Closing the Deal When Buying a Business

Last Updated: August 22, 2009

Chapter 7: Closing the Deal

After going through all the processes of finding, researching and valuing a business, you are finally left with to complete the deal. All those things that are involved in buying a business share equal importance and the negotiations have no exception. It is therefore important that you reach an agreement that will reflect your hard work and money used to get this far without falling at the last hurdle.

You have to appreciate that the seller has that extra advantage because they know everything about the business – those aspects that are both good and bad.

It has therefore been your objective to reduce their advantage by finding out as much as you can about the business during those stages prior to negotiation.

7a) Before You Make an Offer

The first thing that you should ask yourself before you make an offer should be, “Is this the business that I want?” Unless you are 100% certain that you have found the business you want, then it is not worth making an offer. Doubts are a sense of insecurity and therefore you should do what ever is necessary to make your decision a confident choice. This could mean researching the business further or seeking more advice. But be warned: the seller could grow impatient if there are other potential buyers on the scene and consequently you could lose out on the deal.

Your second concern should be whether you can generate enough finance to buy the business as most banks are cautious about financing a business acquisition. This is due to the risk involved and especially if there are few assets for loans to be tied to. Those banks that may consider issuing finance usually ask for the following:

You can provide 20-30% of the value in cash
There are sufficient assets that can cover the loan
The accounts can prove future profitability
Your business plan has good direction and realistic ambition
You are capable of managing and running a business

Finally, after valuing the business, you should prepare two figures: (1) the price that you will initially offer which will be the lower of the two, and (2) the maximum price that you are willing to pay depending on what you can afford. It is important that you do not go over this maximum price otherwise the business may not get off to a good start financially.

Before you go into negotiations, you may have little time to prepare especially if the business has accumulated a large amount of interest. You should therefore put your offer in sooner than later before other potential buyers ask the seller to block any interested parties.

Visit our article on Negotiation Skills that will help you during the negotiation period. To give you further confidence, visit our article on Body Language in Business.