Approaching an owner to buy out

[kdaprice]

A friend and I would like to approach a company's owner to see if she is interested in selling her business. I am not sure the steps that should be taken. We have never met this lady, although we know quite a bit about her. She is a widow and in her late 60s to early 70s. Can any one help with the steps? Should we have a $$ amount to approach with? If so, how do we get to the number? What sort of agreements of funds can be made? Is it possible to pay her installments over a number of years, and how would that benefit her? Thank you for your input.

[Steve B]

I don't know how you could come up with a dollar amount without seeing her books. It's way too early to tell her how much you would pay.

I would just approach her by telling her you were curious if she would consider selling her business and take it from there.

[Spider]

What Steve said. It's far too early in the negotiation game to be talking numbers, anyway. Just approach her, face-to-face, express your interst in the business and ask if she would like to discuss it.

[TheBizSeller]

kdaprice:

If this was her husband’s business and she has had no involvement in the day to day operations, I would assume she has already been approached by other potential buyers. You don’t want to come across as a vulture preying on a widow. If you are going to cold-appraoch a business owner about buying their business you need to be prepared.

Why are you interested in this particular business?

Is your background and experience in this same industry?

Where are getting the money – do you have investors or financing lined up? Are you using proceeds from the sale of your last business? While I agree with the previous posters that you are not in a position to talk price at this point, you definitely want to prove to them you have the financial ability to buy and that you are serious.

If this woman has a lawyer, accountant or some other person who advises her on business matters, I would approach that person first to see if the business is available. It’s their job to deal with issues such as this.

I would not approach the person who is the day to day manager of the business. This person is too close to the situation and may be afraid of a new owner coming in and replacing them. They may also be interested in buying the business so it’s likely you will not get the best information from them.

Pat

[Business Attorney]

I also agree with most of what was said above, with one exception. Although there are certainly instances where you should approach the lawyer or accountant, I think that far more often the best approach is to talk to the owner. The owner will presumably seek advice from her professional advisors but I would leave that timing up to the owner.

The process is usually taken in baby steps. The first step is to do you own background homework. If you go in clueless, or nearly so, about the business, you have very little credibility as a buyer.

The second step is to sound out the owner's interest in selling. You can't possibly suggest a price because without financial information you have no idea how much profit the business makes, and in almost all cases the business' income forms the basis for determining the purchase price.

After that, the steps vary depending on the type of business and the size of the transaction. Usually you get some preliminary financial figures, come up with a basic deal for the business (including price, terms and other details), follow with more due diligence to verify the financial figures, and then finalize the deal.

The payment to her may be in cash at closing or may be in installments, depending on her needs and your own needs. There may be other pieces to the deal, such as an escrow of some of the funds if there are some risks that you need protection against. There may be an earnout, if there is a difference of opinion on the base price for the business.

There are lots of potential tweaks. No two deals are ever the same. You should have someone familiar with the process assisting you because no one can accurately draw a road map up front.

[AaronConway]

You may want to consider hiring a business broker to act on your behalf. They would bring a certain amount of credibility to the table.

[kdaprice]

Thanks for the advice. The owner has been a widow for over 15 years now so I am not concerned about being viewed as a vulture. She was involved for many years but now is approaching, or past, retirement age and is pretty hands off.