Thanks for reading The Business Buying Masterclass! Subscribe for free to receive new posts and support my work.IntroductionCongratulations on making it through the toughest part: getting the seller and broker on board and finalizing your Letter of Intent (LOI). Now, where do you go from here?In today's session, our goal is to help you navigate the post-LOI deal roadmap.Before we dive in, remember that no two transactions are the same. Sellers and brokers may have strong opinions about timeframes, due diligence, and the overall deal process. While it's important to be diplomatic, remember that when you're planning to invest millions of dollars, you don't need to walk on eggshells. Always protect yourself against those dreaded busted deal fees!Most transactions follow a similar cadence. Here are the general steps:* Conducting Financial Due Diligence (and Renegotiating Terms!)* Business Due Diligence* Securing Your Financing (SBA or Conventional)* Negotiating with Potential Investors (From Term Sheet to Subscription)* Legal Due Diligence* Negotiating Agreements* Closing* Post-Closing ConsiderationsAs you navigate each step, it’s crucial to see the big picture and keep track of what still needs to be done.Thank you for tuning in to the 10th session of this Business Buying Masterclass. Let’s get started! The Business Buying Masterclass is now part of The SMB Center! 🎉The SMB Center is your go-to destination for essential resources, practical tools, and expert insights tailored to small and medium-sized business entrepreneurs like you. This includes hundreds of articles on business buying (Entrepreneurship Through Acquisition) and valuable tools like our Leveraged Buyout Model and LOI Template — all for FREE.The Change in Leverage PositionsOnce you're under an LOI with exclusivity, typically for 60 to 90 days (always ask for 90!), the leverage shifts in your favor as the buyer.The seller is forced to remove the business from the market, granting you a unique position of influence—they are desperate to close the deal and you’re the only game in town!This exclusivity period is crucial as it allows you to thoroughly evaluate the business without the pressure of competing offers.Move expeditiously through this period… time kills deals!Conducting Financial Due Diligence (and Renegotiating Terms!)Now you get to open the hood and see what you're really buying!We strongly recommend hiring a quality of earnings (QoE) provider that has an offering tailored for SMBs.There are many… send us a message for recommendations!You want to ensure that the numbers from the Confidential Information Memorandum (CIM) tie out to reality through a proof of cash and double-check that the add-backs are bona fide.You’ll also want to smoke out issues like customer and supplier concentration, and declining financial performance.A little insider baseball:As of June 2024, about 60% of deals need to be renegotiated post-QoE or financial due diligence.A common trap for the unwary is when financially sophisticated clients attempt to conduct their own QoE.These transactions move fast, often involve poor bookkeeping, and inexperienced sellers. It’s better to let the experts handle it.Also, working capital is often overlooked, and we'll do a deeper dive on this later in the course.Business Due DiligenceNow, you need to get familiar with the operations of the business and confirm that you are properly equipped to run this type of business!This means assessing everything from your ability to work with the type of employees in the business (who are often very blue-collar), to technical insider lingo and navigating industry diplomacy.Understanding the day-to-day operations and the company's culture will help ensure a smoother transition.Securing Your Financing (SBA or Conventional)Securing financing is a key early step in the acquisition process.Your goal: obtain a term sheet and commitment letter from an SBA 7(a) lender or conventional financing source.There are many great lenders who specialize in large acquisition financing, and many excellent brokers who can assist in securing the financing.Evaluating both SBA and conventional financing options will help you choose the best fit for your acquisition.Negotiating with Potential Investors (From Term Sheet to Subscription)Next, and likely simultaneously with your financing, you’ll want to have a meeting of the minds with your prospective investors.They will look at you, the business, the acquisition terms, and the investment terms (more on this in future issues).The goal is to get those investors to sign subscription documents and wire funds.These investments are almost always governed by Regulation D, including Rule 506(b) and 506(c), and all investors should typically be accredited.Pro tip! If you have a good deal, you will almost always find investors to support your acquisition. Don’t be afraid to chase a larger target than you might be able to afford on your own, as you...
