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Buying
a Business

Decide Which Industry to be in

Owning a business is the fastest way to gain wealth and financial freedom. Congratulations on contacting Frazier Capital. Make sure that you look at businesses and the requirements for each business.  Look at the financial ratios of different businesses and industry overviews.  This can be done by looking at RMA, IBIS and other industry resources.

 

Meet With a Frazier Capital Representative

Buyers should meet with their Frazier Capital representative in person.  However, this is not always possible.  As a result, a video conference can be done. We start by gathering information on you, your financial abilities, as well as your skills and life goals. This information will help us to guide you into the correct business to go after.

 

Educate Yourself on How to Run a Business 

Many people have never run a business. This is the best time to be honest with yourself.  If you have no business background, then it would be helpful to have a basic bookkeeping course, and understanding of sales and marketing.  You need to understand how to control all dimensions of your business, the first and most comprehensive control is maintaining the inflow and out flow of cash.  Understanding how to do that is extremely important.    Many people try to have an absentee ownership perspective to buying a business. This typically fails and is not the same as operating real estate. You need to be very hands on for every business that you run.

 

Search For the Business

Once you are ready to hunt for a business, Frazier Capital will assist you on making offers, signing non-disclosure agreements and other documents.  In addition, Frazier Capital will help you visit a business that is selling and ask the right questions.  You need to explore financing options at this time, to determine a lender’s requirements and whether or not you meet their qualifications.  Having a lender or being prequalified demonstrates to the seller your seriousness about buying a business.

 

Make an Offer

First, we calculate the value based upon the operating margins of the selling business, the current discount rates and multiples.  Our 30 years of valuation expertise allows us to see if it is even worth making an offer. Once we have an idea of a fair price, and you agree, then we will present our offer.  A purchase sale agreement will be presented to the seller with a deposit of good faith held in an escrow account.  This down payment shows the seller that you are serious about your offer. After negotiations there will be a final completed purchase agreement.

 

Do Your Due Diligence and Obtain Financing

At this point you will need to check the representations of the seller, their financials and other representations that they have made. We will coordinate with the accountants and attorneys in order to validate the information that the seller has made, as well as, the financial add backs to expenses and income that the seller has made.

At the same time as doing due diligence financing may need to be obtained if there is neither an all-cash offer nor seller financing.  Financing can make or break a deal.  An application needs to be made to a lender, and an appraisal needs to be completed. The lender wants to make sure that the cash flow of the business will cover the loan. Our advice is to typically have two to three lenders underwrite the potential deal.  Many times lenders change their minds and their terms.

 

Close the deal

This is a point where escrow closes, leases are either assigned or there is a new lease with the landlord.  In addition, utility bills are transferred, inventory is counted, and merchant service accounts need to be notified. Also, there will be a number of documents needing to be signed for either escrow and/or for attorneys. Typically in the State of California a Bulk Sales Transfer is required to transfer title of business property.  Finally, the balance of the purchase price needs to be completed.

Post Closing

Once closing is completed, there may be training needed by the seller.  In addition, there will be meetings with employees and clients, technical education and a transfer in “know how” (intellectual property) for the business. Frazier Capital will be able to help you with questions and things that are required for the post closing.

Have a Question? Contact Us!

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