Is There a Set Formula for Purchasing a Business?

By Steve Michaels

January/February 2012

Question: “I have self-listed to sell my business, and a prospective buyer has come to the table with an offer, stating that the following is a standard formula for purchasing a business. In your estimation, is this correct?

• A confidentiality agreement is signed. This agreement also stipulates that the business be taken off the market for thirty days, during which the seller cannot talk to another potential buyer. There is no earnest money put down by the buyer during this time.

• After completion of due diligence, the buyer submits a letter of intent.

• At closing, the buyer provides a down payment and the purchase agreement is signed.

Answer: There is no standard formula for buying and selling a business. It basically comes down to what both parties agree to. A seasoned buyer will most likely use their formula (which they may call “standard”), and it’s bound to be one that works in their favor.

TAS Marketing sells its businesses using the following method:

• The listing sheet, financial information, and bank deposits are furnished up front to all prospective buyers who have signed a non-disclosure.

• A letter of intent is presented with the offer. At this point the seller can accept the offer, negotiate the offer, or reject it, thus leaving the door open for other offers.

• If the offer is accepted, an escrow account is set up and the business is taken off the market for a period of time so that the buyer may do his or her due diligence.

• If the due diligence process uncovers facts that were contrary to the information provided, the deal can be renegotiated or the escrow deposit completely refunded. If the due diligence is favorable, then the buyer has two options:

1) If they are purchasing the accounts, they have the option of putting down one-third of the sales price, which is nonrefundable, and thus receive all of the account information to program into their system before closing.

2) If they are buying the entire going concern, an “asset purchase agreement” is drawn up, it is signed at closing, and the funds change hands.

Ted Turner said it best: “Business is war... with rules.” 

Steve Michaels is a business broker with TAS Marketing and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions. His website is www.tasmarketing.com.