Buyer and Seller Relations

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BBNWSelling and Buying businesses is different than completing real estate transactions. With a real estate transaction a price is agreed to, probably an appraisal is ordered, and maybe an inspection, but there is very little due diligence required. When selling a business there is quite a bit more involved in the due diligence process, financing options, business valuations, legal documentation, and so on.

After closing on a real estate transaction, the seller is gone. However, in a business transaction, the buyer and seller may be working with each other for months preparing for the sale and then additional time working together during a transition.

The relationship developed between the buyer and seller during due diligence and contract negotiations is very critical. Imagine working with a buyer who continually looks for reasons to slow down the process, always tries to find and point out all the negatives associated with the business, refuses to be reasonable on contract negotiations, and is, in general, a pain in the a–.

Not a pretty picture! OH, and now the buyer wants the seller to be grateful for the opportunity to train them? The decision whether or not to sell a business can be a very difficult one to make, and emotions tend to run high. Owners care about their businesses and want the right type of person to take it over. Buyers need to accomplish their business acquisition goal in a diplomatic, engaging, and time focused manner. The seller should be the buyer’s ally!

Use your Apex Business Advisor to assist you during your acquisition.

Doug Hubler
President

Planning Ahead for Higher Value

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RewardJustAheadSmall business thinking leads to small business value. Thinking as a big company will likely lead to an increase in value. Some simple things to implement now, long before you are even considering selling, that can tremendously impact the value and marketability of your business include:

  • Financial record keeping. Quit using the company checkbook as a guide to financial health and analysis! Implement and utilize a consistent and intuitive bookkeeping system such as QuickBooks.  Clean books are essential to calculating value.
  • Management team/delegation. While an owner who does everything and puts in a 60 or 70 hour work week may save on overhead, a buyer will recognize this as a deficiency and will reduce their offer based on their perceived personnel needs. Make a move to add necessary staff now, delegate your workload, and shift your focus to working on the business.
  • Sales staff. Same as above. If the owner is the main sales person, a buyer will perceive a huge risk of losing clients in a transition.
  • Web presence. Seriously, no website?
  • Customer concentration. If only a few customers make up a large portion of the business volume, regardless of the margins, buyers will mitigate their risk of losing key customers by simply paying less for the company.
  • Separation of personal and business expenses. Stop paying personal expenses out of the business checkbook. Treating the business as a personal slush fund significantly complicates a buyer’s verification of business profitability. And reporting $5,000 in personal expenses on your business tax return may save you $1,500 in taxes, but it just nicked business value by about $15,000 or $20,000.
  • Seller Motivation. The business owner needs to be committed to the selling process. A “throw it out there for an outrageous price and let’s see what happens” mentality results in fewer interested buyers and in a final selling price that is lower than if the business had been priced and marketed appropriately from the start. Business owners should demonstrate to buyers that they are serious about smoothly transitioning their business by setting a reasonable asking price, providing accurate information, and responding expediently to questions and requests. Buyers will respond favorably.

These simple steps implemented long before the selling process begins can have a strong impact on business marketability and value. Which of these will you begin to implement right now?

Talk to your Apex Business Advisor for a free review of your business value and market “readiness”.

Doug Hubler
President