Frequently Asked Questions - Buyer FAQs

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FAQs - Buyer FAQs

It may take more money than time to buy a business. It often takes more time than money to start one. The break-even point for buying a business versus starting a business is the cost to buy equipment, rent a space, pay a staff, pay for advertising, establish contractual relationships and support their self while a start-up is building up a customer base. With the purchase of an established business, buyers have income from the day they take over. Buyers already know what can be accomplished by the business. With a start-up business, entrepreneurs face a lot of uncertainty over the success and desirability of the product, service or location. Buying a business takes a lot of the risk out of the equation.

Beauty is in the eye of the beholder. Most buyers want to own a profitable, well-managed business in an industry that holds a personal interest for them. On the other hand, some buyers may look for opportunities that offer turnaround or improvement potential, where they can apply their special skills. In general, there is no industry that is particularly better than another. However, there are specific businesses that are more successful than others – even in the same industry! For instance, two retail shops can be located in the same shopping center, but one is successful and the other is not. The successful one may have a hands-on owner versus an absentee owner. It may have more effective advertising. It may have friendlier employees. It may provide better customer service or offer more competitive prices. It may pay less rent. It may have newer and more efficient equipment. It may pay less for inventory. It may have higher profits! The only way to find out which one is better is to compare the two and select the more desirable one.

Businesses can be financed from a variety of sources, all or only some of which may be used in a particular transaction. Financing sources may include: the buyer’s own cash or funds obtained from equity in real property, securities or retirement funds; loans from banks and lending institutions; or seller financing. It is expected that the buyer will have a vested interest in the business by investing his own monies. Seller financing is usually the cheapest and quickest to obtain, and it tells the buyer that the seller has confidence in his business. There are no loan fees, but the term of the loan is often short, and sellers are usually reluctant to offer it without substantial collateral. Banks will loan money on businesses that show a strong earnings history on the tax returns. However, they require extensive documentation and the payment of upfront fees. The most common type of bank loans are those guaranteed by the Small Business Administration. While many lenders participate in the SBA loan guarantee program, it can be volatile and funds are not always available. Finally, family members or investment partners are also sources of investment funds.

Yes, it is advisable to have an attorney review the legal documents associated with a business acquisition. It is important, however, that the attorney hired is familiar with the business selling/buying process and has the time available to handle the paperwork on a timely basis. While most business brokers are not qualified to give legal advice, most attorneys are not qualified to give business advice. Desert Business Brokers can provide a list of attorneys who are familiar with the business buying process. An experienced attorney can be of real assistance in making sure that all of the details are handled properly. In the end, the transaction must be fair for all parties.

When you find a business for sale, the business broker will be able to answer many of your questions immediately or will research them for you. Once you get your preliminary questions answered, the typical next step is for the business broker to prepare an offer based on the price and terms you feel are appropriate. This offer will generally be subject to your approval of the actual books and records supporting the figures that have been supplied to you. The main purpose of the offer is to see if the seller is willing to accept the price and terms you offered. There isn’t much point in continuing if you and the seller can’t get together on price and terms. The offer is then presented to the seller who can approve it, reject it, or counter it with his or her own offer. You, obviously, have the decision of accepting the counter proposal from the seller or rejecting it and going on to consider other businesses for sale. If you and the seller agree on the price and terms, the next step is for you to do your “due diligence.” The burden is on you – the buyer – no one else. You may choose to bring in other outside advisors or to do it on your own – the choice is yours.

Once you have checked and approved those areas of concern, the closing documents can be prepared, and your purchase of the business can be successfully closed. You will now join many others who, like you, have chosen to become self-employed!

Transactions handled by Desert Business Brokers are held in the strictest of confidence to protect the interests of all parties. Desert Business Brokers requires that a prospective buyer review and sign a Confidentiality Agreement outlining their responsibility in having access to a seller’s confidential information. This occurs before any detailed information concerning a specific opportunity is released. Desert Business Brokers is committed to protecting the confidentiality of the business sale, understanding that public knowledge of a potential sale can affect the attitudes and actions of customers, employees, competitors, lenders, suppliers and/or investors, and thus the value of the company. Desert Business Brokers also wants to safeguard the employment status of potential buyers while they consider very important changes for their future.

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