of the business but all other aspects of the business and market factors that may affect the business.

KNZ can also assist buyers in obtaining financing as we have many lenders who we can recommend for business acquisitions. KNZ can also recommend good sources for business insurance. KNZ Brokerage helps take the mystery out of the business buying process and offers buyers assistance and guidance every step of the way.

How are businesses priced?

Since most business sales have some portion of the purchase price seller-financed, the down payment and other terms of the sale are very important. In many cases, how the sale of the business is structured is more important than the actual selling price. Too many buyers make the mistake of being overly concerned about the full price when the terms of the sale are generally the difference between success and failure.

What should a buyer look for in a business?

A buyer should consider only those businesses that they would feel comfortable owning and operating. “Pride of ownership” is an important ingredient for success. And obviously a buyer should consider only those businesses that can be purchased with the cash they have at their disposal. In addition the business must be able to supply enough cash flow—after making payments on it—to maintain the owner’s lifestyle.

Buyers should always look at a business with an eye toward what they can do to improve it and make it more productive and profitable. There is an old adage advising a person not to buy a business unless they feel that they can run the business better than the present owner does. Everyone has seen examples of businesses that need improvement in order to thrive, and a new owner comes in and does just that. Conversely, there are also some cases where a new owner takes over a successful business and not soon after, it either closes or is sold. It all depends on the new owner...

What happens when you find a business you want to buy?

When one of KNZ’s listings interests a buyer one of our brokers will either be able to answer your questions immediately or will research them for you. Once a buyer gets his or her preliminary questions answered, typically the next step is for the broker to help the potential buyer prepare an offer based on the price and terms the buyer designates. The offer will generally be conditioned upon a review and approval of the actual books and records supporting the financial information that have been supplied. The offer is then presented to the seller, who can approve it, reject it, or counter it with his or her own offer. The main purpose of the offer is to determine if the seller is willing to accept the offered price and terms.

What happens when I make a purchase offer?

A purchase contract generally includes:

  • details of the price to be paid for the business
  • assets that are included in the purchase
  • training to be provided to the buyer
  • the time period and area to be covered by any non-compete agreement
  • and, if there is to be financing by the seller, the details of the financing

If the buyer and seller agree on the price and terms, the next step is for the buyer to perform their “due diligence.” Due diligence is the examination and evaluation of risks affecting a business transaction that a prudent person might be expected to exercise. The burden is on the buyer—no one else. A buyer may choose to bring in other outside advisors to help or may do it on their own—the choice is solely up to the buyer. Once due diligence has been completed the closing documents can be prepared and the purchase of the business can be closed.

What is done during the "due diligence period?"

The due diligence period is used by the buyer to review all aspects of the business—not only the financial aspects of the target business, but competition, changes in market dynamics, available financing, and all other issues that should be considered in purchasing a business. The buyer’s accountant and attorney should review the financial and legal aspects of the purchase.

Upon the completion of the due diligence period, the buyer and seller are ready for the closing of the sale. To facilitate the closing the buyer and seller retain an escrow attorney. The attorney is responsible for filing the required paperwork, and ensuring that all licenses and leases are properly handled for the buyer and seller.

KNZ works with the buyer in securing the approval of financing, the transfer of licenses, the assignment of lease and franchise rights, and the performance of due diligence for the target business. If required KNZ offers business plan services to include financial projections that will generally be required by outside lenders.