Mergers & Acquisitions

Guide to Buying a Business



Can my accountant value the business?

A CPA’s code of ethics precludes them from appraising or valuing a business unless they have substantial experience buying and selling businesses or unless they hold an appropriate certification or designation to appraise businesses. Anyone tasked to value a business should have real world experience buying and selling businesses and not just theoretical knowledge.

Should I hire an attorney?

While the closing process is usually handled by an escrow company, you may hire an attorney to independently review the closing documents. An attorney might be helpful but is not a requirement. Many transactions conclude successfully without one. We have taken diligent measures to ensure that our documents and closing processes are thorough and in accordance with applicable laws. Our documents have been reviewed by multiple attorneys on both sides of the transaction. However, if you prefer to use an attorney and are willing to bear the added expense, we are happy to work with your attorney or we can recommend one for you.


When do I see the seller’s financial statements?

The seller’s financial statements are available upon request after you have reviewed the confidential information memorandum (CIM).

Can I request to see the business’s tax returns or bank statements?

Tax returns, bank statements, and other sensitive documents are only released after an offer is accepted, during the due diligence period.

What is the difference between Seller’s Discretionary Earnings (SDE) and EBITDA?

SDE includes the owner’s salary, while EBITDA deducts a reasonable salary for a full-time manager. SDE is most commonly used when an individual is buying a business, and EBITDA is most commonly used when a company is the purchaser.

For example, if the net profit from the business is $500,000 per year and the owner is paid a $150,000 annual salary, SDE is $650,000 ($500,000 + $150,000), while EBITDA is $500,000. Why are two different metrics used? Individuals buying a business usually operate the business themselves without the assistance of a manager; therefore, the owner’s salary is included in the cash flow. Companies, by contrast, usually employ a full-time manager to replace the current owner; therefore, the manager’s salary is deducted from the available cash flow.

Due Diligence

What is Due Diligence?

Due diligence is the systematic process of gathering and analyzing information necessary to help buyers and sellers determine whether they should proceed with a business transaction. Due diligence includes a review of quantitative information, such as sales and financial data, and qualitative information, such as an assessment of the existing management, internal systems, and existing licenses.

Can I talk to the seller’s employees?

No. Please do not approach any employees of the business. Employees and management will probably not be aware of the sale and would fear the loss of their jobs or major changes to their roles.

Transaction Structure

What does the price include?

The price generally includes all assets required to generate the cash flow or profit of the business, with the exception of cash, the owner’s personal computer and vehicle, working capital, and accounts receivable.

Is inventory included?

Inventory is customarily paid in addition to the purchase price, though it is sometimes included if it’s a nominal amount.

Can the seller stay involved in the business if I want them to?

Yes, many sellers maintain long-term involvement with the business in some capacity.


Who pays the transfer fee for a franchise?

The seller typically pays the transfer fee, while the buyer normally pays the training fee.

How long does it take to close?

On average, it takes two to four months to close after an offer is accepted. We have closed some transactions in as little as one week, and others have taken more than six months. It generally takes one month to complete due diligence and one month to close once due diligence is complete. The process can take longer if third-party financing is involved or if complications arise.

What is a non-compete agreement?

A non-compete agreement is a legal document signed at closing in which the seller agrees not to directly or indirectly compete with you after the business changes hands. Typical non-compete agreements last three to five years and are limited to the geography in which the business operated as of closing.

How are equipment leases handled?

The seller can either pay these off at closing, or you can assume the leases. Either way, this should be clearly outlined in the purchase agreement.

Will all debt be paid at closing?

Yes, the assets of the business should be delivered free and clear at closing. Any debt to be assumed should be identified, including the amount of the debt and the terms of repayment.