Getting the Loan

There are various sources for obtaining business loans, including the Small Business Development Center (SBDC) and your local bank. The SBDC program is administered by the U.S. SBA. Their mission is to provide management help to small business owners (those who currently own or are working to own small businesses). However, going through the SBA is usually very slow, and it seems that the program is geared primarily to aid minorities and veterans.

As mentioned before, one of the major documents required by the banks is tax returns for the company you are purchasing. Companies need to have at least three years' worth of tax returns in order to be considered stable, and our target company only had two years of returns. You need to check with your bank or financial institution to determine exactly what paperwork they require, but keep in mind that it's a long process that requires a lot of follow-up.

Contracts and Due Diligence

Another major part of the purchasing process is the contract and due diligence review. There must be a Buy-Sell Agreement between the buyer and seller. This agreement should cover all the rights and obligations of both parties, including delivery of intangible assets covered in the Asset Breakdown as mentioned previously. It's a truism that the seller is the one who controls the price, but it's the buyer who controls the terms. Although a particular business is offered for sale, there won't be a sale if the buyer doesn't come up with the seller's desired price. Once the seller agrees to an offer, though, it's the buyer who holds the position of strength; the money won't be changing hands if the seller doesn't agree to the buyer's terms.

"Due diligence" means that the buyer has accountants and other experts in the area review all business documents to ensure that they are factual and reflect the actual costs and revenues of the company. If anything is found to be false during this phase, the deal can be canceled, or the seller might be given time to remedy the problem. Do not underestimate its importance; many high-profile corporate mergers collapse at this point.

Advisors

Typically, you should have a CPA, a lawyer, and a businessperson as your advisors.

You should seek a CPA who is familiar with business acquisitions. The same goes for your lawyer. You probably don't need the lawyer until you are ready to write the contract, but you should at least get him lined up in advance. The CPA you will want even earlier in the process—you'll want his feedback on your business plan, before sending it out to banks.

SCORE stands for "Service Corps Of Retired Executives." These are folks who have learned a lot about business and volunteer their time to help neophytes in any way they can. A SCORE counselor can help you evaluate the target business, for example.

Good advisors are tremendously important. When the result of an action comes back, you have to make a decision, and quickly. The thinking of others will be extremely valuable in this process. Each advisor adds his perspective on the matter. These different points of view will help you arrive at a better-informed decision than if you just proceed based on your gut reaction. In our case, although the buyer very much wanted to buy this business, there was group consensus that this deal was not going well. Intellect wound up winning over heart.