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Which Expert Do You Need When Buying The Business You Work For?

You’ve been with a company for years and know the business and its culture. Now the owner is approaching retirement. For some entrepreneurial-minded employees, this situation is the perfect opportunity to transition into ownership and take the organization to new heights.

Regardless of your industry experience, relationship to the owner or financial-readiness, preparing for a buyout is a complex process—one that requires professional guidance.

Here are our top tips for choosing experts when looking to buy the business you work for.

Common strengths & weaknesses of employees


There are many advantages to being in-house as a prospective buyer, but there are three that stand out.

  1. Intimate knowledge of the business
  2. Relationship with the exiting owner
  3. Ideas for growth & expansion


While this may not always be the case, employees can exhibit some common weaknesses. Namely, a lack of financial expertise, particularly when it comes to two key assessments:

  1. A financial valuation
  2. A financial model or summary

Valuing the business

The first thing to understand is the owner’s expectations around the sale price. They’ll often have a specific figure in mind, which can be derived from their personal life (for example, a retirement nest egg) or their professional life—in many cases, the advice of their external accountant.

The second step is determining what the company is worth in the market. You can come to a figure through either an informal valuation—by way of your personal accountant, a Fractional CFO or a Mergers & Acquisitions (M&A) advisor—or a formal valuation—conducted by an accredited Chartered Business Valuator (CBV). Typically, CBV’s will work within accounting firms, M&A firms or run their own practice.

A formal valuation will be more costly but will give you a more accurate reflection of the business’ value. Once you understand the range of values, try to understand any differences between the owner’s figure and your own.

If they’re close, you can likely continue forward and start thinking about putting together an offer. If they’re distant, you may want to continue discussions with the owner to understand his or her perspective, but the likelihood of a path forward decreases. If you are further apart than that, you may just decide to look elsewhere.

Understanding your financial situation

Assuming your valuation is close to the owner’s selling expectation, you can move on to your financing requirements.

First, you’ll want to know how much you can personally contribute to the deal. This can come as cash savings, investment withdrawals or by refinancing personal assets, such as a property. To ensure you’re minimizing tax implications to the best of your ability, it’s often a good idea to work with a financial planner or banker that you trust.

Once you’ve identified how much you can contribute, it’s time to prepare for lenders. You’ll want to begin developing a proposal that outlines how much capital you’ll need and gives an overview of how you plan to run the business after assuming ownership—and most importantly, how you’ll be able to repay the loan.

Drafting a Letter of Intent

Before moving on to a Letter of Intent (LOI), it’s important to understand your budget for transaction costs. Depending on your approach and the number of professionals you’ve engaged, the costs you may have incurred to date could vary considerably.

Once an LOI is signed, professional fees will begin to accumulate more rapidly. Regardless of the eventual transaction outcome, these are sunk costs, so we recommend doing your homework before diving into work with professional contractors.

What is an LOI? In short, it outlines the terms of a prospective deal, subject to certain defined conditions. Your lawyer or M&A advisor will help ensure your terms accurately reflect market conditions. Most importantly, they’ll ensure key elements aren’t overlooked—for example, the level of working capital that will remain in the business when you take over.

The LOI is the first formal agreement you’ll have with the seller, so you’ll want to use this document to set up sale-favourable conditions. There will often be a constrained timeline of next steps for the transaction to progress through to sale, so be prepared to move with purpose.

Working with lenders

After the LOI is signed, you can formally engage a bank or credit union for financing.

While it might be tempting to shop your deal to every financial institution that will set up a meeting, you’re better off limiting your shortlist to three institutions. This way, you’ll be able to give your full focus to each lender—and they’ll notice if your attention is elsewhere. At the beginning stages, you don’t need term sheets, just a general sense of their lending appetite toward your proposal.

In these initial discussions, think about the bankers’ lending capacity and the rapport (or lack of) you might hold with them. The professionals you choose—the banker, lawyer, financial advisor, etc.—will become your deal team, ultimately helping you to cross the finish line with the transaction.

Throughout these talks, it’s critical to keep a repository of all documents that are transferred in this process. There are many easy-to-use services online to help with maintaining these records, such as a virtual data room like Firmex.

Due diligence & closing

After signing the LOI, you’ll move into due diligence: the process of uncovering and reviewing every area of the business. Having the right deal team in place can significantly reduce your workload during this period.

In this process, you might be asked to provide a Quality of Earnings report, conducted by an accounting firm. You can also opt for a Review Engagement financial statement, but we wouldn’t recommend less than that. In either case, you want external validation that the numbers you’re working with are accurate.

Lawyers will continue to remain heavily involved throughout this phase. While they perform their work, your attention should be tuned to a due diligence checklist, ensuring you aren’t missing any critical pieces of information that could affect your decision to purchase the business.

As you wrap up due diligence and move toward closing, all definitive documents—whether it’s a Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA)—need to be negotiated and produced. Other documents can include a Shareholder’s Agreement, Vendor Take-Back (VTB) financing agreement, loan agreement and more. It’s a lengthy process but setting the right foundation at sale will help your future affairs immensely.

Post-sale considerations

At this stage, you’ve made it across the finish line and the transaction is complete. The former owner has stepped aside and now you’re at the helm. Bask in the moment, then get to work running your business. You’ll personally experience a significant change during the transition from employee to owner, so it’s important to engage your staff and utilize external consultants to execute on your vision.

Typically, the exiting owner will play a role in this transition. You can use a VTB, minority equity share or an earn-out to ensure they’re invested in a smooth transfer. Before the former owner moves on completely, you may want the help of an advisor or consultant with project management or process management experience to document processes and transition key relationships.

As you work with the exiting owner and your employees, absorb their knowledge and begin communicating your vision of the future. With experience in many similar situations, an executive coach can be valuable as you navigate this new territory, supporting both business and emotional challenges.

Experts for entrepreneurial buyers

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Helping you make your next move

At First West Capital, our team of experienced financial professionals are ready to help your business growacquire and transition. Whether you’ve been diligently preparing for your next great undertaking or have been feeling stuck trying to make a purchase work, we have resources that can help you reach your business goals.

Want to learn more? Contact us today.

We help mid-market businesses

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