Your deal team for buying a business, and when to call each

You can find a company and earn an owner's trust on your own. You can't close the purchase on your own. Somewhere between the first conversation and the closing table, you'll need three professionals: a lender, an accountant and an attorney. Each one protects you from a different kind of mistake.

The best time to find them is before you need them. Here's what each does, when to call, and how to choose.

The lender

What they do. Many small business purchases are financed with an SBA 7(a) loan: a bank loan that the U.S. Small Business Administration partly guarantees. Our guide to SBA loans for buying a business covers how they work. The lender decides whether you and the company qualify, and on what terms.

Along the way, the lender has a checklist of its own. For a purchase, SBA rules require the lender to:

• verify the seller's financial figures against tax transcripts from the IRS;
• get an independent valuation of the business when the price is over $350,000;
• get a deeper review of the company's earnings, called a quality of earnings report, when the price is $3 million or more;
• visit the business; and
• confirm that the company's earnings after your salary are at least 1.25 times the loan payment.

When to call. Early, before you're deep into conversations with an owner. A first talk with a lender tells you how much they'd lend against your cash, your credit and your experience, and what they'd want to see from you. Check in again before you sign a letter of intent, so you know the structure you're proposing is one they can finance.

How to choose. Look for lenders who make SBA loans to buy businesses regularly, not just occasionally. Some are part of the SBA's Preferred Lenders Program, which lets them approve SBA loans under their own authority rather than sending each one to the SBA for review. The SBA's free Lender Match tool on sba.gov can connect you with lenders in your area. Talking to two or three is reasonable.

What it costs. The SBA charges an upfront guaranty fee that depends on the loan's size and term, and you can pay it from the loan itself. Lenders may also charge their own fees, and they can pass the cost of the valuation and other reports on to you. One helpful detail: under SBA rules, what you pay for the financial reports the lender requires can count toward your down payment. Ask each lender for a written list of fees early.

The accountant

What they do. A CPA who has worked on business purchases checks that the company earns what the seller says it does. That means tying the tax returns to the profit and loss statements and the bank deposits, looking at how revenue and margins have moved over several years, and reviewing the seller's add-backs. Those are personal or one-time expenses added back to profit to show what the business really earns, and our post on add-backs explains them. They'll also check how much working capital the business needs: the cash, inventory and money owed by customers that keep it running day to day.

The accountant matters just as much for structure. How the purchase is set up, and how the price is split among equipment, goodwill (the value of the name, reputation and customer relationships), a non-compete and other assets, affects your taxes for years. After an asset purchase, buyer and seller each report that split to the IRS on Form 8594 with their tax returns, so it's worth agreeing on it with care.

When to call. As soon as the seller shares real financial documents (the ones in our post on what to ask a seller for), and ideally before you settle on a price. Then again during due diligence (your detailed check of the company before you commit), and once more before closing to set up your company and payroll properly.

How to choose. Ask how many business purchases they've worked on recently, and whether they've done financial due diligence or only tax preparation. Those are different skills.

What it costs. Usually a flat fee for a defined scope, or hourly. Agree on the scope in writing.

The attorney

What they do. A business attorney who handles purchases reviews your letter of intent, drafts or negotiates the purchase agreement, and makes sure the protections you need are in it: what the seller promises about the company, what happens if those promises turn out to be wrong, the non-compete, and how any seller note or holdback works. They'll also handle the lease assignment or new lease, set up your company if you need one, and run or coordinate the closing.

In Florida, they'll take care of a few state-specific steps as well, such as making sure the seller's state taxes are paid (a buyer can otherwise be liable for them) and that the licenses the business needs will be in place on day one.

When to call. Before you sign the letter of intent, because some of its paragraphs are binding. Then they're central from due diligence through closing.

How to choose. You want someone who does business purchases, not a general practitioner, and ideally someone who has closed SBA-financed deals. Your lender, your accountant and other local owners are good sources of names. Your state bar's lawyer referral service is another.

What it costs. Hourly or a flat fee by phase. Ask for an estimate for the letter of intent, the purchase agreement and closing separately, and ask who will actually do the work.

Others you may need

• An insurance agent who writes commercial policies. Get quotes during due diligence, not the week before closing. Insurance is a real cost, and the lender will require coverage.
• A business broker, if the seller has one. A broker usually works for the seller and is paid by them, so be friendly and clear, but remember whose interests they represent.
• A payroll provider to make sure the first paycheck under your ownership goes out on time.
• Specialists when the deal calls for them: a real estate appraiser or environmental review if you're buying property, or a licensing consultant for regulated industries.
• Free help. SCORE, a nonprofit that partners with the SBA, offers free mentoring from experienced business people. In Florida, the Florida SBDC Network offers no-cost, confidential consulting. Neither replaces your attorney or CPA, but both are good sounding boards.

A rough idea of costs

Our numbers on Second & Main assume closing costs of about 4% of the price. That covers things like loan fees, the valuation, legal and accounting work, and other closing expenses. Your actual costs will depend on the size and complexity of the deal, so treat 4% as a planning figure, not a quote, and ask each professional for a written estimate.

Remember too that some of these costs come before you know the deal will close. If due diligence turns up a problem and you walk away, you'll still owe the accountant and attorney for the work they did. That's money well spent, but plan for it.

Questions to ask all three

1. How many business purchases have you worked on in the last year or two?
2. Have you worked on deals financed with SBA loans?
3. What will you need from me, and when?
4. How do you charge, and what's your estimate for a deal like this?
5. Who else on your team will work on it?
6. How quickly do you usually respond during a deal?

When to call each, in order

1. Lender: before you're deep into conversations, to know what you can finance.
2. Accountant: when you get real financial documents, before you agree on a price.
3. Lender and attorney: before you sign a letter of intent.
4. All three: through due diligence and the loan process.
5. Insurance agent and payroll provider: during due diligence, so everything is ready for closing.

A good team won't make a bad deal good. But it will tell you when a deal is bad, early enough to walk away, and it will make sure a good deal closes the way you agreed.