FAQ for Buying a Business

Goodwill is the value of the business beyond the value of the physical assets of the business. For example, if the business was worth $1,200,000 and the physical assets (trucks, computers, software, and tools) were valued at $500,000, the excess value of $700,000 is goodwill.

According to Investopedia, 51% of all businesses fail within two years. The primary reason a business fails is a lack of cash flow (earnings), resulting from not having enough customers. A new business does not have people recommending them because they are unknown. In addition, it is significantly more difficult to get bank financing.

When you buy a business, there is immediate cash flow from the existing customers. The former business owner assists the new business owner by introducing them to the business's customers. The current business was successful for a reason; the former owner shares what made the business successful. In addition, an existing company has skilled and trained employees. Lastly, it is significantly easier to get bank financing to purchase the business.

Net income is sales less expenses. Cash flow tracks the inflow and outflow of cash.
Net income example: If a business has $5,000,000 in sales and $4,000,000 in expenses, the business earned $1,000,000.

Sales $5,000,000
Less Expenses ($4,000,000)
Net Income $1,000,000
Cash flow example: If the business extended payment terms and had $800,000 in account receivables. Using the same information above, the business would have a cash flow of $200,000.

Sales $5,000,000
Less A/R – Uncollected money ($800,000)
Collected cash $4,200,000
Less Expenses ($4,000,000)
Cash Flow $200,000

Most people have never purchased a business. An M&A advisors will provide you with assistance and guidance. Purchasing a business will require a significant amount of money and time. You want someone who knows the process and answer your questions. Like real estate agents, M&A advisors frequently paid by the seller, but by code of ethics are required by honest.

We only sell architectural, engineering, and land surveying businesses. Most business owners sell their businesses to retire.

If you buy a business that we are selling, you do not pay a fee. If we perform as buyer's broker, then there is a fee.

Yes, bank financing is available in most cases. We only sell architectural, engineering, and land surveying businesses, and we have relationships with banks that desire to finance our clients.

Absolutely. When a bank finances a business acquisition, they put more money into the transaction than either the buyer or Seller. The Bank will conduct extensive due diligence by people specializing in analyzing businesses. In addition, the Bank will require a business valuation to be performed by an outside third party. This is to the buyer's advantage because the buyer's interest directly aligns with the Bank's interest. It is an advantage to the Seller because they receive money at the time of the closing.

All of the information that we provide the buyers can be traced directly to a "source document" The two most common source documents are financial statements prepared by a CPA and a federal tax return. The Bank will confirm that the information on the tax return is the same information reported to the IRS.

We highly recommend that you hire an attorney experienced in business transitions and not a generalist. We compare this to having a podiatrist working on your heart. A heart surgeon and podiatrist are both doctors, but their expertise is in entirely different areas.

Yes, you have the opportunity to speak with the Seller. Since 2020 the process has consisted of an initial zoom call with the Seller. If that goes well, the prospective buyer and Seller meet in person.

Generally, having a down payment of 15% of the purchase is usually sufficient. If you have additional money for working capital, that is even better. Each transaction is different, but the banks we work with frequently include working capital with the business acquisition loan.

See eight steps for buying a business

Yes. If you are looking at a business we have listed for sale, and it is a good fit, we will be happy to help you buy the business. We will describe the process of buying a business and advise you on your next steps. We can also explain how a business is valued.

We also act as buyers' brokers when we are not the listing M&A Advisor. This is when we help you acquire a business. This may include calculating the business value, helping you find a business, or helping you acquire a business that you identified. We also arrange bank financing.

After reading the offering summary, you will have the opportunity to meet the Seller. This is your opportunity to ask all of your questions. Most of your questions will be answered in the offering summary, but some buyers prefer to get the answers directly from the Seller. Common questions are:

Will you sign a one-year employment agreement?

How many of your employees are likely to stay after the sale?

Why are you selling your business?

If you were 10 years younger, what would you do to grow the business?

Will you provide Seller financing?

How many hours do you work per week?

Who are your competitors?

Who does marketing beside the owner?

Due diligence is when you can ask and receive sensitive information about the business. You may also request to see supporting information to confirm that the information provided is accurate.