Buying a small business | Fargo INC! Magazine

If you visit SKripts Pharmacy in the West Fargo Costco store, chances are Trisha Oss is busy answering customer questions, filling a prescription or helping a co-worker. A graduate of the NDSU School of Pharmacy, Trisha has been with SKripts since 2013 and is one of 3 licensed pharmacists and 11 associates at the independent pharmacy.

Upon learning of the owners’ plans to sell in late 2020, Trisha began exploring the possibility of buying the company. In May 2021, after getting help from the ND Small Business Development Centers in Fargo (ND SBDC), her accountant and attorney, and getting a commercial loan through her bank (Alerus), her dream of becoming a business owner came true .

More than half a million companies like SKripts change hands every year, and that number is expected to skyrocket as millions of baby boomers retire and sell their businesses. It is estimated that up to seven out of ten small businesses in ND will turn around in the next decade.

One benefit of buying an existing business (or a franchise) is that you have the opportunity to become a business owner while avoiding some of the pain points and costs of starting a new business. But the journey can be long and complex. If you’re looking to buy a business, here are some things to consider:

Step 1: Decide what type of business you want to buy

Consider your interests, skills and experience. Look for a small business that aligns with what you already do. For example, if you have been a restaurant manager for several years, it may make sense to have your own restaurant.

Step 2: Search for businesses for sale

There are many ways to find companies that meet your criteria. Among which:

• Online business marketplaces like BizBuySell.com
• Craigslist Ads
• Newspaper classified ads under Businesses for sale
• Ask people in your network
• Consult a business broker

Step 3: Understand why an existing business is for sale

There are many reasons why a business owner might put their business up for sale, such as retirement. If you’re considering buying a business, you’ll want to know exactly why the current owner is considering selling. Explore as much as you can
about the history, strengths, challenges and opportunities of the existing company. If possible, talk to existing customers and employees.

Step 4: Shrink the field

Determine the best option between different companies. Usually, the best choice is the company that best fits your area of ​​interest, goals, budget, and resources.

Step 5: Do your due diligence

Due diligence is the process of collecting as much information as possible before buying a business. At this point, it is often helpful to have an accountant and/or business advisor with a financial background to analyze the financial information.

Before you can get started, the seller will most likely ask for a signed non-disclosure agreement or nondisclosure agreement (NDA), which will protect the seller in the event you decide not to proceed with the purchase.

• Frequently requested documents include:

Organizational Paperwork

• Organizational Paperwork
• Historical financial statements
• Three-year cash flow forecasts
• Business tax declaration
• Brief history of the company
• Full list of assets
• Business licenses and permits
• Contracts and leases
• Any environmental regulations
• Organization chart
• Stock status
• Intellectual property
• Customer lists
• Main employee contracts

As you proceed, the seller typically issues a letter of intent (LOI) to the buyer, stating the agreed purchase price and listing the business assets and liabilities included in the transaction. Finally, a sales agreement is drawn up. A lawyer should be involved in the drafting and/or review of this legally binding document.

Step 6: Evaluate the Company’s Price

The next step is to agree on a price. This is where many deals fall apart as buyers and sellers often place very different values ​​on the same company.

The ND SBDC can often provide interested buyers with rules of thumb to determine a reasonable range of values ​​for a specific type of business. Sometimes buyers or sellers pay for an independent business valuation based on one of several recognized methods.

While these approaches can be helpful, keep in mind that the final price will always be the price that both the buyer and seller agree on.

Step 7: Secure the required capital to make the purchase

Once you and the seller have agreed on a number, the next step is to secure the necessary capital. Below are some common ways to finance a business purchase:

• Personal or family money
• Seller financing
• Collaborate with someone else
• Lease to Own
• Bank debt financing (term loan)

It has become common for a buyer to use multiple sources of financing to buy a business. For example, the purchase of SKripts was financed through a business bank loan and SBA 7(a) loan guarantee, seller financing and a cash injection from the buyer. In this case, the salesperson also stayed on as an employee to ensure a smooth transition with customers and suppliers.

As with any business loan, lenders will look at what is commonly referred to as:
the 5 C’s when making their credit decision – character, capital, capacity, collateral and conditions. You must also provide an updated business plan and show financial projections for the company. The SBDC specializes in assisting buyers in preparing financing.

Paul Smith is Fargo Center Director of the ND Small Business Development Centers (ND SBDC). The ND SBDC helps small business owners in North Dakota start, manage, and grow their businesses by providing free, professional business consulting services, technical assistance, and training in a number of areas such as business planning, market research, and financial analysis. Last year, the program served nearly 1,400 customers through nine service centers across the state. The Fargo Center is located in the NDSU Research and Technology Park. For more information, visit ndsbdc.org.

Step 8: Close the deal

Finally, when you have found the right company, done your due diligence, agreed on a fair price, and raised the necessary capital, you should have a number of documents, notes, and agreements at the time of closing. Common documents include the deed of sale, lease agreement, franchise documents, statement of asset purchase, and employment/consultation agreement (if the seller stays on).

Overview:

Buying a business is a big decision. If you’re considering a purchase, find a business you like and can manage and grow.

Do your homework – find out everything you can about the company – and ask for help.

The process of buying the pharmacy and getting the funding needed was a long one with many steps and some unforeseen bumps along the way, but it was all worth it in the end, Trisha said. One piece of advice would be to contact trusted advisors for help navigating the process.

Here are some additional resources you may find helpful:

The BizBuySell Guide to Buying a Small Business: A Roadmap to Successful Business Buying, Second Edition. Ed Pendarvis. 2015.

The BizBuySell Guide to Selling Your Small Business: A Roadmap to
the successful sale of your business, third edition. Barbara Findlay
Schenck. 2012.

HBR Guide to Buying a Small Business: Think Big, Buy Small, Own Your Own Business, Richard S. Ruback, Royce Yudkoff. 2017.

Sunbelt Business Brokers
https://www.sunbeltnetwork.com/fargo-nd/

Murphy Business Sales
https://murphybusiness.com/fargo/

(Note: Business brokers legally represent the seller and earn a
commission when a sale goes through that is usually paid by
the salesman.)