How to Prepare a Purchase Offer for a Business

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There are two basic elements to preparing an offer to purchase a business. The first step is to determine the target business's fair market value and use this as a reference point for preparing a bid price. The second step is to present the actual offer to the business owner or owners. Both of these steps can range from informal to formal, but you will benefit from preparing extensively, and formal consultations with experts may also be helpful. This includes experts such as business brokers, attorneys, accountants and business appraisers.

Business Valuation

To estimate the amount you are willing to pay for the business, obtain as much relevant financial information as possible. This can be extremely difficult for privately held companies because they are under no obligation to make their financial documents public. If the owner is receptive to the idea of selling his business, he may be willing to provide you with tax returns or financial statements that can help you arrive at the best purchase price using conventional valuation techniques. If the owner won't divulge financial details, you might be able to find previous transactions involving similar companies by consulting industry sources online or by enlisting professional data providers or business brokers. They can determine how the market would price the business in the form of transaction multiples, such as deal price to revenues or deal price to earnings.

Presenting the Offer

Under the right circumstances, and with a receptive business owner, you can work with the owner to negotiate the details of the transaction. While this can be done informally, it is better to make a formal offer to purchase the business through correspondence with the business owner sent via certified mail. This minimizes the risk of litigation later on if the deal sours. If the business has several shareholders, prepare an offer-to-purchase memorandum that details the proposed deal terms, financing options and bid price.



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