18 Sep Around the Web: A Week in Summary
A recent article from Forbes entitled “Making An Offer To Buy A Business – 6 Key Considerations” explains six things buyers should know going into the deal process in order to best protect their interests.
Making an offer on a business for the first time can be frightening. There is a lot to keep in mind, and it can make or break the remainder of the process. Here are six things to consider when making an offer on a business:
- It’s hard to retract the written word – A best practice is to have as many discussions and meetings face to face with the seller in order to come to agreements verbally before placing them into a written document. If there are things placed into writing before they are discussed in person it leaves room for misunderstanding and the creation of avoidable tension between you and the seller.
- It’s YOUR offer – Ultimately, as the buyer, you are taking on the majority of the risk in this transaction and it is your money that is being spent. Therefore, if there is something you want, ask for it without hesitation.
- Letter of Intent (LOI) or Full Purchase Agreement? – Whether you should proceed with both of these documents during the deal process or skip over the letter of intent is going to be dependent upon the deal size. Sometimes in smaller, lower middle market deals, a letter of intent is not a necessary or productive step.
- Forget the “We have other offers” tactic – Brokers will often throw this phrase out there in order to push you into making an offer faster. While it is true that good businesses will go under contract quickly, this is not a reason to cut any corners in your preliminary research. Call their bluff and pay attention to how they respond, and then act accordingly.
- Hurry up and wait – Once you decide that you are ready to make an offer, do so in an efficient manner. Set a reasonable expiration date on your offer and then wait for them to contact you. Do not contact them until the expiration has been reached.
- Think before you set “deal breakers” – Saying that something is a deal breaker for you and then changing your mind later can hurt your credibility and any leverage you may have had. Therefore work to be creative and find solutions before deciding that something is a deal breaker for you. And if you do make this decision, be sure to stick to it.
A recent article from Kiplinger entitled “What Steps Should You Take Before You Buy or Sell a Business” details the intricacies of the business buying process prior to a deal being made.
Given the state of the current economy, the market is favorable for both buyers and sellers at the moment. There is a large amount of available funding from multiple source types, as well as a multitude of healthy, valuable businesses available, creating an environment in which buyers are plentiful and businesses are selling for top dollar. In light of this, buyers and sellers both need to do their due diligence thoroughly in order to capitalize on the potential that the market conditions offer. This includes doing thorough research into the business on both sides, having a professional valuation done, carefully exploring the business structure and culture, as well as carefully drafting the sale agreement. If handled correctly, a buyer can walk away having a purchased a solid business with great potential and the seller can receive premium pricing for their hard work.
A recent article from Entrepreneur.com entitled “5 Tips to Successfully Sell Your Company” shares an experienced seller’s advice on how to best prepare your company for a desirable sale outcome.
Oftentimes when an owner is in the midst of their daily business operations, the last thing on their mind is selling their company. However, while it’s easy to get caught in the day to day minutia of growing the business, eventually being able to sell for top dollar is ultimately the goal. Through his experience of going through this process, one owner shares how to organize your company, find the right buyer and receive the true worth of your business:
- Keep your company’s resale value at the forefront of your mind from day one. By doing this it will keep you on track for building a long term business around principals that will one day make it sellable and reduce the amount of ‘repairs’ you need to do when you decide you’re ready to take this step.
- Train your employees to work well with or without you. Someday, if you’re going to sell your business, they’re going to need to work without you. Therefore having a business that is staffed by employees that are able to continue without your instruction makes your business more valuable to a buyer down the road.
- Learn how to know when you can sell your business. While it’s important to understand the current state of the market as well as your own personal outcomes and goals regarding the sale, you will also need to understand when the business is ready to be sold. For example, it needs to have shown a steady growth in revenue and profits over the past few years before it goes to market.
- Learn how to negotiate effectively. If you want to get top dollar for your company, this skillset will be necessary, period.
- Figure out how to say goodbye to your company. After spending years of your life building this business, it’s important to determine in what way your role will change when you sell it. Will you be staying on in a management role? Walking away entirely? Transitioning slowly as you train the new owner? All of these things need to be figured out before the sale is finalized.