About > FAQs > Buying Process

What are the key motivators for people going into business for themselves?
Money is not always at the top of a buyers list of reasons for going into business for themselves. More likely, they have lost their job, are extremely dissatisfied with their job or are entering into retirement. Their reasons for purchasing a business could include: 1) independence/be own boss, 2) flexibility, 3) capitalize on a skill set and, 4) to make money.

What should I look for when buying a business?
There are so many aspects of a business that require close examination before determining whether it is right for you. First you should identify your reasons for owning a business, the type of business you would be most comfortable running, the amount you have available to invest and the type of income you will need to take home. Other areas you should look at when examining a business include: 1) what is the annual increase in sales, 2) what are the debts, credits and inventory, 3) will the seller help transition the business, and 4) what does the future hold for the business?

Is it better to buy an existing business or to start one?
There are more benefits to buying a business than to starting one, especially since most new businesses fail within 5 years. An existing business has three things that are the most challenging for new businesses to achieve: a customer base, established credit/financial history and employees. This provides an immediate cash flow, which could improve your ability to obtain acquisition financing.

When should I consult an attorney/accountant?
The advice of attorneys and accountants is important once you have selected a business and you think your terms will be accepted by the seller. Both parties can help protect you. The attorney will create and prepare all legal documents for the transaction and an accountant will advise you on tax issues and be able to review the financial data of the business.

How much cash do I need to purchase a business?
One of the ways in which you can purchase a business is through deferred payment in which a portion of the total is paid in installments/over time in the form of a seller notes or based on the performance of the business. The other way to purchase a business is through a third party/lender where you may be required to put down 1/3 to 1/2 of the purchase price in cash.

Where can I obtain financing?
Your ability to obtain financing will depend upon the strength of the business you are purchasing. This includes the asset base, operating history, collateral availability and projected cash flow. There are several types of third party lending including commercial lending, asset-based lenders and seller financing. With seller financing, the seller takes back a promissory note for part of the value of the company. We recommend you consult with an SBA specialist or one of our financing experts to help you decide the best course of action for you.

What is due diligence?
Due diligence is an important step that involves close examination of public and proprietary information related to the assets and liabilities of the business being purchased. It covers background, finance, human resources, tax and legal matters. EBB has a due diligence check list.

What are some significant warning signs I should look for during due diligence?
Some red flags include: seller withholds, misleads or provides limited access to information or employees, seller is vague about why they are selling or proposes an unrealistic timetable, or seller is not willing to provide you a commitment after the sale.