Let’s say you have found a business you think you might want to buy. You want to write an offer to purchase this business, but you’re not quite sure. You have some anxiety about the unknowns. In such a situation, writing a CONTINGENT offer to purchase the business is the answer.
The Problem
It’s important that any offer to purchase a business includes a due diligence contingency.
The problem, bluntly stated, is that the seller of the business does not want every Tom, Dick, and Harry going through his private books and records, some of which might be very sensitive for one reason or another.
Let me ask you at this point to stand in the seller’s shoes for a moment. He has taken the big step of putting his business up for sale. This may have been a tough emotional decision for him. And he probably has the same heightened level of anxiety as you do about the future transaction.
Now his business is up for sale and before long, he’s got all sorts of strangers asking him to let them look through his private records.
As a business broker, I can verify that this is a real problem. Some people who look at businesses have no real intention of ever buying one. They are what we call “tire kickers.” They will look forever and never make a purchase.
Others may have a real interest, but when push comes to shove, they lack the financial capacity to make the purchase. Still, others may have the financial capacity but are unwilling to pay the owner anywhere near an acceptable price for his business.
There have also been instances in which a competitor sent in a stranger to check out the business. And all of these people will demand to paw through the seller’s private books and records.
Now you may step back into your own shoes. The brief visit to the seller’s side of the desk, I hope, gives you an understanding of the problem.
The Solution
The safe solution is to write a contingent offer to purchase the business.
Simply stated, it works like this. You, as the prospective buyer of the business, assume for the moment that the preliminary information furnished to you on the business is accurate. By now you should have at least the annual revenue and cash flow of the business plus the other important numbers.
You then base the amount of your offer to purchase the business on those numbers, but with the following verbiage written into the contract as a condition of the offer:
This offer to purchase said business is fully contingent upon the buyer’s inspection of all the books and records of the business and the buyer’s satisfaction with the information contained therein.
This verbiage in the contract fully protects you. If you find, during your inspection of all the books and records, including the tax returns, that the numbers furnished to you were not correct, then you have the perfect right to terminate the contract and walk away with no further responsibility. Any earnest money deposit held in trust is promptly refunded.
This procedure also protects the seller, as he knows that you are now serious about the transaction. You and the seller have come to an agreement on price and terms – possibly after some counter offers – and you have put up an earnest money deposit. The seller should now regard you seriously, and accordingly, will open up all of his books and records for you to inspect. This inspection phase of the transaction, by the way, is referred to as due diligence and is covered in this article.
The contingent offer to buy the business is actually a win-win situation for both parties. It assures the seller that the buyer is serious and it protects the buyer in case the information that has been furnished is not accurate.
The Other Contingencies
There are other contingencies that you also might want to include in the contract. For example, if you are borrowing the money with which to purchase the business, you would need to include the following language to protect yourself if you don’t already have the loan approved:
This offer is fully contingent upon the buyer obtaining satisfactory financing for the purchase of the business.
And if the business operates from leased premises, you would want to include the following proviso:
This offer is fully contingent upon the buyer’s assumption of the existing lease for the business premises or otherwise negotiating an acceptable lease with the landlord for said premises.
Other items that should be included in the purchase contract
- The Closing Date and Place. Pick a closing date that will give you enough time to inspect the books and records of the business, get your loan approved and take care of any other issues.
- Inventory Level. If the business carries inventory for resale, this is where you agree on the amount of inventory that must be on hand on the date of closing. This should be the amount of inventory normally carried by the business in the normal course of doing business. Your broker should have this figure. The purpose of this provision is to prevent an unscrupulous seller, between the date of the agreement and the date of closing, from selling out the inventory and leaving the buyer with empty shelves. You and the seller jointly take inventory on the day of closing. If the inventory level, at cost, is below the figure specified in this paragraph, the purchase price of the business goes down by the amount of the shortage. Conversely, if the inventory is over the specified level, the price of the business is adjusted upward by the amount of the surplus. This is fair to both parties, and if the inventory discrepancy is small, the difference is usually waived, as both parties understand that it is impossible to quote an exact inventory figure in advance for any given day. But the provision is there for protection if it needs to be invoked.
- Training. You and the seller need to agree on the number of days training you think you will need from the seller. Normally, this ranges anywhere from one to two months.
- Non-Compete Agreement. You don’t want to buy Ms. Jones’s gift shop and then next month see Ms. Jones open a competing shop right down the block. This provision prevents that possibility. You simply agree on the distance and time limitation in this paragraph of the contract.
- Removal of Contingencies. Remember all of the discussion above of the contingencies: inspection of the books, the lease and loan approval. At some point, these contingencies are satisfied or waived by the buyer. This part of the contract is where you decide how much time you’re going to need to accomplish any work needed to satisfy yourself as to these contingencies. Ten to 15 days prior to the closing date is customary. After satisfaction of the contingencies, the contract then becomes binding on both parties, and the closing documents can be prepared.
- Offer Deadline. This provision gives the seller a deadline for response (acceptance or counter-offer) to your offer. If there is no response from the seller by this date and time, your offer is legally null and void and you have no further liability. Two or three days are long enough here, unless there are unusual circumstances.
Readers can request by email a copy of William Bruce’s 67-page booklet, “How to Buy a Business in a Safe and Organized Way.” The booklet contains a sample of an Offer to Purchase Agreement. The email address is Will@WilliamBruce.org.
Now, take a deep breath. It’s really not as complicated as most folks seem to think. And we’re just getting to the fun part – the negotiations, which is covered in a separate article.
# # #
William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership. He currently serves as president of the American Business Brokers Association. His practice includes consulting services nationally on issues of business valuation and transfer. He may be reached at (251) 990-5934 or by email at Will@WilliamBruce.org
His booklet “How to Buy a Business in a Safe and Organized Way” contains a sample Offer to Purchase Agreement. You can obtain a complimentary copy by contacting William Bruce.
(C) Copyright William Bruce. All rights reserved.
Good Day
Are you currently aware of any website where I can get a perfect free sample of an offer to purchase agreement?
Interested in buying a flying school through investor funding.
Thanks
Bryan Makoka
South Africa
Bryan, let me have your email address and I’ll send you my 67-page booklet, “How to Buy a Business” which has a sample in it. My email is WilliamBruceOnline@gmail.com.
Hello Bruce;
Could please send me the booklet as well, Thanks a lot
Sincerely,
Nick
Nick, it’s on the way. Best wishes, Will
Hi Bruce:
Would I be able to receive this booklet as well?
It’s on the way.
Would you mind sending me the book as well?
Thank you,
Ruben
Ruben, it’s on the way.
Good Afternoon Bruce,
Would it be possible to receive a booklet as well?
Thank you in Advance,
Jazz
Jazz, the booklet is on the way. Thanks for stopping by.
Hi William
i would like a copy of your booklet as well.
options.matovu@gmail.com
Thanks for dropping in. The booklet has been emailed.
William, I would like a copy also if you don’t mind. I sent my email to you already.
Jack, thanks for dropping in. The booket is on the way.
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Hello Bill,
Is it possible to obtain a copy of the 67 page booklet of how to buy a business? My email is shelmar.pemberton@gmail.com.
Thank you for the valuable information.
Shelmar
Shelmar:
It’s on the way.
Best wishes,
William
Dear William,
Would it be possible for you to send me the 67p booklet please? my email is: araujo.pereyrac@gmail.com
Carlos, it’s on the way.
I too would like to get a copy if possible. Thanks for the useful info.
Tom, thanks for dropping by. The booklet is on the way.
Hi Bruce,
can you send me 67 page booklet on sambhakta2014@yahoo.com
Sam, thanks for visiting. The booklet is on the way.
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Hi,
Is it possible to get you booklet?
Best regards,
Eugene, the booklet is on the way.
Hi William,
Can you send me the 67 page booklet of how to buy a business ?
Ryan, thanks for visiting. I’ve emailed the booklet.
Hi William, will you please be so kind and forward me a copy too reniersmit36@gmail.com
regards (from South Africa)
Renier, the booklet is on the way to South Africa. Best wishes.
Hi William. May I receive a copy of your book as well? Thanks.
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Hi william
I would like to have the 67page booklet of how to buy a business and in my case is just a small business which has not been making any profit as the saling products are not interesting but i want to take over as i have a good idea of making it something different.
The trouble is that the store is in a residential area and they ask for a high premium.
I would like to impress them and make the deal!!
Thank you
The booklet is on the way.
Thanks for sharing excellent information. Not intending to distract from your very informative article and well written blog but I wanted to mention that one of the other business ownership options, franchise ownership, allows for a very thorough research process.
Franchisors are required by the Federal Trade Commission to produce a Franchise Disclosure Document (FDD) each year. This document provides a wealth of information on all aspects of the business — too lengthy to describe here. The FDD includes contact information for current and past owners. Prospective owners can call as many as they choose to learn about the business, earnings, the training and support of the franchisor, and the role of a successful franchise owner. The franchise owners in different markets have no reason to withhold important information. This process empowers prospective owners to make knowledge based decisions that meet their own needs.
Hi William
I would like to have the 67page booklet of how to buy a business and in my case is just a small business with no profit currently, I would get the offer document.
Thanks,
Zein
Zein, the booklet is on the way.
Bruce- If it’s not too late I’d love to read your book too. Thanks for your consideration
Matt
Matt, I’m emailing the booklet today.
Hi William,
Can you send me the 67 page booklet of how to buy a business ?
office@gbc-americas.com
Thanks for your consideration.
Ritchie, thanks for dropping in. I’ve emailed the booklet.
Hi bruce,
I’am currently in the process of purchasing a small hvac company. Can you send me a copy of your book or any other info that can help me in this process? Thank you
Matthew, the booklet is on the way. Thanks for stopping by.
Hello Ryan, my name is Jerry .I have worked as an accountant for ten years and want go into full time consulting but will be adding business brokerage as a key part of my business .I will be grateful if you could assist me with regular information in this field to enable me succeed . I must say that reading your write ups on this field has helped to boost my interest further.
Thanks.
Jerry
Jerry, thanks for dropping by. I just emailed you.
Hi Bruce,
I’m in the process of purchasing a small school and would appreciate receiving the booklet that you mentioned in this article. Your article alludes to a down payment with the offer letter. Typically how much should be the amount of downpayment–is it based on the purchase price that you are offering? In liue of a downpayment can I get a letter from my bank verifiying that I have to funds to purchase the business that I’m offering?
Thanks.
Susanna, thanks for dropping by. I’ve emailed you the booklet. The amount of down payment is highly variable. In seller financed business transfers, typical down payments range from 30 to 50 percent. If you can finance the acquisition with your own arrangements through your bank, you’ll be in a stronger negotiating position on price. Good luck with the venture.
Would it be possible to receive a booklet as well?
Thank you in Advance
Ellie
Ellie, thanks for your interest. I just emailed the booklet.
Hi William,
Thank you very much for writing the article, its very informative. I would love to receive the booklet as well.
Thanks!
Alex
Alex, it’s on the way.
How do you suggest I proceed if I want to buy an existing business that’s currently NOT for sale? Should I have a business attorney approach the business? I’m very interested in buying this business but it’s currently owned by an Indian couple who speaks very little English.
Ann, you might have someone you trust who can translate go with you to talk to them. Just let them know in the beginning that you take the issue of confidentiality very seriously. They will be concerned about that. If the situation progresses, be sure to VERIFY EVERYTHING that is represented to you by the seller.
Hi William
My business is advisory and mentorship to black entrepreneurs in South Africa .
At times this involves getting them involved in the process of purchasing shares in businesses or complete businesses.
It seems that your booklet could add great value to their knowledge base. Would it be possible for you to send us a copy
Kind regards
Mark Devenney
Mark, thanks for stopping by. The booklet is on the way. Let me know if I can help in any way with the program. Best wishes, William.
Hello William,
Thanks for sharing the knowledge and wisdom re business world.
Please e-mail me a copy of the booklet including template of a purchase offer agreement.
Cheers!
Good morning. The booklet has been sent. Best wishes, William
I would love to receive the booklet as well:) !
Many thanks,
Amelia
ilikebusiness@yahoo.com
Amelia, thanks for stopping by. The booklet is on the way.
Myr. Bruce, your articles have been very helpful in our research on buying our own business. May I have a copy of your booklet? My wife and I are very grateful, thank you.
Nick
Nick, thanks for dropping in. The booklet is on the way. Good luck to you and your wife.
Hello Bruce,
Would it be possible to receive your booklet?
Thank you,
Cristina
Christina, It’s on the way.
Very informative article. I would love to receive the booklet as well.
Thank you very much.
R.D. the booked has been emailed. Best wishes, William
Hi William, please email me the booklet. jlmuthusamy@yahoo.com.
Thanks,
Justin
Justin, the booklet is on the way.
Hello William.
May I have a copy of the 67 page how to booklet?
Thank you,
Thev
Thev, thanks for visiting. The booklet is on the way.
Gidday William,
Would it be possible to have a copy of the 67 page booklet too please?
Cheers
Michele
Michelle, the booklet is on the way. Thanks for dropping in.
HI William
Could I please receive a copy of your 67 page booklet?
Thank-you!.
Jack
Jack, thanks for dropping in. The booklet has been mailed. Hope it helps.
Hello, would you please be able to send me a copy of your booklet? Thanks so much!
Jennifer, the booklet has been mailed. Thanks for dropping in.
Hi William,
I think this would help me tremendously please send me a copy.
Thanks for dropping in. The booklet has been mailed.
Hello William, I would also love a copy of your book.. 🙂
Many thanks
Sia
Sia, thanks for dropping in. The booklet is on the way.
Hi William, this is a great article. I would love to receive the booklet if possible – it looks like it is in huge demand!!
Kind regards
Tony
Tony, the booklet is on the way. Thanks for visiting.
Thank you for the informative article William. I’d like a copy of the booklet please!
Arisa, it’s on the way. Hope it helps.
Hi William, thank you for your insight, very informative and provides me with a different perspective on how to approach a seller. William could I kindly ask for you to email me your 67 page booklet as well. Thank you.
Claudio
Thanks for dropping in, Claudio. The booklet has been emailed.
Hello Sir William Bruce!
Please could you email me a copy?☺☺
Many thanks in advance
Dwayne, it’s on the way.
Hi William,
I would love a copy of your booklet also please
Itscrowtime@hotmail.com
Thank you in advance
Greg
Greg, I’ve emailed the booklet
William,
Could you email your booklet:
Moreno . alex @ gmail . com
Thanks!
Alex
Alex, I’ve emailed the booklet. Thanks for stopping by.
Hi Bruce
Would you mind sending me the book as well?
Thank you in Advance
Best Regards
Christian
Christian, it’s on the way. Best wishes for 2017.
Much thanks Bruce.
Hi William,
I would love to give your booklet a read since I am acquiring a business soon.
Thank you so much for keeping us informed.
Kind regards,
Zaki Jauhari
zakijauhari@hotmail.com
Zaki, thanks for stopping in. The booklet is on the way. Good luck with your business acquisition.
Hello William,
Would it be possible to receive your booklet on how to buy a business?
Thank you.
Steve
Steve, it’s on the way. Best wishes, Will.
HI Will,
I know it’s minor but I have to say to everyone – please stop calling him Bruce! Mr. Bruce, William, Will (don’t think he responds to Bill from signatures on here). There, I feel better now, haha.
Mr. Bruce – may I have a copy of your book? If so, my best email is: sherri@secretweaponmedia.com
and thank you for this amazing tool.
Hey Sherri, I answer to a lot of names! Thanks for dropping in. The book is on the way. Best wishes, Will (aka Bruce, Mr. Williams, Bill, Dummy, etc.) 😉
Timely information Bruce.
I’m currently trying to make an offer for a business I’m considering. As a first time buyer, I don’t know how to proceed with this. Please send me your booklet. Thanks.
Egole, the booklet is on the way. Good luck.
Hello Mr. Bruce
Is a booklet still available? I would love to see it. Buying a new business.
Thanks
Dan
Dan, thanks for stopping in. The booklet is on the way. Good luck with your venture. ~William
Hi bruce,
I’am currently in the process of purchasing a franchisee. Can you send me a copy of your book or any other info that can help me in this process? Thank you
Hemanth:
Thanks for visiting. The booklet is on the way.
Best wishes,
William
Hemanth:
I suggest you work with a professional to go through a structured process to find a well-vetted franchise that matches your goals and budget. This gives you the best chance to succeed. With 3000+ franchises, it is difficult to know how to find a great match and there are many franchises that should be avoided. The professional consultant process enables you to secure the information you need to make smart, knowledge-based decisions that meet your needs. Call or email me and I can suggest a knowledgeable professional.
William,
Great articles on the acquisition process. We are considering acquiring a business and have found your insights very helpful.
Could I please receive a copy of your 67 page booklet?
Thank you,
Patrick
patrick.driscoll@gmail.com
Patrick, thanks for stopping in. The booklet is on the way. Good luck with your business acquisition.
Hello Mr. Bruce,
I’m currently trying to make an offer for a business I’m considering. As a first time buyer, I don’t know how to proceed with this. I think the next step is to create a proposal to purchase.
Please send me your 67 page booklet, as it sounds very helpful.
Thanks
Ken
Ken, thanks for dropping in. The booklet is on the way. Best of luck with your venture. ~William
William,
Can you send a copy of the booklet to richledger@yahoo.com
Thanks, Rich
Rich, the booklet has been emailed. Good luck with your project.
Hi William,
Can you send me a copy of your 67 page booklet please.
Thanks in advance, Terry
Terry, the booklet is on the way. Thanks for stopping by. ~William
Hello William,
Can you please send me a copy of your 67page booklet. Thank You!
Mike
Mike, thanks for your interest. I’ve emailed the booklet. Best Wishes, William
I would love to receive a copy of your 67 page booklet.
thank you very much.;
Grant
Grant, I’ve emailed the booklet. Thanks for dropping in. ~William
Hi William.
Please can you forward it onto me as well.
Many thanks,
Alex
Alex, I just emailed the booklet. Best, William
Hello William,
Very nicely written article. Thanks for sharing your expertise. I would like a copy of your booklet as well.
Thanks,
Mike
Mike, the booklet is on the way. Best wishes, William
Hello Bruce, can I please have a copy of the booklet also? ben@pipul.tv
Ben, thanks for dropping in. The booklet is on the way.
Hi Bruce. Wondering if I’m able to get the booklet also thanks? Thanks for your assistance!
Russell, thanks for stopping in. I’ve emailed the booklet.
Please send me a copy of your 67pg booklet. What states do you service?
Thank you
Vp
Vernita, I’ve sent the booklet. Thanks for stopping by.
Hi William,
Great read. Would you be able to forward me a copy of the booklet also?
My email is jessica@lotuslending.com.au
Thank you kindly,
Jess
Jessica, the booklet has been sent.
Best wishes,
William
Hello, I would love to have one copy too, esmerosehall@gmail.com , thank you very much!
The booklet is on the way. Thanks for stopping by.
Hello William,
I would like to have a copy of your book. Please send to jcg_ventures@yahoo.com
Thanks!
Thanks for your interest. The booklet has been emailed.
Do you ever represent buyers in the process or strictly sellers? Is it even an option?
David, thanks for visiting. Actually, we often represent buyers and assist in valuations, drafting offers, negotiations, due diligence and closing. Let me know if we can help. Email is Will@WilliamBruce.org.
Hello William,
Thank you for the very informative article. I’m considering buying a business. Can you please send me your booklet?
K. Steiner
Thanks for dropping by. The booklet is on the way.
Best wishes,
~William
please send copy of the booklet to me. Thank you in advance.
Jeromy, I just emailed the booklet. Thanks for visiting.
Hello,
I found your article, read through it and would like to request a copy of booklet. Thank you.
Dmitriy: Thanks for stopping by. I have just emailed the booklet. Don’t hesitate to call or email if you have any questions. ~Will
Great article. Would like to request a copy of your booklet. Thank you!
Good morning, the booklet is on the way. Thanks for visiting.
Mr. Bruce, I would like receive a copy of your booklet. My email is btcgroup63@gmail.com
Tyron, thanks for visiting. The booklet has been emailed.
Your article was very helpful, and I would love a copy of the booklet. Thank you in advance!
Yeon, thanks for your kind words. The booklet is on the way.
Great article Mr. Bruce. Would it be possible for you to send a copy of the booklet? Thank you!
sp28212821@gmail.com
John, thanks for dropping in and for your kind words. I’ve emailed the booklet. Don’t hesitate to call or email if you have any questions about the material. ~Will
Hi Bruce,
Can I have a copy of you booklet too please.
Candy, the booklet is on the way. Let me know if I can help.
Great article! I would like to request a copy of the booklet.
Branfaces@hotmail.com
Good morning: Thanks for visiting. The booklet is on the way.
Hello William!
May I also have a copy of your booklet as well?
Thank you!
Jeff
jahouse2859@yahoo.com
Jeff, thanks for visiting. The booklet has been emailed.
Hello William,
May I have a copy of your booklet please?
Thank you!!
Aaron, I just emailed the booklet. Thanks for visiting. ~William
I am interested in your booklet and will be following you on social media. In the middle of negotiations to purchase a company and analyzing all materials! Thank you in advance!
Melissa, thank for dropping in. I just emailed the booklet. -Will
William,
I am very interested in you booklet. would you mind sending me copy of this material as well!!. thanks so much in advance.
Joshua, the booklet is on the way. Thanks for stopping by.
Your article so very helpful. Would you please send me a booklet? Thank you in advance.
Sabina, the booklet is on the way. Thanks for visiting us.
Good day William,
Can you please send a copy of the booklet?
Thanks,
Nate
Nate, thanks for the visit. The booklet is on the way. Let me know if I can help in any way. ~William
William, please let me get a copy also and thank you in advance!!! Winston Hines, updaze@aol.com
.
Hello William, I would like to receive a copy of the booklet Thank you!
Carl, I just emailed the booklet. Thanks for dropping by.
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Thank you Bruce for these amazing articles.
May I also have a copy of the booklet?
Thanks
The booklet is on the way. Thanks for your kind words. -William