The closing is the formal transfer of a business. It usually also represents the successful culmination of many months of hard work, extensive negotiations, lots of give and take, and ultimately a satisfactory meeting of the minds. The document governing the closing is the Purchase and Sale Agreement. It generally covers the following:
• A description of the transaction – Is it a stock or asset sale?
• Terms of the agreement – This covers the price and terms and how it is to be paid. It should also include the status of any management that will remain with the business.
• Representations and Warranties – These are usually negotiated after the Letter of Intent is agreed upon. Both buyer and seller want protection from any misrepresentations. The warranties provide assurances that everything is as represented.
• Conditions and Covenants – These include non-competes and agreements to do or not to do certain things.
There are four key steps that must be undertaken before the sale of a business can close:
1. The seller must show satisfactory evidence that he or she has the legal right to act on behalf of the selling company and the legal authority to sell the business.
2. The buyer’s representatives must have completed the due diligence process, and claims and representations made by the seller must have been substantiated.
3. The necessary financing must have been secured, and the proper paperwork and appropriate liens must be in place so funds can be released.
4. All representations and warranties must be in place, with remedies made available to the buyer in case of seller’s breech.
There are two major elements of the closing that take place simultaneously:
• Corporate Closing: The actual transfer of the corporate stock or assets based on the provisions of the Purchase and Sale Agreement. Stockholder approvals are in, litigation and environmental issues satisfied, representations and warranties signed, leases transferred, employee and board member resignations, etc. completed, and necessary covenants and conditions performed. In other words, all of the paperwork outlined in the Purchase and Sale Agreement has been completed.
• Financial Closing: The paperwork and legal documentation necessary to provide funding has been executed. Once all of the conditions of funding have been met, titles and assets are transferred to the purchaser, and the funds delivered to the seller.
It is best if a pre-closing is held a week or so prior to the actual closing. Documents can be reviewed and agreed upon, loose ends tied up, and any open matters closed. By doing a pre-closing, the actual closing becomes a mere formality, rather than requiring more negotiation and discussion.
The closing is not a time to cut costs – or corners. Since mistakes can be very expensive, both sides require expert advice. Hopefully, both sides are in complete agreement and any disagreements were resolved at the pre-closing meeting. A closing should be a time for celebration!Read More
Unlike that poetic title of an old-time standard song, Red Sails in the Sunset, red flags are not a pretty sight. They can cause a deal to crater. Sellers have to learn to recognize situations indicating there might be a problem in their attempt to sell their business. Very, very seldom does a white knight in shining armor riding a white horse gallop up, write a large check and take over the business – no questions asked. And, if he did, it probably should raise the red flag – because that only happens in fairy tales. Now, if the check clears – then fairy tales can come true.
Sellers need to step back and examine every element of the transaction to make sure something isn’t happening that might sink the deal. For example, if a company appears interested in your business, and you can’t get through to the CEO, President, or, even the CFO, there most likely is a problem. Perhaps the interest level is not what you have been led to believe. A seller does not want to waste time on buyers that really aren’t buyers. In the example cited, the red flag should certainly be raised.
A red flag should be raised if an individual buyer shows a great deal of interest in the company, but has no experience in acquisitions and has no prior experience in the same industry. Even if this buyer appears very interested, the chances are that as the deal progresses, he or she will be tentative, cautious and will probably have a problem overcoming any of the business’s shortcomings. Retaining an intermediary generally eliminates this problem, since every buyer is screened and only those that are really qualified are even introduced to the business.
Both of the above examples are early-stage red flags. Sellers have to be focused so they don’t waste their time on buyers that are undesirable. If a buyer appears to be weak, does not have a good reason to need the deal, or is otherwise unqualified, the red flag should be raised because the chances of a successful transaction are diminished. The seller might seriously consider moving on to other prospects.
Red flags do not necessarily mean the end of the deal or that it should be aborted immediately. It simply means that the seller should pay close attention to what is happening. Sellers should keep their antenna up during the entire transaction. Problems can develop right up to closing. Here is an example of a middle-stage red flag: The seller has received a term sheet from a prospective buyer and is then denied access to the buyer’s financial statements in order to verify their ability to make the acquisition. As a reminder, a term sheet is a written range of value for the purchase price plus an indication of how the transaction would be structured. It is normally prepared by the would-be purchaser and presented to the seller and is non-binding. A buyer who is not willing to divulge financial information about his or her company, or, himself, in the case of an individual, may have something to hide. Due diligence on the buyer is equally as important as due diligence on the business.
If a proposed deal has entered the final stages, it doesn’t mean that there won’t be any red flags, or any additional ones, if there have been some along the way. If there have been several red flags, perhaps the transaction shouldn’t have gone on any further. It is these latter stages where the red flags become more serious. However, at this point, it makes sense to try to work through them since problems or issues early-on apparently have been resolved.
One red flag at this juncture might be an apparent loss of momentum. This might mean a problem at the buyer’s end. Don’t let it linger. As mentioned earlier, at this juncture all stops should be pulled out to try to overcome any problems. If a seller, or a buyer, for that matter, suspects a problem, there might very well be one. Ignoring it will not rectify the situation. When a red flag is recognized, it is best that it be confronted head-on. It is only by acting proactively that red flags in the deal can become red sails in the sunset – a harbinger of smooth sailing ahead.
How long does it take to sell my business?
It generally takes, on average, between five to eight months to sell most businesses. Keep in mind that an average is just that. Some businesses will take longer to sell, while others will sell in a shorter period of time. The sooner you have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the business be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice their business. This theory often backfires, because buyers often will refuse to look at an overpriced business. It has been shown that the amount of the down payment may be the key ingredient to a quick sale. The lower the down payment (generally 20-40 percent of the asking price), the shorter the time to a successful sale. A reasonable down payment also tells a potential buyer that the seller has confidence in the business’s ability to make the payments.
What Happens When There is a Buyer for My Business?
When a buyer is sufficiently interested in your business, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, they concern a detailed review of your financial records and may also include a review of your lease arrangements, franchise agreement (if there is one) or other pertinent details of the business. You may accept the terms of the offer or you may make a counter-proposal. You should understand, however, that if you do not accept the buyer’s proposal, the buyer can withdraw it at any time.
At first review, you may not be pleased with a particular offer; however, it is important to look at it carefully. It may be lacking in some areas, but it might also have some positives to seriously consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer — just that all offers should be looked at carefully.
When you and the buyer are in agreement, both of you should work to satisfy and remove the contingencies in the offer. Think of the deal as a tennis match… the buyer and seller should always be looking to “get the ball back over the net” to keep things moving along. Remember Time and Surprises are what usually kill deals. It is important that you cooperate fully in this process. You don’t want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the conditions have been met, final papers will be drawn and signed. Once the closing has been completed, money will be distributed and the new owner will take possession of the business.
What Can I Do To Help Sell My Business?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If you are using an attorney, make sure he or she is familiar with the business closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on very short notice. If you and the buyer want to close the sale quickly, usually within a few weeks (unless there is an alcohol license or other license involved that might delay things), you don’t want to wait until the attorney can make the time to prepare the documents or attend the closing. Time is of the essence in any business sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
What Can Business Brokers Do – And, What Can’t They Do?
As Business brokers, we are the professionals who will facilitate the successful sale of your business. It is important that you understand just what a professional business broker can do — as well as what they can’t. They can help you decide how to price your business and how to structure the sale so it makes sense for everyone — you and the buyer. They can find the right buyer for your business, work with you and the buyer in negotiating, and work with you both every step of the way until the transaction is successfully closed. They can also help the buyer in all the details of the business buying process.
A business broker is not, however, a magician who can sell an overpriced business. Most businesses are saleable if priced and structured properly. You should understand that only the marketplace can determine what a business will sell for. The amount of the down payment you are willing to accept, along with the terms of the seller financing, can greatly influence not only the ultimate selling price, but also the success of the sale itself.Read More
Making your business less dependent on you has a number of benefits: you can scale your company more quickly if you’re not acting as a bottleneck; you get more time to enjoy life outside of your business; and a business less dependent on its owner is much more valuable to an acquirer. You-proofing your business will help you to build value in the eyes of an acquirer.
Pulling yourself out of the day-to-day operations of your business is easier said than done. Here are three specific strategies for getting your company to run without you.
- Think Like LEGO
Pre-school children can make a collection of generic looking pieces come together in a complex creation by following the detailed instruction booklet that comes with every box of LEGO. Your employees need LEGO-like instructions to execute the recurring tasks in your business without your input.
Ian Schoen is the co-founder of Two Tree International, a design and manufacturing firm that brings products directly from concept to customer. The company was started in 2008 with a $50,000 loan and had grown to sales of over $4 million and a staff of 15 employees when it was sold in 2015. Schoen credits his operating manual for allowing him to sell his business for a significant premium: “We started creating standard operating procedures in the business and had a set of documents that helped us run the business. Basically we could plug anyone into any position and have them understand it.” If you are looking for some guidance on how to “systemize” your business you can also check out “Work The System” and download a free e-book.
- Imagine Hosting Your Own AMA
Everyone from the President to Madonna to Bill Gates has participated in an “Ask Me Anything” (AMA) forum where participants are encouraged to ask the featured guest anything that is on their mind.
Now imagine you invited your customers to an AMA. What questions would they ask you? What zingers would your most skeptical customers pose? These are the questions you need to document your responses to in a Frequently Asked Questions document that your employees can leverage in your absence.
- Shine the Media Spotlight on Your Team
It’s tempting to take the call from a local reporter who wants to interview you about your company, but consider inviting an employee to take the interview instead.
Stephan Spencer founded Netconcepts in 1995 and grew it into a multinational Search Engine Optimization (SEO) agency before selling it to Covario in 2010. His first attempt to sell his business in the late 1990s failed because potential acquirers viewed Netconcepts to be too dependent on Spencer himself: “My personal name and my company name were too intermingled. If I didn’t go with the business, nobody was going to buy it.”
Spencer set out to reduce his company’s reliance on him personally and one of his strategies was to position his employees as SEO experts: “I encouraged key staff, various executives and top consultants within the company to speak and write articles, and I introduced them to the editors I knew.”
It can be tempting to run your company as your own personal fiefdom but the sooner you get it running without you, the faster it can scale into something irresistible to an acquirer.Read More
PIERCING THE CORPORATE VEIL: WHEN YOUR LLC OR CORPORATION DOESNOT PROTECT YOU FROM PERSONAL LIABILITY
One of the main reasons business owners form corporations and limited liability companies (LLCs) is to avoid personal liability for debts and liabilities of their business. Generally, business owners are protected from the debts and liabilities of their corporation or LLC because these entities are considered separate and distinct from those who own them (owners of an LLC are referred to as members, and owners of a corporation are shareholders). Despite this, in some circumstances courts will “pierce the corporate veil” and hold an LLC or corporation’s members/shareholders personally liable for the debts and liabilities of the business. This is the most frequently litigated matter in corporate law.
1. WHEN WILL THE COURTS “PIERCE THE CORPORATE VEIL”?
“Piercing the corporate veil” is a common-law doctrine and rests in case law precedent. While there is no bight-line rule, “piercing” is generally available when business owners (a) unreasonably commingle their personal funds with business funds, (b) fail to follow corporate formalities, and (c) otherwise treat the LLC/corporation as their alter ego instead of a distinct legal entity. Many courts have stressed that when an entity is undercapitalized this is also an important factor to consider, although it may not by itself justify “piercing the corporate veil.”
a. Unreasonable Commingling
Business owners must keep their personal assets and funds separate from those belonging to the business. The most common example of commingling funds is when an owner deposits business funds into his or her personal account, and vice versa. Neither should business owners pay personal bills and expenses with a corporate check or credit card, nor pay business expenses with a personal check or credit card. Furthermore, any loans an owner makes to the business should be documented by a promissory note or similar instrument, and member/shareholder meeting minutes approving of the terms of the loan should be memorialized. What constitutes “unreasonable” commingling is determined on a case-by-cases basis, using case law precedent to draw similarities to the case at hand.
b. Failure to Follow Corporate Formalities
Most business owners regularly neglect maintaining proper records and fail to follow corporate formalities. For example, shareholders and directors must hold regular meetings to maintain a separate and distinct identity of the company. State statutes require corporations to notice, hold, and properly document at least an annual meeting of shareholders and to approve fundamental changes and large transactions involving borrowing, compensation, and purchasing. These meeting minutes should be memorialized by the secretary and stored in a corporate binder. It is also necessary to maintain normal accounting records and financial statements for the business.
A court may also “pierce the corporate veil” when a unity of ownership and interest exists between the business and its controlling owner. This happens when the business ceases to exist as a separate entity and is the “alter ego” of the controlling owner, and when recognizing the owner and business as separate and distinct would result in fraud or injustice. The existence of the following facts would support the “alter ego” theory: (a) commingling personal and corporate funds and other assets, (b) issuing stock/membership interests without authority, (c) undercapitalization, (d) misrepresentations of ownership, assets, and financial interests, (e) avoiding creditors by transferring assets to owners.
When a corporation or LLC is formed, the members/shareholders make capital contributions to the business in the form of services, money, assets, or a combination thereof. Adequately capitalizing the new business is essential, and owners should capitalize the business to the extent necessary to cover reasonably anticipated liabilities given the nature and magnitude of the business, as well as the normal operating costs and expenses of the business. Undercapitalization is generally determined when the business is formed, so a later infusion of capital is not enough to negate personal liability to the owners.
2. BEWARE OF SINGLE-MEMBER LLCS
In 1996 the IRS enacted “check the box” regulations, allowing non-corporate entities (such as LLCs) to be taxed as partnerships. However, an LLC with one member cannot be a partnership, so the IRS declared that a single-member LLC (SMLLC) does not exist for federal income tax purposes (this is also referred to as a “disregarded entity”). Although SMLLCs may have tax advantages and are easier to maintain, it is much easier to “pierce” the veil of a SMLLC. To avoid the “piercing of the veil” issue, many corporate attorneys advise their clients to do two things: (i) create sufficient legal documentation (including a single-member operating agreement and Board of Manager resolutions, etc.) to reflect that the single-member LLC is indeed a separate entity and has been treated as such; and
(ii) if there is significant liability exposure, issue a small equity interest (e.g., 2%) to a close relative. Issuing a small equity interest will create a multiple-member LLC — in which case it will not be a “disregarded entity” for tax purposes.
Disclaimer: This material was prepared for general informational purposes only, and is not intended to create an attorney-client relationship and does not constitute legal advice. This material should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a qualified attorney regarding any specific legal problem or matter.Read More
Market Pulse Quarterly Report Shows 2015 Ended With Strong Sales of Businesses and Optimism is Growing for 2016
The quarterly Market Pulse Survey published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project showed that business sales remained strong in 2015 especially in the Main Street market. The Main Street market generally refers to smaller commercial establishments, so named because many are found in towns across the United States.
The Small Business Administration had a record year distributing more than $23.6 billion in loans in FY 2015. There was also significant private capital and traditional lending for the Main Street market in 2015 as 71 percent of Market Pulse study respondents who closed deals under $2MM in value reported that the businesses utilized financing other than SBA funds.
The SBA record year coupled with the traditional lending demonstrates how incredibly active for the Main Street market was in 2015.
The Q4 2015 survey which compares the conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM -$50MM) was completed by 348 business brokers and M&A advisors representing 38 states. Respondents completed 410 transactions in the 4th quarter of 2015.
The Market Pulse Survey showed that in Q4 2015 deals took longer to close across all sectors. Closing times nearly doubled in the Main Street market, while the Lower Middle Market also saw jumps of up to four months. New this survey, advisors reported on the average time for deals to move from letter of intent (LOI) or offer to closing. In every sector except the smallest, deals took three months to close after a signed LOI.
“Typically the larger the deal, the longer it takes to close,” says Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project. “But the lower middle market has a large number of active buyers, and one way buyers win deals is to show they can close more quickly. As more buyers come to the table, advisors are able to run a more efficient process.”
Deal multiples remain strong, but advisors aren’t optimistic that multiples will climb any higher in 2016. Notably, advisors also suggest market conditions will remain relatively neutral when it comes to debt financing. However, they report some difficulty arranging financing for companies with revenues of $500,000 or less.
“Sometimes sellers hear that a business in their industry got a certain multiple and they want the same number,” added (your last name). “But multiples depend on the size of the business being sold; for Main Street deals the common multiple is based on SDE without working capital (2-3x SDE in 2015) whereas in the lower middle market EBITDA including working capital (4-5x EBITDA in 2015) is the most common multiple type.”
Additional Key Findings:
- Year over year, buyers are increasing their advantage in the Main Street market, particularly for the smallest businesses. Meanwhile, the seller’s market sentiment has improved, year over year, in the Lower Middle Market.
- Main Street businesses sold for approximately 91 percent of their asking price in Q4 2015. By comparison, Lower Middle Market businesses—which typically aren’t marketed with an asking price—received 99.5 percent of the internal benchmark set by the advisor and seller.
- In the smallest deal category (businesses valued at <$500K) first time buyers accounted for the largest buyer segment. In the largest deal category (businesses valued between $5MM to $50MM) private equity made up the largest buyer group. PE groups were not active at all in the <$500K segment, while individual buyers accounted for only 14 percent (7 percent first time buyers, 7 percent repeat owners) of the larger sector.
- Service companies (business and personal) continue to lead Main Street market activity in Q4 2015, with a strong showing in the Lower Middle Market as well. Manufacturing companies led the Lower Middle Market.
About International Business Brokers Association (IBBA) and the M&A Source
Founded in 1983, IBBA is the largest non-profit association specifically formed to meet the needs of people and firms engaged in various aspects of business brokerage, and mergers and acquisitions. The IBBA is a trade association of business brokers providing education, conferences, professional designations and networking opportunities. For more information about IBBA, visit the website at www.ibba.org.
Founded in 1991, the M&A Source promotes professional development of merger and acquisition professionals so that they may better serve their clients’ needs, and maximize public awareness of professional intermediary services available for middle market merger and acquisition transactions. For more information about the M&A Source visit www.masource.org.
About the Pepperdine University Graziadio School for Business and Management
A leader in cultivating entrepreneurship and digital innovation, the Pepperdine University Graziadio School of Business and Management focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally-oriented education through part-time, full-time, and executive MBA programs at our eight California campuses, as well as through online and hybrid formats. In addition, the Graziadio School offers a variety of master of science programs, a bachelor of science in management degree-completion program, and the Presidents and Key Executives MBA, as well as executive education certificate programs. Follow the Graziadio School on Facebook, Twitter at @GraziadioSchool , and LinkedIn.
There are unique attributes of a company that make it more attractive to a possible acquirer and/or more valuable. Certainly, the numbers are important, but potential buyers will also look beyond them. Factors that make your company special or unique can often not only make the difference in a possible sale or merger, but also can dramatically increase value. Review the following to see if any of them apply to your company and if they are transferable to new ownership.
Brand name or identity
Do any of your products have a well recognizable name? It doesn’t have to be Kleenex or Coke, but a name that might be well known in a specific geographic region, or a name that is identified with a specific product. A product with a unique appearance, taste, or image is also a big plus. For example, Cape Cod Potato Chips have a unique regional identity, and also a distinctive taste. Both factors are big pluses when it comes time to sell.
Dominant market position
A company doesn’t have to be a Fortune 500 firm to have a dominant position in the market place. Being the major player in a niche market is a dominant position. Possible purchasers and acquirers, such as buy-out groups, look to the major players in a particular industry regardless of how small it is.
Newsletters and other publications have, over the years, built mailing lists and subscriber lists that create a unique loyalty base. Just as many personal services have created this base, a number of other factors have contributed to the building of it. The resulting loyalty may allow the company to charge a higher price for its product or service.
A long and favorable lease (assuming it can be transferred to a new owner) can be a big plus for a retail business. A recognizable franchise name can also be a big plus. Other examples of intangible assets that can create value are: customer lists, proprietary software, an effective advertising program, etc.
The ability to charge less for similar products is a unique factor. For example, Wal-Mart has built an empire on the ability to provide products at a very low price. Some companies do this by building alliances with designers or manufacturers. In some cases, these alliances develop into partnerships so that a lower price can be offered. Most companies are not in Wal-Mart’s category, but the same relationships can be built to create low costs and subsequent price advantages.
Difficulty of replication
A company that produces a product or service that cannot be easily replicated has an advantage over other firms. We all know that CPA and law firms have unique licensing attributes that prevent just anyone off of the street from creating competition. Some firms have government licensing or agreements that are granted on a very limited basis. Others provide tie-ins that limit others from competing. For example, a coffee company that provides free coffee makers with the use of their coffee.
Technology, trade secrets, specialized applications, confidentiality agreements protecting proprietary information – all of these can add up to add value to a company. These factors may not be copyrighted or patented, but if a chain of confidentiality is built – then these items can be unique to the company.
There are certainly other unique factors that give a company a special appeal to a prospective purchaser and, at the same time, increase value. Many business owners have to go beyond the numbers and take an objective look at the factors that make their company unique.
Copyright Business Brokerage Press, Inc.Read More
If you are even thinking about selling your business, it’s good to know the questions the important questions business buyers ask and want answers to.
For example, the first question almost always asked by buyers is: If this is such a good business why is it for sale? How you answer this question can make or break a sale. A vague answer can discourage buyers from further consideration of your business, as they may assume the worst.
If you say you are “burned out’ or just ready to try something new – that’s fine. If you’ve owned and operated the business for 10 to 15 years, buyers will most likely accept your reason for sale and continue their investigation. However, if you’ve only owned and operated the business for two years or less, a prospective buyer may find it concerning that you are already burned out or ready for something new.
If you’re sick, be open about what the problem is; otherwise buyers will think you are just sick of the business. The worst thing a seller can do is to fudge an answer or not provide a completely honest answer. Buyers will, most likely, see right through the given reason for sale and walk away. So, even if you really are tired of or just plain hate running your own business, be up front and explain why. Honesty is always the best policy.
It is also a good policy to engage the services of a professional business broker. We have been through many transactions and can help a prospective seller deal with the reason for sale as well as the other questions a buyer may have. Here is a brief list of other questions buyers often ask:
• Why should I buy an existing business rather than start one myself?
• How are businesses priced?
• What should I look for?
• What does it take to be successful?
• What happens if I find a business I want to buy?
• Do I need outside advisors?
In addition, buyers often want answers to some more specific questions such as:
• How long has the business been in business?
• How long has the present owner owned the business
• How much money is the business making?
• Are the books and records readily available?
• Will the new owner help me learn the business?
These and many other questions are ones that we as business brokers deal with every day, equipping you to help prepare honest and useful answers. While all of these questions are important, the question that creates the biggest stumbling block and one of the simplest to be proactive on is having “books and records readily available.” If your records are not up to date or not easily understandable buyers will move very quickly to the next business they are looking to purchase.
© Copyright 2015 Business Brokerage Press, Inc.Read More
The 2015 3rd Quarter IBBA and M&A Source Market Pulse Survey is out with some interesting findings. “This quarter’s report continues to see the pendulum shift to a seller’s market across all deal sizes. While buyers still hold the upper percentage for transactions valued at $1 million or less, the percentage is shrinking.”
Below are a few highlights from the report:
- Companies with strong earnings and good accounting and management records are wanted.
- Buyers are increasingly market educated and therefore know about more opportunities that are coming to market. They remain patient, but ready to act when a strong company is on the market.
- Retirement remained the leading reason that business owners went to market, which is understandable since baby boomers continue to retire in increasing numbers.
The casual reader of this information might assume there was a stronger shift to a buyer’s market as the quantity shifts; however, the findings indicate that the market is slowly becoming a sellers’ market especially as transactions increase in size.
- Business owners who are selling now are ‘ahead of the curve’ and are getting rewarded with very strong valuations. Eventually, as more and more baby boomers seek to retire and put their business on the market, there will be an oversupply of sellers and the market will most likely swing back to a ‘buyer’s market.
- The majority of small business buyers (under $1 million deal size) made the acquisition to ‘buy a job’. Typically, these buyers are already employed and are looking for a compelling reason to leave that security and run a business of their own. The buyers of larger businesses, on the other hand, are making synergistic purchases to add depth to their existing business.
- An increasing number of existing business owners are expanding through acquisition and want to thoroughly compare the potential acquisition against their current company. Since these buyers want to understand the ability to integrate the company into their own, they expect timely and accurate information to make these decisions.
Click here to download the full report summary.
I came across this article from Axial that does a good job illustrating some of the pitfalls or challenges that can cause a deal to go sideways when trying to sell a business. Here are a brief description of the top ten ways selling your business can go wrong. To read the entire article click here.
1. Unrealistic Value Expectations
The number one reason deals fail to close is because a seller’s valuation expectations are too high.
2. Unclear Story Elements
Often, because of poor strategic planning, the business owner cannot articulate clearly the company’s competitive advantages, its growth opportunities, its revenue potential, and its ability to produce significant returns on invested capital.
3. Quality of Earnings
Audited financial statements confirm financial accuracy and help validate forecasted performance. Lack of clarity and visibility regarding key business drivers, sales pipeline backlogs, back office operations, and the consistency of growth and earnings inhibit a buyer’s enthusiasm to continue its due diligence.
4. Length of Time
Every deal has a life of its own and its own momentum. Recognizing the ebb and flow of the deal momentum is critical to deal success
6. Customer/Vendor Concentration
If a significant amount of revenues is concentrated in a few customers, or if critical supply chain raw materials are concentrated in one vendor, the buyer’s perception of risk is elevated substantially.
7. Renegotiating Terms of the Deal
Renegotiating the terms, conditions, structure, and representations and warranties of a settled deal can be a deal killer
8. Lack of Robust Internal Controls
Frequently, the buyer’s due diligence process will reveal sloppiness (or worse) in internal controls (e.g., weak collection processes for aged receivables, manufacturing error rates, aberrations in the financial statements, regulatory filing inconsistencies).
9. Reaching for the Last Dollar
It is completely understandable that sellers who have put everything into their business want to get every dollar they can out of their business.
10. Inadequate Advisors
Selecting a quality deal team is critical to deal success. Business owners are very good at building successful businesses, but often stumble when seeking to monetize them in some form of exit.
© Copyright 2015 Business Brokerage Press, Inc.Read More