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I want to make an offer on a business, what are the steps to make that happen?

I contacted the seller's broker and he informed me they recently received an offer, and are currently in an observational period. Does this mean I can not make an offer during this period? And when I do make my offer, do I call the broker with a verbal offer or should I have an attorney draft a Purchase Agreement, and forward the PA with a deposit to the broker? All advice is appreciated.

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Jun 10, 2017
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The BAF Group LLC

In your first question, you may or may not be able to make an offer during the "observational" period. Frankly, I have never heard that term; however, in some Letters of Intent (LOI), the Buyer may ask for, and the Seller may agree not to promote the sale of the business and not to take additional offers, until the term of the LOI expires. You should ask for a clarification, because if there is no tangible reason for you not to make an offer, you may make a stronger offer than the one in place, and the Seller may want to talk further to you. You lose nothing by pressing your case.

One reason for asking, is that not all Business Brokers are that sharp. (Not all doctors, lawyers or auto mechanics are that sharp, either. I am a Broker, so don't anyone give me any jazz about picking on that group!)

We do nothing with a verbal offer. When we represent the Buyer, we demand a formal, written offer in the way of an LOI or a Contract of Sale. In the vast majority of cases, we also require a deposit to accompany the offer. In this case, I would not offer a deposit, but suggest that you will put a deposit in place, as soon as the offer has been accepted.

A Contract of Sale or Purchase Agreement has the appearance of being stronger than an LOI, even if the Contract allows the same kind of escape clauses the LOI might. And perception is everything, in these circumstances. If you are tentative in your offer, if you come in appearing timid or hesitant, getting the Seller to take your offer seriously could be counter-productive. The same as with a deposit. If you going to compete, or if you are low-balling the price, I would offer the largest deposit you can afford. If you offer a low price and a $5 deposit, who is going to take you seriously?

BUT!!! If you are going to put down a serious amount, I would involve an attorney. That is no time to be cheap and figure to save a buck by not paying a lawyer! In all of my time as a Business Broker, I have only had two experiences where Buyers lost their deposits. And one was clearly because the Buyer decided to save money by not hiring an attorney, despite the fact that I not only specifically told him he was playing with fire, but I gave him the names and telephone numbers of two (2) attorneys - whom he ignored.

Feb 28, 2011

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