FAQ's



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Questions Buyers Ask

The following are some of the most common topics and questions frequently brought up by buyers.


If you have any questions that we have not covered please don't hesitate to contact us.



Q: What kind of business should I buy?
A: Ultimately, only YOU can answer this question. You already know that there's a world of possibilities out there for anyone who wants to Buy a business. Try drawing up a list of your own strengths and weaknesses. What are your current skills and experiences? What experience of running a business to you have already? Make sure the American Business Finders knows. How much money can you invest? What are your income expectations? Is your spouse or partner on board with the idea?


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Q: Why should I sign a "Confidentiality Agreement" and complete the "Buyer Questionnaire?"
A: American Business Finders is under instructions to protect the business seller from tire kickers and time wasters. American Business Finders receive literally hundreds of requests for information on their listings every month. Did you know (based on industry statistics) that over 90% of individuals that enquire about buying a business NEVER BUY? By completing the documents as requested, you are demonstrating to American Business Finders that you are serious.


Providing information about your experiences may help American Business Finders to direct you toward other businesses that are just coming into the market. Sellers also insist that American Business Finders make sure that persons who enquire have sufficient funds or access to enough money to actually buy.


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Q: How long does it take to find an appropriate business?
A: This generally takes longer than one might think. The reality is that although there may be several businesses for sale, there may be very few that fit your parameters. The best advice is to be patient as well as diligent in your search.


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Q: Why should I go to a Business Broker?
A: They can provide you with access to business-for-sale listings and details about the business that you may not discover on your own. A business broker will handle all of the details of the business sale and will do everything possible to guide you in the right direction, including, if necessary, introducing you to other professionals who may be able to assist you.


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Q: Where will I get the money to purchase a business?
A: Many smaller transactions require funding from a variety of sources.


Typical sources include:

  • Buyer's Own Funds, i.e. cash or a secured line of credit;
  • The Seller - Owners will often consider part financing a transaction over time, especially for a strong candidate;
  • Bank Loans - Banks will in some circumstances provide finance, subject to the type and size of the business being purchased, (ask the business broker for details)

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Q: What is the business purchase process?
A:

  • Complete the Confidentiality Agreement and Buyer Questionnaire
  • American Business Finders conducts a review of documentation with prospective buyer
  • Review the details of the business
  • Set up meeting with sellers
  • Get additional information and financial data
  • Make an offer to purchase "subject to due diligence"
  • Reach agreement on price and terms
  • Complete due diligence
  • Approve and remove contingencies
  • Closing and possession of business

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Q: Who pays the American Business Finders fee?
A: Usually the seller pays the fee. The seller signs an exclusive listing agreement with American Business Finders in order to market the business to potential buyers. There are no fees paid by the buyer.


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Q: What is Due diligence?
A: Is the process of investigation by a purchaser in conjunction with the purchaser’s legal and accounting advisor before agreeing to proceed with the purchase of a business. It is the process of evaluating a prospective business decision by getting information about the financial, legal, and other material of the other party.


Due diligence is used most often when buying a business, as the buyer spends time going through the financial situation of the business, legal obligations, customer records, and other documents. The prospective buyer wants to validate his/her opinion of the business to see if it is truly a good decision.


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Q: What happens when I find a business I want to buy?
A: An offer will be generated. This offer will generally be subject to your approval of the financial records, plus any other considerations - for example agreement by the landlord to assignment of the lease etc. The purpose of the offer is to see if you and the seller can agree on basic price and terms. If you and the seller reach an agreement, the next step is for you to do your “due diligence”. Due diligence may be performed by the buyer or with the assistance of outside professional advisors (e.g. accountant and or lawyer). Once you have completed the due diligence and are satisfied with the answers to any concerns that may have arisen, you will sign a waiver document removing any contingencies to the sale.


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Q: How should I determine a business’s value?
A: In general, businesses are valued in four ways:

  • Firstly, by the value of their tangible assets.
  • Secondly, as a multiple of its ‘normalized’ annual cash flow, or in some cases, a percentage of annual sales. This is dependent upon many factors, including but not limited to the length of time left on the lease, the history of the business, the perceived risk to the buyer and an estimate of ‘certain performance’ in the future (the tangible assets will be included).
  • Thirdly, as a return on investment. Many buyers will consider what kind of return they will derive as a percentage of their own money or total amount invested.
  • Inventory is usually valued separately.

In most cases, an individual buyer will ask themselves the following questions when determining value:

  • Will it pay me a reasonable wage for my effort (or a manager)?
  • Will the business pay for itself over a reasonable period of time?
  • Can I expect a reasonable return on my upfront capital relative to the risks?

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Q: What is the difference between an "Asset sale" and a "Share sale"?
A: The answer to this question revolves around businesses that are owned and operated from within a limited company. If the assets of the business are what is being sold directly, this is referred to as an asset sale, and the seller is actually the limited company. ) The Buyer buys the Assets, including Goodwill, from the Selling Corporation, free and clear with no risks attached.


In a situation where the shares of the limited company are what is actually sold (and thereby indirectly the business assets), this is referred to as a share sale. Buyer ends up with owning the Corporation with all the liabilities and any hidden risks contained. However, the Buyer also benefits from the history of the business including all contacts. Lease agreements and supplier credit history tend to flow through to the new owner. The Buyer must have Lawyer draft protection clauses in the final buy/sell agreement.


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Q: How much training can I expect from the seller?
A: This will depend upon the nature of the business, but typically for small businesses, it is for 2 - 4 weeks and without further compensation to the seller. Larger enterprises may have much longer seller participation and will offer compensation to the seller.


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Q: Do I need to use a lawyer? An accountant?
A: As business intermediaries will not give legal advice, it is advisable to have a lawyer review the paperwork if you wish. Be careful to ensure that the lawyer you hire is familiar with the business buying process and is available to handle the paperwork on a timely basis. Lawyers experienced in the buying and selling of businesses can make sure that all of the details are handled properly. Business intermediaries are not qualified to give legal advice. Alternatively, lawyers may not be qualified to provide business advice. Ultimately, your lawyer will be and should be looking after your interests; however, you need to remember that the seller’s interests must also be considered. If the lawyer goes too far in trying to protect your interests, the seller’s lawyer may instruct his or her client not to proceed. The transaction must be fair for all parties. The lawyer works for you, and ultimately you are in control of his/her actions. You have to make the final decision.


If you need help in reviewing the financial documents, then a good accountant can be a vital member of your team. They may also help you put together cash-flow projections and handle some of the ‘number crunching’ for your business plan and loan applications. Remember, though, that your accountant will not be running the business on a day to day basis - you will. Please don’t expect any professional you engage to take ‘ownership’ of your decision to purchase or not. You and only you can make that decision.


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