In recording this episode's topic of buying a business, Matt's metaphor, in comparing the process to getting married probably went too far, but it does help guide even the most savvy of business acquirers. Matchmakers (Brokers) and Finding Your Spouse (Targets) Business brokers can be excellent tools in finding the right deals and an aid in getting a deal done. Their function can at times be inverse to attorneys, the gatekeepers to a transaction, who tend to be much more conservative and sometimes even obstructionist in their approach. Of course, the answer is a balanced team. Buyer-brokers are actually not as common in small business acquisitions due to the fact that often these businesses are not publicized openly (like on an MLS) and so the market generally gravitates towards seller representation. It's not to say that buyer-brokers do not exist, in fact there are some really great ones--especially in niche areas. If you intend to use a buyer-broker, be prepared to pay non-commission based fees in addition to commission-based fees. Another tip is that good buyer-brokers are often either exclusively or predominantly representing buyers. If you go into a transaction without representation, do not fall into a common mistake in forgetting that without a written agreement stating otherwise, it is not the responsibility of the seller's broker to look out for the buyer's interest. This warning seems obvious, but many transactions only include one broker and dual representation just does not give much value to the parties. Proposal (Letters of Intent) Letters of intent are non-binding (and sometimes including binding provisions) agreements as to what the parties intend to agree. The purpose behind these simplified documents is to outline in a expedited, efficient manner the business terms for which the parties will agree to the purchase and sale of a business. They are great tools and though some small or quick transactions skip this step, a letter of intent will help make the transaction smooth by addressing the broad strokes early in the negotiation process. Many letters of intent are non-binding and though there is such thing as a "binding letter of intent" or more often called a "memorandum of understanding" (not to be confused with a "non-binding memorandum of understanding"), most letters of intent will have some binding provisions such as an agreement to negotiate exclusively within a certain period of time or to keep the negotiations and information exchanged confidential. The non-binding provisions often include the actual terms the parties intend to place in the binding, definitive documents such as the purchase price, periods of due diligence, closing conditions, etc. Because of the casual and expedited nature of letters of intent, many buyers fail to give enough attention to the minutia of what is included (and sometimes what is not included) in the document. Even if non-binding, a term in a letter of intent will be much more difficult to change when the definitive agreements get drafted. If you are reluctant to address a perhaps sensitive business term, you may opt to not address the term altogether until you get the main agreements drafted and hope for deal fatigue to be in your favor when you insert it into the definitive agreements later in the transaction. Local vs. Destination Wedding (Equity vs. Asset Purchase) The marriage metaphor is a stretch here, but any business acquisition discussion must address the differences between an equity and asset purchase. To understand the difference, the status of corporations, LLCs, and partnership as separate legal entities must be clear. In an equity purchase, you are buying the ownership interest in the entity that operates that business. The tax id is staying the same and the legal entity is staying the same. You, as the buyer, are standing in the same shoes as the stockholders (for corporations), members (for LLCs),
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