Do Not Change Business Model While Selling

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SuccessAheadWhen selling a business, it is important to keep the attributes that made the business successful in the first place intact.  It is not the time to cut marketing and sales efforts to save money or decide to semi-retire, change employee pay plans, or stop paying bills. Sometimes sellers think they are safe making these alterations after an offer has been accepted, forgetting that a closing may be months away or that a deal can collapse when revenues suddenly drop or fixed expenses change significantly.

Businesses are typically priced based upon the net owner benefit that the business provides.  Both the buyer and lending institution want to be comfortable that the historical net owner benefit can continue after transition.  As such, they will ask for current financials just prior to closing to ensure that there have been no significant changes to the net owner benefit.

Recently, when reviewing a client’s financials, we noticed that various projections were not being met. Revenues were off slightly, but expenses had dropped fairly dramatically. Well, the seller explained that he had stopped his marketing and advertising several months ago. Revenues for future orders were being represented as income, but none of the offsetting direct expenses were being shown.  The reality was that backlog had decreased substantially. This caused several interested buyers to walk away.

To ensure you get full value for your business, you should contact your Apex Business Advisor for expert advice.

Doug Hubler
President

He Who Hesitates is Lost

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weirdstoplightThis is an old Chinese proverb. Or He Who Hesitates, Regrets. An Albanian Proverb.  Either way works in the business broker world. We see hesitation with buyers and sellers every day. Whether Buying a Business or Selling a Business, either party can ask the same questions – Is this the best or right price for the business? Will there be a better opportunity next week? Am I doing the right thing? I’ve gotten three opinions, should I get three more?

When you operate your business, or make decisions in your job, hesitation can often be costly. One of the benefits of owning your own business is that you can make all the final decisions and you can make them quickly, without going to committee.

Many people leave the corporate world for this reason alone. How many times have you said, “Boy, if I could run this business and make decisions without all these meetings, I could double revenue” or something on the same theme?

Here are some examples of recent regrets that our Kansas City Business Brokers have witnessed:

  • Seller was presented with two good offers within the last year. Both were declined as insufficient. The business is now in bankruptcy because the seller’s health is failing and he is not able to tend to the business.
  • Buyer A wanted to make an offer on a business but wanted to complete due diligence first. The seller balked at providing further detailed information without an offer. Buyer B quickly submitted an acceptable offer with a contingency for completing due diligence and is currently on his way to the closing table.
  • A buyer wanted to make an offer on a business but decided to wait until kids were back in school after spring break. The business sold while he was in town – at home.

These are real regrets and real pains. It’s understandable that someone wants to make the right decision. However, we see the deal-killing results of analysis paralysis every day. In the end, those who have the ability to be decisive within a short time frame are usually the most successful at making it to the closing table with a satisfactory deal.

We at Apex Business Advisors are here to help with your business transition. Contact one of our Business Advisors for a free consultation.

Doug Hubler
President

Open Book by seller greatly improves the odds of a win-win

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EasyHardWe have buyers jumping through hoops to get good businesses! So when they jump through hoops, there is an expectation that the business “seller” is ready to jump too.

The business owner has the ability to make the process super easy or extremely difficult. Generally speaking, how the owner conducts business will translate to the ease or difficulty of the transaction.

  • Are the sellers open and honest with employees, advisors, and the IRS, or do they keep their cards “close to the vest”?
  • Are the books clean, or do they have multiple versions of questionable financials?
  • Are there operations manuals or does the owner orchestrate all activity and have it all organized in their head?
  • Are the partners in agreement regarding goals and strategy or are partners sending differing messages during interviews with advisors and potential buyers?
  • Are the sellers able to meet and communicate during extended business hours or only on Sunday evening between 6:30 and 8pm (for example)?
  • Is the seller responsive to questions or do they seem put out and delay communication?

The process of buying and selling businesses is not easy, but it can be made easier if it is approached correctly. Open communication with advisors and potential buyers is critical to smooth transitions. Eliminate surprises!  Contact an Apex Business Advisor for more information on buying or selling a business.

Doug Hubler
President