Making an offer on the purchase of the business is the first real step in buying your business. Your offer will help to establish trust between you and the seller and it lets the seller know that you are serious about buying their business.
Here are three keys that every great offer should have in them.
1. Basic Terms of Your Offer
It’s important to keep in mind that making an offer is not a comprehensive process. It’s just the start of the larger process, so your offer does not need to include every detail of the final deal. You do not need to address every possible part of the deal at this point. A good offer is clear, concise, and short.
It just needs to be a basic outline of what you’re proposing. So many times I see people get stuck at this point because they want to address every possible item in the offer that they’re making.
But this is not necessary as the offer to purchase the business is not the definitive document that will complete the purchase. It’s just the first of many building blocks for the final purchase agreement, which will be written later.
The basic terms of your offer are
- the total purchase price that you’re willing to pay for the business
- the amount that you’re willing to put into escrow if the offer is accepted
- your down payment amount
- basic seller financing terms if you are asking for them
You also want to include a deadline for the seller to accept the offer by, and that is pretty much all you need to offer as far as the basic terms are concerned. If the seller accepts this offer, you can work out all the details later on.
2. Contingencies of Your Offer
The next thing that you’re going to want to put in your offer are your contingencies. A contingency can be anything that you want it to be, anything that needs to be accomplished in order to buy the business.
The contingencies document is very important because it is what defines what must happen after the seller accepts the offer in order for you to close on the business. The types of things that you will want to include in your contingencies are things like:
- “Successfully obtaining financing for the purchase of the business”
- “Successfully completing due diligence”
- “Obtaining a lease that’s satisfactory to use the buyer and the bank”
These are just some examples of contingencies that you may want to include.
I teach buyers to use contingencies to help them get comfortable with a business. If there is something in particular that has you concerned, then just make it a contingency that you must be satisfied with it before you will close.
Using contingencies will help you move the purchase forward, and will act as a safeguard against something that may come up in the process later that you are not satisfied with. Just remember that the seller must agree to accept your contingencies before the purchase can move forward.
3. An Explanation of Your Offer
The last thing that I recommend that you include is an explanation of your offer. This is certainly not required to make an offer, but I highly recommend it.
Providing a brief explanation of your analysis of the business and how you arrived at the price and terms shows an effort on your part to be cordial and to explain your line of thinking, This can help the seller understand your offer, and should give you a better chance at getting the offer accepted. The seller will also see that you are taking this seriously, and you’ve given it serious consideration and that will help to build that trust between you and the seller.
If the price that you are offering is substantially lower than what the seller is asking, this is a good time to address that. You may help the seller see the business in a way that they were not looking at it (of course, sellers almost universally believe their business is worth more than what it really is) and get them to consider the offer price from your perspective.
If you follow these simple points when you get to the point where you are ready to make an offer on a business, you will stand a much better chance at getting your offer accepted, and it’s all about getting your offer accepted!