How to Write an Offer to Purchase

How to Write an Offer to Purchase

The quality of your purchase offer is an essential part in doing purchase dealings. This is just as important as the price being offered by you. Further, the purchase offer also depends on the kind of purchase being offered.

What is an offer?

It is basically an expression of interest to contract on a particular asset being offered by one party to another.

What is an offer to purchase?

This is a written intent to buy an asset (real estate property, equipment, supplies) by one party from another which is available for sale.

What is a purchase contract?

A purchase contract or a contract to purchase is a binding written contract between two or more parties to purchase an asset which is based on established laws. It is a legal contract.

There are a variety of things being offered for sale by any party, as mentioned above it can be a real estate property, personal property (e.g. car) and shares or bonds for a company’s equity and debt.

Parties involved in the purchase process would include:

- Buyer – a person or an entity that shows interests in the purchase of an asset being offered by another.

- Seller – a person or entity that trade goods or services in exchange of payment which is usually paid in cash.

- Broker – someone who poses as the middle man between a buyer and seller. They function as the liaison for both the buyer and seller. Although they can be disregarded, brokers can help ease the complex purchase process.

The process involved in the writing of the offer or the process itself is complex and requires sufficient knowledge. Thus, hiring a professional to help or assist you will lessen the complex in and outs of the process. Nowadays, more brokers are available; make sure you choose someone who is competent to do the job for you.

Offer and Acceptance process

This is a process wherein an interest party (buyer) makes an offer to another party (seller). The seller has the option whether or not to accept or reject the offer. In the event of rejection, seller may make a counter offer (a type of offer in response to another offer which was found to be undesirable). In return, buyer can either accept or reject (without counteroffer or with another counteroffer). In the event that one of the parties accepts, he then communicates this acceptance to the other and consequently a purchase contract is created.

Basic elements of a standard purchase offer

An offer to purchase encompasses detailed and complex information. If you have no idea of how to make one, you may want to hire someone to assist you on this one. Since this is a binding document, ask or hire someone that will thoroughly discuss the contents of such offer for you to understand what you are entering into and avoid further legal consequences.

Here are the elements comprising a purchase offer…

1. A clear identity of the buyer and seller
2. Sales price/purchase price
3. Closing date
4. Legal description of the asset which is the subject matter of the offer
5. In case of down payment or earnest money
6. Financing terms
7. In case of required fees associated with the offer
8. Contingencies
9. Other terms agreed upon by the buyer and seller

The offer is conveyed to the seller with the option to accept or not. Acceptance is evidenced by the seller’s signature affixed on the purchase offer document.

What is earnest money?

Earnest money or earnest payment is a deposit in security of the purchase of a real estate property which is made by a buyer to a seller. Generally, it is not required in an offer to purchase, however payment of earnest is usually done to demonstrate buyer’s good faith on the contract and it is likely that the seller will accept the offer if there is an earnest payment.

How much should you offer?

Factors that may affect or influence in the determination of your offer price:

- Your budget
- How badly you want it
- Number of other interested buyers
- Asset which is the subject matter of the offer compares with other similar assets

Buying a Business

Buying a Business

Many would be entrepreneurs consider purchasing an existing business as a less risky option than starting one from scratch. Research shows that most businesses fail within the first three years of operation.  Some feel that buying a business may lessen the risk involved.

Why buy a business? Why not start a new one?

Starting a business can be tough and time consuming; you don’t know who your target customers are, how many staff you will need; you have no idea whether or not the business will be successful. On the contrary, when you purchase an established business all the hard work has already done for you.

There are many advantages as well as disadvantages associated with the acquisition of an existing business.  Some of them are:

Benefits of buying an existing business

• Less risk of failure
• Established solid customer relationship
• Verified business methods and concepts
• Qualified and experienced employees
• Proven cash flow
• Established suppliers
• Set up location
• Goodwill included with the business
• Lenders are more willing to finance to an existing business

Disadvantages associated with buying an existing business

• Some staffing problems – resignations of current employees due to resentment of change to a new owner and even shoulder staff entitlements
• Customers lack of faith in a new owner
• Good will acquisition may be too high
• Outdated and defective plant and equipment

So, ponder on these pros and cons laid out for you before deciding to purchase an existing business.

How to find the right business for you

- Look into the past performance, current status, operations – investigate historical performance, its operations which would include sales, costs, expenses, existing liabilities, profits as well as assets.
- Workforce and management
- Competitors
- Queries – Asking about the business from its present owners and existing customers is a must.

Gathering all the information mentioned above will help you decide on the right business to acquire. The broker will give more accurate information. If it is possible, ask for externally prepared financial statements which show the status of the company being acquired and also request income tax returns, bank account statements and other information that will guide you on your decision. Success goes with recognition of the right business for you.

Determine the business that best suits you

You should decide what kind of business you want to be involved in.  And, as much as possible, choose something that you are good in. For example, if your specialty is food then venture into a line of business that will permit you to do that. Here are some points to help you out:

- Evaluate the knowledge, skills and experience that you currently possess
- Choose an industry that you are familiar with and understand well
- Identify your strengths and how you can contribute to the business
- Identify your weaknesses and how to handle them

Purchase Price

Some people get the wrong impression that acquisition of an existing business would cost more; indeed more often it is less expensive compared to starting a new one. The purchase price of a particular business is allocated to goodwill, leasehold improvement, plant, and equipment. Allocation of the purchase price can have a huge effect on the buyer and seller, wherein it may result in an increase or decrease on the seller’s gain on sale as well as the future taxable income of the buyer following the year of sale.

Allocation of which can lead to tax consequences and that is why there is a need for a buyer and seller to consult with a financial and tax specialist with regards to the purchase and sale of the business or trade, price allocation and other information involved in the transaction.

Innovation and creativity will still take part even though the business is already established. With these you are able to bring in new ideas, putting your skills and experience to good use. Enhancing and improving it which would consequently heighten the possibility of increased profitability.