I want to buy an existing business, but at a future date – best path forward?

 

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I want to buy an existing business, but at a future date – best path forward?

There’s a retail business I’m interested in buying. I reached out to the owner a long time ago and there wasn’t much interest at the time. A couple of years and a pandemic later owner reached out and is more interested in retiring completely and moving, but they’ve said they are in no rush and are flexible. They’ve owned the business for 20 years and have been 99% absentee for a long time. It’s a simple counter service food sales business.

This business is something I want, it’s been a target on my radar for a few years now. For me it ticks all the boxes. In my ideal world I’m taking over ownership in Spring 2022, which I think is something that would be in line with the current owners timetable.

So my question is this: What steps can I take to protect this opportunity?

My thoughts are to get the sale terms on paper and have a deposit in escrow with a closing date far into the future. Then put in conditions regarding aspects of the business such as sales, equipment condition, lease etc to be accounted for again at closing so should anything arise between now and then I’m protected.

Perhaps a small escrow deposit to be applied towards a final sale price + a simple right of first refusal contract might be a better way to go?

My only fear with that is it might give the owner more time to shop around. The number he is asking for is a fair multiple of the next, and I think if he hired a broker, they might be able to get more, just based on the consistency and number of years in business, whereas I might be able to negotiate a slightly better deal in the nearer term.

There is an argument to be made that once a seller has a deal, they will put less effort into the business, and not put money into marketing, maintenance etc and also let reputation and customer service slide.

While there are some items of equipment, the replacement cost is not high, and I can put maintenance / servicing clause into a purchase agreement. No marketing is done for this business anyways, and it has a solid 2.0 review across social media, so I’m not worried about negative reputation as this business has zero sales impact from negative social media, which is something else I really like. The owner is also absentee and has been for a while so I don’t imagine much risk to the status quo.

Any thoughts on a strategy would be greatly appreciated!

I want to buy an existing business, but at a future date – best path forward?

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One Reply to “I want to buy an existing business, but at a future date – best path forward?”

  1. Attorney here. I do these deals all the time. Probably the best option for you is an exclusive purchase option that is backed up by an escrow deposit. There could alternatively/in addition be right of first refusal language.

    You can also try an earlier sale with a long transition period, where you own it but they still get a certain % or compensation while they “transition” out.

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