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What is an offer? The offer is possibly the most misunderstood process of buying a business. Buyers often think the offer is the final stage of buying when in fact it is just the first step. An offer is just that - an offer. If it is not accepted by the seller within the time limit the buyer sets, if the buyer changes his/her mind and withdraws the offer before the seller signs it or if any of the contingencies are not to the buyers satisfaction the offer is void. Most offers have contingencies. Contingencies give the buyer the flexibility to negotiate price and terms with the seller, but not be obligated to proceed with the sale unless certain things happen to the buyer's satisfaction. Some common contingencies include approval of books & records, equipment being in good working condition, assignment of lease, business being debt free, ability of buyer to get necessary licenses & permits, business passing necessary municipal inspections, seller signing a Non-Compete Agreement and agreeing to a specified training period, and most importantly, that the cash flow or owner's benefit is what the seller has represented to be, or more. For example, most offers are contingent upon buyer's approval of the seller's books & records. If while examining the books and records the buyer or his/her accountant finds something inconsistent with what the buyer has been told and would be expecting, the buyer would not remove the contingency and the buyer would not be obligated to proceed with the sale. The buyer's deposit or earnest money would be promptly returned in full. After the buyer doing "due diligence", the buyer makes the decision to either remove the contingencies or not. If the buyer chooses not to remove a contingency, the buyer has complete freedom to either make a different offer on the same business, make an offer on a different business, or cancel the offer and promptly have the deposit or earnest money returned.
Buying a business |