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What to expect during Due Diligence

One of the first things a prospective buyer sees is the Business Listing Information sheet, or BLI. The BLI provides the buyer a wealth of data on the business of interest. The business owner has certified all data on the BLI is correct and supported by financial documents, leases, and other pertinent information. At this point in time, a buyer should assume that the information provided is accurate, but there are no guarantees. Sellers should expect buyers to thoroughly inspect the business. This is called “due diligence”. Usually, before due diligence, an offer must be submitted and price and terms agreed. Most offers are subject to the buyer’s satisfactory performance of ”due diligence”.

The Due Diligence process is the opportunity for the buyer to inspect all records of the business and verify that the information provided is correct.

The broker will arrange and attend meetings with the buyer and seller to review and discuss items of concern. The seller, buyer and broker understand those items need to be answered, or mitigated and all will collaborate to reach the best possible solution. If the buyer’s confidence level has not been satisfied, they may ask for further clarification, modify or withdraw their offer.

Due Diligence brings a balance to the process. We ask in the beginning that the buyer accept the information as represented. Later during the due diligence process the buyer can perform an exhaustive investigation to confirm that everything is as it should be.

The process may vary with the size of the business  

Large businesses, e.g., Fortune 500, companies normally have only a handful of suitors that are qualified to buy them. Buyers are provided a prospectus and audited financial statements and they expect to complete due diligence prior to issuing a letter of intent. Large firms usually have teams of accounts & lawyers on staff to conduct the due diligence.

Small Business are very different. A seller must not approach a small business as if it were a fortune 500 Company. Small businesses often employ only a bookkeeper and sometimes the financial records are kept by the owners themselves. A CPA or Accountant may only be involved at tax time.

So what would happen to a small businesses when 30 to 100 unqualified buyers want to see financial records and perform due diligence in advance of an offer being presented? You can imagine how daunting and time consuming it would be for a seller to meet with each potential buyer and agree to their demands!

Florida Business Exchange can help initiate a quick, easy and successful sale. We will qualify potential buyers to ensure sellers only meet with serious buyers who have the experience and finances to succeed. In addition, we assist buyers and sellers through due diligence once an offer is accepted. This affords the seller time to do what they do best – run their business.

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Buy a business vs. Start up. Which is right for you?

Whether you are looking at working for yourself or investing in a new and exciting business venture, all of the choices can make it confusing.

Although start-ups may be exciting and relatively inexpensive at first, there are a lot of unknown factors and launching a new business takes incredible effort and time to build momentum.

With an existing business, someone else has already done much of the work required to make them successful and you know there is a marketplace for the product or service.

POINTS TO CONSIDER

Customers – Although you will work to expand the client base, there are already tried and true customers that like the business and keep coming back. Start-ups have to go out and find their customers from the beginning one at a time over a period of years.

Suppliers – Existing businesses have working relationships with reputable vendors that provide them with quality products and services. Many start-ups have to search out and form relationships with new vendors.

Risk – With an established business, a lot of the risk has been reduced from the enterprise. It already exists and has proven itself successful. Start-ups may appear to be cheaper, but their success is unproven and the total cost in time and money can be very significant.

Cash flow – An existing business is at a point where the owner can probably take a salary, cover debts, and reinvest in the business. A start-up is just that…starting up. Most start-up owners struggle greatly for the first two or three years while trying to establish their business.

People/Staff – The greatest benefit of buying an existing business can be the experienced staff that comes with it. These are trained individuals that have helped to make the company a success and can run it in your absence. With start-ups, you are the only staff. If you get sick, so does the business.

Your Focus – With an existing business, you can immediately focus on the running and improvement of the business. With a start-up, you spend more time focusing on starting up the business and requiring all the necessary elements to make it functional.

The Brand – You are buying the brand name of the company and all of its established clientele, goodwill and community connections. This is a great foundation for attracting new business or making “cold” sales calls.

Proven Business –  A financial track record that you can take to the bank to secure financing. Start-ups lack this which makes acquiring working capital difficult.

In summary, acquiring an existing business can significantly increase your odds of being a successful and satisfied business owner.

Buying or selling a business is a complex process. Make sure you have the right team on your side. Contact us today!