Simplifying the Purchase Process as a Buyer
The future of buying and selling businesses is inclusive, self-sufficient, and tech-enabled. BuyAndSellABusiness.com’s Full Serve solution is at the forefront. As the first marketplace to digitize and automate a sales purchase solution, we are giving complete deal control to buyers and sellers of all types of small businesses.
Our solution does a great job at walking buyers and sellers through the whole sales process. Create non-binding offers, build and eSign a letter of intent (LOI), chat, and transfer all deal funds intuitively and in one spot. As our Full Serve solution guides you through the intent, diligence and closing phases, here are a few simple pointers for buyers to consider.
High Level
· Once you send a non-binding offer and eSign a non-binding LOI, we suggest you start your due diligence immediately. You’ll have access to a deal room where you can chat with the seller and request any document you need. Also, don’t be shy to get on a Zoom call to ensure both you and the seller are on the same page.
· Get on a Zoom call with three of the business’ biggest customers (by revenue). Just explain that you're a potential customer and people are usually fine with this. Answer two important questions: How do they feel about the product or service? What kind of relationship does the owner have with their biggest customers?
Financials
Ask for three years of financials, usually the profit/loss statements (P&L). A P&L can be hard to read and interpret if financials are not organized, as there are several different valuation approaches (this is where our deal support comes in).
Most buyers value Earnings Before Income, Tax, Depreciation and Amortization (EBITDA), but some value sellers’ discretionary earnings (SDE). Transactional business models are valued at a multiple of EBITDA. Recurring business models are valued at a multiple of revenue.
Bottomline, you want to get the important information:
· How much are they spending on things (i.e. all in, what's it take to run the business)?
· How much are they taking in?
· Do they have any lifetime deals you have to support? (These are liabilities for you.)
· What's their profit margin?
· Is revenue predictable or volatile?
· Do they have high customer concentration?
· Are they dependent on any stakeholders – employees, vendors, the business owner?
· What does it cost to acquire a customer
· How long do customers stay (LTV)?
· What’s the general churn rate on customer (if subscription-based)?
Tech
This can be difficult if it's just you running a Software as a Service (SaaS) business. If you’re on Zoom and decide to screenshare the documents, it is difficult to say definitively whether the business you're buying is worth it.
Ask for things such as:
· What's the uptime? If it's not 99.9 they better have a good answer.
· What's the deployment process?
· What's the architecture? Have them draw you a diagram.
· What's the first thing that’s going to break if you 100x the usage? All systems have choke points, just know what this is beforehand.
Others
· Will they support you for three months after the sale (i.e. the transition period)?
· Will they be available at an hourly rate to help with issues? Most say no, but it is worth asking.
· Do they have any contractors they've used on the project that they could introduce you to?
Diligence is a balance. If you ask more questions than another party that puts a bid in, you might lose because you were 'asking too many questions.' But if you don’t ask enough, you may run into issues you otherwise might have avoided.
Buying a business is such a fulfilling and rewarding process, however, it still comes with financial and emotional sacrifices. The more prepared and organized you and the seller are, the better the deal.
Best of luck.
More Full Serve Resources:
Demo: https://www.youtube.com/watch?v=EkLVQrSnbLo
Product Page: https://buyandsellabusiness.com/learn-more-about-full-serve
FAQ: https://buyandsellabusiness.com/frequently-asked-questions
PS Don’t want to pay a commission, no problem, explore our subscription solution here.
Opinions expressed here by contributors are their own.
BuyAndSellABusiness.com launched a private Slack community designed to help people connect, share insight and ask questions about buying, selling and growing businesses or franchises. Apply to join here.
Remember, if you are interested in receiving the latest business news, insights and opportunities from BuyAndSellABusiness.com, you can subscribe to our newsletter here or join our text messaging list here. Also, if you are not a BuyAndSellABusiness.com user yet, what are you waiting for? Click here!
