Take Every Offer Seriously – The First May be Best (and Last!)

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TakeEveryOfferSeriouslyWe have relationships with hundreds of potential buyers for a new business. When we get a new engagement, we communicate the particulars of the business to these potential buyers. This usually creates a buzz and some excitement around the newly listed business.

Our seller gets excited, because we have 4 or 5 serious buyers interested. We set up meetings for interviews between the buyers and seller. The mistake the seller could make in this situation would be to assume there are going to be many offers on the business. When the first offer comes along, the seller decides to hold off on that offer hoping for an auction type of atmosphere. (The offer was a solid offer, but about 85% of what he was hoping to get for his business.) In this situation, the seller decided to wait and see what other offers came in, but the first offer was the only offer. The seller decided to come back a few weeks later to the original buyer, but the buyer had already made an offer on another business.

In a different situation, we had an offer for $12M for a business, but the seller wanted $15M. He held off to see if he could get more than $12M. The seller had been ready to sell, so his lack of interest in growing the business negatively affected the value. He ended up taking $6M three years later (and financing half the deal himself!) Nobody won on this deal.

The message is that you can’t get caught up in the hype surrounding the process. You need to consider every serious offer and decide if you would be happy getting the deal done for that price. We will help you negotiate, but it would be better to get your business sold than wait too long and miss the opportunity. You might only get one serious offer!

Don’t Quit Your Job Before the Deal is Done

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DontQuitYourJobTooEarlyIt might seem like common sense, but you should not quit your current job before you are absolutely sure that your deal is complete. People get excited about starting in the new business and give their notice and order new business cards too soon.

We had a buyer give notice, but he had not yet gotten the terms done on the lease for the building where the business resided. The landlord decided on a different use for the property and was not willing to renew the lease. This caused the deal to fall through.

In another situation, someone quit their job too early and started living off his savings account. The buyer and seller thought that the deal was going to be closed in less than a month. Banks sometimes take longer to complete deals because they look closely at every detail of the offer package. In this case, the bank took a few months. This reduced the amount of money the buyer had available for his down payment and the deal fell through.

Major Milestones before a Deal is Complete:
– Negotiations are complete and the contract is agreed to by both parties
– You have liquidated any personal funds needed for the purchase (401K, Real Estate)
– Bank has committed to fund the deal
– Landlord has signed the lease
– Licenses have been obtained
(Liquor stores, Home Healthcare, Remediation Company)

Watch Your “Trusted” Bookkeeper – Embezzlement Happens

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WatchYourBookkeeperIn the last 12 months, we have seen five deals fail to close because the bookkeeper was embezzling funds from the company being sold. Through the process of preparing the business to be ready to sell, we discovered inconsistencies in the financials that led us to the problems. In one of the larger deals, the accountant kept delaying the process by not sending us the required information. It turns out he was taking millions of dollars from the company and knew that this process was going to uncover his criminal activity.

Here are some of the results when the books have been cooked:
– Your business advisors don’t have a true picture of the business
– The seller has to stop and reassess whether or not to sell
(The seller might decide not to sell when he realizes the true profit of the business)
– Potential buyers back out because of the scandal
– The valuation of the business is lower than it should have been
– Distraction to the business being sold because of legal proceedings
– Potentially damaging to the reputation of the business

Periodically, you should have an external firm conduct an audit of your books to make sure that there are no hidden problems. They include fake vendor accounts, fake client accounts, additional phone and gas cards, or payroll numbers that don’t add up. We know companies that can help you with an internal audit, just call us and we will make the introduction!

Are You Playing Cards With Your Advisor

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Are you Playing Cards with your AdvisorThe simple truth is that you have to trust your business broker if you want to get the best deal done. Sometimes it feels like we are playing cards with our buyers. They will tell us that they have $100,000 to invest in a business. They don’t mention the fact that they have an additional $250,000 in assets that they are keeping in reserve as a cushion. This comes into play when deals are presented to the seller. Let’s say that there are two deals on the table… Offer A may be the strongest, but is weakened because we did not know there was an additional $250,000 in reserve or that there is additional family income (spouse) that was not shared with us. We have seen the lower offer (Offer B) win in this situation because the seller had to choose the strongest buyer based on more than just price. The seller chose to go with the buyer that was most likely to get bank approval.

The seller wants a strong buyer for their business because they don’t want the business to fail or employees to lose their jobs because of a cash strapped buyer.

Knowing the full extent of your assets will allow us to help you make the strongest offer.