A business purchase proposal begins with a document called a "terms sheet." The terms sheet is an offer letter detailing key terms of the transaction, including how much you are offering to pay for the business and its assets, and how the debt and liabilities from the business will be resolved. The terms sheet should also discuss the status of current employees and any immediate plans for job terminations and severance packages. The terms sheet is not an official contract but serves as a proposal to be considered by the seller.
Establish a value for the business. This is often referred to as a "valuation." Various formulas can be used to establish valuations. For example, "Entrepreneur" magazine reports that landscaping companies are valued at 1.5 times revenue plus the worth of the equipment. Thus, a landscaping company earning $100,000 a year with $50,000 in equipment would be worth $200,000. Other valuations are determined by the amount of outside investment. For example, a start-up technology company sells a 50 percent stake in the company to an investment bank for $1 million. This means the remaining 50 percent of the company presumably is also worth $1 million, for a total valuation of $2 million. Check with your accountant and review similar business sales in your area to determine current valuation methods for the type of business you are acquiring.
Obtain a detailed list of all equipment and inventory included in the sale. Also include the value of real estate, lease agreements, licenses, contracts and patents. Hire an appraiser, if necessary, to place values on the assets. Review the figures with your accountant.
Request audited finance and income statements from the seller, including detailed information regarding employee expenses and outstanding liabilities, such as judgments, liens and credit accounts.
Review all of the information with your accountant and attorney. Write the business purchase proposal based on your analysis. Format the letter by listing the key point in your opening paragraph: the purchase price.
Describe exactly what you are purchasing as you write the letter, including the business itself and all contracts, customer lists, equipment, furniture, licenses and other assets. Then address how the liabilities of the business, such as its outstanding debt, will be handled. Finish by addressing any issues regarding employees of the business, including promises to retain certain employees or offer severance pay to those being let go. Also detail any special arrangements being worked out with the owner, such as retaining the owner as a consultant or requiring the owner to sign a non-compete as a condition of the sale.
Ask your accountant and attorney to review the letter for completeness and make changes, if necessary, based on their review.
Robert Lee has been an entrepreneur and writer with a background in starting small businesses since 1974. He has written for various websites and for several daily and community newspapers on a wide variety of topics, including business, the Internet economy and more. He studied English in college and earned a Bachelor of Arts in liberal arts from Governor's State University.