The Complete Business Buying Checklist - Acquira

The Complete Business Buying Checklist

What You’ll Learn

  • The 32 steps required to take you from Acquisition Entrepreneur to CEO.
  • How Acquira’s training and programs can help you refine your business search over time.
  • How to move from Letter of Intent to Asset Purchase Agreement as smoothly as possible.
  • Why positioning yourself properly with brokers and sellers is integral to finding the right business.

Acquiring a business takes a lot of hard work and discipline. Our training is designed to take any Acquisition Entrepreneur through the entire process of finding, vetting, buying, growing, and exiting a business, but there are certain traits that a business buyer should have in order to make the years-long process run more smoothly.

To be a successful Acquisition Entrepreneur (AE), you need to be hard-working, disciplined, passionate, and organized. 

It’s the organizational aspect of the business search that we want to discuss in this piece because getting from the very beginning of the acquisition journey to the point where you become a business owner takes a lot of attention to detail. There are a lot of variables during this process and a lot of things to learn, which makes time management an incredibly useful asset.

In this article, we’re going to provide a checklist of items that every AE will need to go through before they can buy a business. We’ll explain why the step is important, what training Acquira provides for those steps, and what required or supplemental materials will help you through that stage of the journey.

Let’s dig in!

Task Completed? Notes
1. Sign up for the Accelerator Program. This marks the very beginning of the journey. By this point, you would have spoken with an Acquira representative and been told about our training. 
Acquira’s training is comprehensive and in-depth. It includes guides and materials that will teach you how to analyze a business in order to determine whether it’s a good deal. We provide calculators, tutorials, and case studies that will help you weigh potential acquisition targets to find the best deal for you.
2. Begin working on your investment thesis. The investment thesis is a crucial aspect of the business search. It is made up of a combination of variables and considerations that will define the scope of the AE’s search. 
3. Define your geography.

While you probably know a lot about your local community or a city, there is a good chance that you have less perspective on exactly how your local area stacks up against other areas when it comes to attractiveness as a business buying location.

Acquisition Entrepreneurs can be rigid about the location of their target business OR the industry, but not both. So if due to family or work you prefer to stay in a smaller number of cities, you should try to be flexible with industry.

Most AE’s begin their search within a relatively small geographic radius. When options become limited within that scope it is not uncommon to expand the radius or start looking in other regions.

Prerequisite reading: 
“Accelerator Lesson 1: Geographic Location”

4. Define your industries.

At this point, you will need to identify a wide variety of industries and learn about the criteria you will use to choose what industry or industries to focus on.

There are hundreds of different business industries out there – the majority of which you may never have thought about.

As we said, it’s okay to be rigid on your industries or the geographic location of your search, but never both.

Many AE’s will often look for industries that they know or are comfortable working in. But if a good deal doesn’t present itself within that business sector, we always recommend the AE look at other industries, using different criteria to weigh each industry. This can be done through the Investment Thesis Calculator in Acquira’s training.

Prerequisite reading: 
“Accelerator Lesson 2: Industry Analysis”

5. Learn about your financing options

There are many ways to finance a business acquisition, with the most common options being SBA, seller financing, external debt, and seller retention and/or warrants.

These options are often mixed and matched as part of your thesis, and that combination is carefully decided upon after considering various screening criteria.

Note, however, that SBA cannot be mixed with most types of seller retention. 

Prerequisite reading: 
“Accelerator Lesson 3: Financing Options”
“Accelerator Lesson 4: Screening Criteria”

6. Get organized

At the height of your business search, you should be reaching out to three-to-five businesses per week. This is the only way you’ll be able to get to the point of issuing an LOI (letter of intent) within two or three months.

In order to do this, you need to be organized. To ensure you don’t get overwhelmed by the process it is important to have a clearly defined system of tasks and processes. This is where a CRM tool will come in super handy.

Prerequisite reading:
“Accelerator Lesson 5: Internal Goals & Organization”

7. Begin looking for on-market deals

Websites like BizBuySell.com are the best place to get started on this step.

Bizbuysell.com is the largest marketplace for businesses in the US and the primary website where we source on-market deals. Many brokerage firms upload their deals onto BizBuySell in addition to their own brokerage websites, so it’s effectively a one-stop-shop for finding deals from hundreds of different brokers spread out all over America.

It is pretty simple to navigate and use for your business finding needs. It also has its own account space where you can save your custom searches and favorite listings, and sign up for a newsletter to receive new listing alerts among other things. In the exercise portion of this lesson we will show you how you can use its various features.

Prerequisite reading:
“Accelerator Lesson 6: How to use BizBuySell”

8. Reach out to brokers

Broker relations are a crucial aspect of any business acquisition journey. Business brokers maintain a list of companies for sale. Fostering a positive relationship within the geographic region of your search will help you find better deals faster.

Prerequisite reading:
An Interview On How To Build Better Broker Relations
How Connecting With Brokers Can Help You Find More Businesses
“Accelerator Lesson 8: How to Position Yourself with the Broker”

9. Analyze your first deal

Working your way through sites like BizBuySell and beginning discussions with business brokers will yield you a list of potential acquisition targets. 

After you’ve signed the NDA the broker will typically send you a prospectus / CIM (Confidential Information Memorandum) right away. These documents typically contain a high-level overview of the business as well as offer details, which should be enough information for you to pass or fail this deal quickly.

As you become accustomed to looking at the various prospectuses and other materials that brokers provide you’ll get better at understanding and catching some of the flags faster to help you disqualify deals.

Prerequisite reading:
“Accelerator Lesson 7: How to Review Prospectuses”

10. Reach out to a business seller

Technically speaking, you will do this many times over the course of your business search, but the first time you reach out a business seller can definitely be considered a milestone.

You will encounter many different types of seller personalities with different motives for selling their business. Navigating these personalities and discussions is an integral part of the searching process.

Understanding why the business owner is selling their business is one of the most important things to understand early in your relationship with them.  Depending on their response, you can learn a lot more about the prospective business and also create a better strategy when crafting your offer. 
Moreover, brokers can only give you so much information about the inner workings of a company. Eventually, there will be questions that the broker will not be able to answer and you will need to introduce yourself to the seller and have a conversation with them.

During this discussion, you will want to learn more about their personal experiences with the business, important decisions they have made that might affect your experience running the business, and why they are selling it. The way this usually happens is the broker is the one arranging the call, making an intro and outro, while the actual Q&A session is with the seller directly.

Prerequisite reading:
“Accelerator Lesson 9: Understanding Types of Sellers”
“Accelerator Lesson 10: Seller Communication Checklists and SOPs”
How Positive Seller Relations Can Help Your Business Succeed

11. Present your deal to the Investment Committee Call

This step is conditional on you having a relationship with Acquira, but many Acquisition Entrepreneurs find these calls incredibly useful during the business search process.

Investment Committee Calls are attended by Acquira’s team of experts to help poke holes in the business you present and provide you with a better understanding of what we like and dislike about the deal as well as advise you on different offer structures.

Prerequisite reading:
“Accelerator Lesson 13: Investment Committee”

12. Attend the Acquira Workshop

This is another step that only applies to Acquisition Entrepreneurs working with Acquira, but it is one of the most important steps of the entire journey. (It’s also a lot of fun!)

It can be difficult for many new Acquisition Entrepreneurs to picture themselves owning a business. It’s hard to understand what stepping into an existing business will actually be like. Workshops provide us with an opportunity to show you what it’s like.

We invite a select group of people to come and meet members of the Acquira team in person and learn what it takes to become a successful Acquisition Entrepreneur.

By this point, both parties know each other better. This is when we will confirm that we both want to continue working with each other by formalizing our agreement. If both Acquira and the Acquisition Entrepreneur decide to move ahead, a contract will be signed to continue working with Acquira.

Prerequisite reading:
Join Acquira’s in-person business buying workshop
How To Run Great Workshops

13. Begin looking for off-market deals

This is where the search process really heats up. You will continue sourcing on-market deals through the broker relations you’ve fostered, while Acquira’s off-market sourcing team will compile a list of 2,500 off-market deals and call them on your behalf. If those businesses are interested in selling, we will introduce you to the owner and you can begin negotiating with them.

The off-market sourcing can be a distraction for some Acquisition Entrepreneurs who are already overworked, but we insist that all AEs continue their on-market searching during this phase of the business acquisition journey.

The goal is to find the best business for you, whether that comes from an off-market source or an on-market source is irrelevant. But the only way to find that great deal is to look at as many potential businesses as possible.

14. Conduct pre-LOI diligence

The Pre-LOI Diligence stage begins after you’ve collected all the necessary materials. This is where you will analyze the data that was collected and understand the financials of the business in more depth. It is crucial to have collected the P&L statements for this lesson as we will need those to analyze SDE trends and fill out our initial financial model forecast sheet.

At this stage you should seek to:

  • Understand the financial trends of the business (revenue growth, expense growth) to determine what types of questions to dig into during deeper Post-LOI Diligence should we move forward with this deal
  • Get an understanding of financial risks outlined in our investment thesis calculator (seasonality, major customer concentration, etc).
  • Review items that could become addbacks and ensure they are reasonable
  • Determine whether you are comfortable that the business can operate effectively with the current expenses
  • Brainstorm some of the opportunities you can see to improve the business

Prerequisite reading:
“Accelerator Lesson 11: Pre-LOI – Analyze Diligence Materials and Financial Data”

15. Refine your Investment Thesis

Now that you know all the numbers after going through the financial statements – including profit & loss (P&L), balance sheet, and cash flow – you will need to determine what the future could look like based on existing trends as well as alternative financing models.

Prerequisite reading: 
“Accelerator Lesson 12: Pre-LOI – Create Financial Model and Update Thesis Calculator”

16. Build a Directory of Resources

If you're working through Acquira’s materials, this is when our Last Mile training begins. The Last Mile is designed to take you from LOI through to the close of the business.

At the beginning of the training, you will lay out your timeline and key milestones to help you define your expectations for the process. The first deliverable of the training is to build a directory of resources.

By this point in the journey, there is so much information coming at you – from legal and financial documents to loan agreements and organizational charts – that you may lose track.

As you move forward with the process of finding a business, you will need to analyze so many deals that it may become overwhelming. But through careful organization and attention to detail, you will be able to appraise more businesses than you thought possible. It all begins with the creation of a directory of resources.

Prerequisite reading:
“The Last Mile: Building A Directory of Resources”
How to Stay Organized During Your Deal Search

17. Create a pre-LOI Offer

Once you’ve found a business that you believe fits your investment thesis well enough to look at more closely, you will write a letter expressing your interest to the broker (for a brokered deal) or the seller (for an off-market deal). This letter states the opening amount of your offer as well as  other conditions that need to be met for the deal to go through.

Prerequisite reading:
“The Last Mile: The Pre-LOI Offer”

18. Refine your business plan

If you are applying to the SBA for a loan, they will want to see a conventional business plan which covers specific areas and emphasizes certain aspects of the operations.

This process can be useful for you as a business owner too though. You  will use it to guide your activities as soon as the deal closes. If you do an SBA business plan, some sections of it will supply material to this more detailed, and often more candid, business plan.

Prerequisite reading:
“The Last Mile: The Business Plan”

19. Choose your legal team

You will need representation during the negotiation process. Acquira has a list of vetted and approved vendors that we can connect AE’s with at this point in their journey.


Prerequisite reading:

“The Last Mile: Choosing Your Legal Team”

20. Issue an LOI

The LOI, along with a lengthy list of items for due diligence, is issued quickly in the days after the seller has informed the buyer of their interest in proceeding with the sale. A commitment to speed on the buyer’s part shows that your interest is genuine.

Acquira’s training provides templates for this document, though you will also want to consult your legal team at this point.

Prerequisite reading:
“The Last Mile: The Letter of Intent”

21. Form your acquiring entity

At this point, with the consultation of your legal team, you will need to form an acquiring entity for the business.

These can range from C-Corporations to Pass-Through Entities like S-Corporations.

Prerequisite reading:
“The Last Mile: The Wonderful World of Taxes”

22. Build out your People & Culture tools and systems

At Acquira, we avoid using the term human resources.  We especially don’t like it for small businesses, which are more of a small community of people working together.   This is why each business we own has someone dedicated to building and iterating on “people and culture systems”.  

Once the seller has signed the LOI, you should start preliminary work on the people and culture systems that will sustain the company.  

Prerequisite reading:
“The Last Mile: People and Culture Post-LOI”

23. Conduct your first site visit 

You can only learn so much about a business through the traditional due diligence process. The next step, when you’re seriously close to acquiring a business, is to visit the location. 

This will help you get a feel for the company culture, better judge how the business is performing, and assess how transparent the owner has been with you up to that point.

A site visit will give you an idea of the physical state of the assets including the business’s fleet if it has one.  If you are planning an expansion, here is where you’ll be able to see whether the current premises can accommodate it.

Prerequisite reading:
“The Last Mile: Post-LOI Site Visit”

24. Conduct one-on-ones

While conducting your first site visit, you should make time to speak with any key employees at the business.

These initial one-on-ones will allow you to get to know the important players, identify potential leaders within the organization, and discover any problems that can easily and quickly be fixed. These problems can be thought of as “low hanging fruit” – something you can rectify quickly and easily to create buy-in from your employees once you take over running the business.

These one-on-ones can be carried out while in the truck on the way to a job site or while at the job site (assuming the employee’s job doesn’t have them interact with customers at all times). You should strive to hold these meetings around the employee’s schedule, so as to not take them away from their work. If it isn’t convenient to meet with them during work hours, invite them out for a beer after work or offer to buy their lunch that day.

Prerequisite reading:
Effective One-on-One Meetings: How to Drive Team Harmony Post-Acquisition

25. Shop around for financing alternatives

You looked at financing options for any potential acquisition way back in step 6 of this checklist. Now it’s time to find the best sources of funding to help you finalize this deal.

The most popular funding option at this point is an SBA loan because the capital markets serving loans in the small business area are immature
As a result, for many AEs, seller financing and the SBA are really the only games in town.  Although the SBA does allow seller financing, it typically insists that the seller’s loan be subordinated (that is, in the event of default, the SBA is prioritized over the seller for repayment).  And the seller cannot retain any residual interest – whether through a percentage of equity or an earn-out provision – in the business.  Nor can they work with the seller to transition the business for any period longer than a year.

While SBA and seller financing are popular, other funding options can include ROBS; commercial banks; seller retention; private equity and angel investors; balloon loans, kickers, and warrants; and Acquira’s debt fund. These options can be used singly or in some combination. You should spend time looking at the various methods of financing the deal to ensure you find the best fit for you.

Prerequisite reading:
“The Last Mile Lesson: SBA Loans”
“The Last Mile Lesson Other Sources of Funding”

26. Pick your final lender and ensure you’re pre-approved for the loan

After you’ve talked to the lenders, the lawyers, and the CPAs and collected all of the information and data, you’ll have to make a final decision on what lender you will use.

Once you’ve decided on what lender you’ll go with, you’ll need to ensure that you’re pre-approved for a loan.

27. Conduct a QoE (Quality of Earnings) analysis

QoE is an accounting concept that refers to the ability of a company’s reported earnings – its income – to predict future earnings.  It is therefore a part of due diligence.  It is particularly important to evaluate QoE if you are purchasing a small owner-operated business, because the owner may not have used an accounting professional.  They or a relative may have recorded transactions themselves to the best of their knowledge, resulting in unwitting misrepresentation.

Another way of looking at QoE is that it measures the proportion of income attributed to the core operating activities of a business.

As its name suggests, QoE is used to determine whether the historical financial statements used to determine the business valuation are reasonably representative of the current financial situation of the business.  


Prerequisite reading:

“The Last Mile: QE Analysis”

28. Make sure you have the right licenses and permits

By the time you approach the close you will need to get busy with acquiring all the licenses and permits required to operate and run the business (in addition to the job-specific licenses held by your techs).  In addition, there are some instances where the lender or SBA will require you to have some technical license holders already in place before they approve the loan.

This item can also reveal issues like key person risk that may cause problems down the road.

Different businesses require different federal licenses in order to be in compliance with regulations, while state and local governments may have their own requirements, which can vary greatly by location.

Acquira’s training provides pointers on how to go about getting the information.

Prerequisite reading:
“The Last Mile: Licensing”
What Permits And Licenses Do I Need For My Business?

29. Draw up an Asset Purchase Agreement

Technically, your legal team will draw up the Asset Purchase Agreement (APA), but what’s important is that you are nearing the finish line of the acquisition process.

The APA is the agreement that will set out the terms and conditions related to the sale and purchase of the company’s assets.

Assets transferred as part of an Asset purchase agreement may include:

  • Equipment and machinery
  • Stock
  • Contracts
  • Premises
  • Know-how
  • Goodwill

Prerequisite reading:
“The Last Mile: The Asset Purchase Agreement” 

30. Understand the tax implications of a business acquisition

There are various aspects of tax that business owners may be able to take advantage of, both for their individual tax returns and those of their business. It’s likely that some of them will be familiar to you.

This research will inform your decision on what kind of acquiring entity to create. It will also help you determine how much you will pay yourself as the CEO and owner of the business. 

Prerequisite reading:
“The Last Mile: The Wonderful World of Taxes”

31. Close on the business This is what months of work have built towards. This is the point where you sign all agreements related to the sale of the business, including the Bill of Sale, and take possession of the business. 
Congratulations! You are now a CEO.
32. Time to integrate!

Officially, this is the first step of the next phase of your business buying journey. 

We provide integration to Accelerator members through our ACE Framework – a change management system designed to integrate, systematize, and grow newly acquired businesses, with a special emphasis on culture, systems, and servant leadership. The program is estimated to take between 6 and 9 months to implement.

Conclusion

It’s difficult to lay out a precise timeline when it comes to business acquisition. There are many variables that can shrink or expand the process. 

But by staying organized and disciplined, you can make the process as smooth as possible.

Acquira’s training is designed to help you move through the process, taking you from Acquisition Entrepreneur to CEO. Once you’ve acquired a business, we will help you grow the business through our ACE Framework with an eye to exiting the business for more than what you paid.

The process starts with our Accelerator Program. If you’d like to learn how we can help, schedule a call today. One of our representatives will be in touch in less than 24 hours.

Key Takeaways

  • Acquiring a business takes strong organizational skills and discipline.
  • Acquira’s training and programs will help you find a business faster and make the process smoother overall.
  • Looking at both on-market and off-market deals will improve your chances of finding the best possible deal.
  • Maintaining a positive relationship with brokers will help you find better deals.
  • Acquiring a business takes a lot of work (but it’s worth it!)

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