Archive for category: Must Knows About Business Sales

There are ways that business deals can get off track that occur due to chance or something unexpected. But very often deals blow up because either the buyer or the seller fails to follow an unwritten rule. We’ve put together a short list of those rules to help you keep your transaction where it belongs: on track to a closing.

1. No Surprises

Surprises are fun in real life. Not when you’re going through a business transaction. Disclose everything you think you should and when in doubt, ask your broker. When you uncover a “surprise” in getting the paperwork ready, disclose it as soon as possible so that everyone can make a decision to carry forward (or not) with that knowledge in mind.

2. Silence Isn’t Golden

A transaction is a process built on momentum and part of that momentum is having an open line of communication. This doesn’t mean that you’ll be able to get an item requested for due diligence right away, but it does mean suddenly going radio silent for a week or two in the middle of the deal is unacceptable.

3. Speed Matters

Yes, there’s a mountain of paperwork required for due diligence and for the banks. Yes, getting these bits of paperwork put together faster rather than slower makes a big difference, not just for your own stress, but for the confidence of the other party.

4. Emotions Don’t Help

While you might be very attached to your business — understandably so, as it often represents years of blood, sweat, and tears — you need to set any emotion you have about the business to the side when having conversations about it. 

Don’t take requests or questions personally. This is part of a process that many have gone through before you and many will go through after you. Stay professional.

5. Beware of Texts and Emails

There’s an old rule that says if you think something would be better said by voice or in person, do so. Email and text will always lack the nuance of voice tone or the reality of body language. Mitigate this by refusing to deal with critical, possibly emotional (see Rule #4) issues by email and text, opting either for voice memos, phone calls, or even a Loom video.

6. Face-to-Face Meetings Win

While it’s not always possible to meet face-to-face, the normalization of video meetings because of the pandemic has given us an extra tool to keep both parties talking and seeing that everyone is on the same page. 

When possible, do meet in person as this will help establish rapport that can help you get through tougher parts of the transaction or when you want to hammer out deal points.

7. No Such Thing as a Stupid Question

We all know the hackneyed line about why we don’t “assume” things. Lean into that in a business transaction. If you have a question, ask it. If you have several, ask those. The more clarity there is about every aspect of the transaction, the easier and smoother it will be when it’s time to finally cross that finish line.

We’ve saved a few rules for our clients. Interested in becoming one? Give us a call.

When business owners put up their companies for sale, there’s not really any way to guess what type of buyer may end up acquiring it. But to be better prepared to negotiate and communicate during the sale process, sellers should be familiar with four typical buyer types, who vary in goals, spending power, and needs.

Individual Buyers

Individual buyers are often people looking to be owner/operators. They may be seasoned business owners, but may also be long-time employees who’ve finally decided to take the plunge into entrepreneurship. They represent the type of buyer we most often see here at Apex.

Individual buyers will often:

• use SBA financing
• ask for some form of seller financing (that’s also often part of the SBA deal)
• want clarity on the systems that make your business run.

Sellers should find out: 

• what is the motivation of this type of buyer?
• what are their financial means?
• do these buyers have the support of friends and family?

Strategic Buyers

Strategic buyers are usually companies (not individuals) looking to expand their operations by acquiring an existing business.

Strategic buyers are:

• not at their first rodeo — if they are in acquisition mode it’s because they already know how to run a well-oiled company
• worthy negotiators — because this isn’t their first rodeo, you’ll need strategies for how to encounter deal points
• likely to be in your industry or near it — sometimes they can be a vendor or customer

Sellers should find out: where does this acquisition fit in with the greater plan?

Additional things to consider:

• Your brand may disappear
• Your employees may be let go
• Financing will usually not be a problem
• Some form of Seller financing or earnout is still likely

Financial Buyers

Like strategic buyers, financial buyers are also companies, but they are less interested in expanding into local markets and more interested in digging into your numbers to look at your ROI.

Financial buyers are often:

• Private equity groups
• Hedge funds
• High net worth individuals
• Not excited about risk

Sellers should find out: what sort of returns are these buyers looking for in the short, medium, and long term?

Sellers should also expect forensic due diligence from this type of buyer. Like strategic buyers, they may look to “trim fat” by making changes to your business right away. 

Family Offices

Family offices could be either strategic or financial buyers, depending on what their philosophy is. But all family offices are generally on the lookout for highly profitable ventures offering attractive long-term returns.

Employees

It doesn’t happen often, but we have helped employees buy companies. They offer a unique opportunity.

Employees:

• Know the business better than any outsider could
• Are incentivized to grow the business 
• Are preserving continuity for themselves while taking on a risk they feel comfortable with

Employees are likely to have a profile that overlaps with individual buyers. If financially qualified, banks love this type of buyer.

Sellers should find out: would an ESOP help develop this type of option or be a hindrance in a sale to the other types of buyers?

Final Thoughts

By being familiar with the types of buyers, you can have discussions with your broker about what is likely to be the best type of buyer for your business and then market your business accordingly. While it’s important to have a wide buyer pool, being prepared for specific types of buyers will pay dividends during the go to market phase.

Not sure which type of buyer is best for your business? Give us a call and we’ll share our expertise.

No matter how many years you’ve been in business, you only sell that business once. That’s why a sale deserves at least some of the care and planning you put into building that business all these years. And yet, we still (more often than we’d like) get the call with the equivalent of, “I’d like to list my business on Friday and sell it on Monday…maybe Tuesday at the latest.” 

If we could go back at least six months (ideally twelve months or more) with that caller, we’d talk to them about putting together their Dream Team for this sale. 

Broker

Business brokers think of ourselves as team captains. This isn’t our first rodeo and we know how to bring the best out of all these players who may never have met each other before. We’ve got a playbook that works and when we don’t personally know the answer to a problem or challenge we have resources to the tune of hundreds of years of experience (and hundreds and hundreds of transactions) in our office.

Financial Advisor

Particularly for those business owners who are looking to retire after this business sale, numbers really matter. Questions like “how much do I need?” and “what is the business worth?” have to be asked and answered.

A solid financial advisor will not allow you to come up with an impossibly high “what do I need” number which includes every possible contingency for life. He/she will also not take your word for what the business is worth. These advisors will get a valuation for the business and/or ask you to explain your reasoning for the business value. Having what the business is worth line up with what you need on retirement is the most important math equation to solve before the sale. And it’s not something you can just wish into existence. We also can’t tell you the number of times we’ve heard, “Well the business has to be worth that much because that’s what I need to retire.”

Wrong answer.

CPA 

As the financial advisor asks the larger questions, your company CPA can answer the question every buyer will have: are the books clean?

If they are not, they need to get clean some time before the sale. We aren’t talking about weeks or months. We are talking about years. Unreliable books for 2-3 years and one good year isn’t just a bad recipe for getting bank financing, it’s also unlikely to hook interested buyers.

While the best CPAs will have warned you for years against too many addbacks, ones fit for your dream team will get your books clean as soon as possible and put systems in place to ensure they stay that way for the future owner.

Tax Advisor

So you’re going to have a liquidity event when you sell that is going to create tax problems to solve. You need someone experienced in these issues to help you structure a deal that makes sense for your plans (this means talking to your financial advisor, too) but also doesn’t give more to the government than you are legally or morally obligated to.

A dream team tax advisor will have helped more than one business owner structure a deal before, perhaps even helping to create a deferred sales trust when that made sense.

Deal Attorney

While you may have been working with a number of great attorneys over the years, when it comes to your transaction, you should look at experience over a relationship. This transaction isn’t about friendship, it’s about business, so find someone with experience to help you get the most out of it.

We’ve said before that inexperienced attorneys can exceed their remit in business transactions so if you’re short on recommendations in your network, we’ve got a number that have consistently shown themselves as dream team players in transactions with us.

Looking to build your dream team? Don’t wait until you’re ready to sell. Start building it when you’ve built something saleable and know that you’d like to sell it one day. The best prepared get the best results.

And remember, you’re only going to sell this business once. So make it count.

All transactions start with a first buyer/seller meeting. There are lots of ways to get this meeting right, and a few ways to get it really wrong. In this article we’ll share some do’s and don’ts you need to have on hand for a successful buyer/seller meeting.

Do’s

Meet in Person

While the pandemic normalized video meetings for buyers and sellers not geographically convenient to each other, meeting in person is always the best case scenario. You get all the advantages of real-life meetings, including enhanced body language reads.

But if you can’t meet in person, definitely opt for a video meeting. It’s a new normal that we’ve seen enhance the business transaction process significantly.

Build a Relationship

If the end goal is a transaction, realize that this is where everything starts, so take it seriously.

Be yourself and truly get to know the other person via the frame of their business. Before they decided to put the business on the market, what were some of the high points they experienced in growing the business? Ask about the lows too.

Some Basic Diligence

The worst thing we as brokers can experience is an unprepared buyer. They don’t just make themselves look bad, they make us look bad as well, as the seller might understandably assume we didn’t prepare our client for the meeting. 

This is not the meeting to be asking questions about add backs or negotiating on price point (it is a first meeting, after all…slow down!). Just as an employer doesn’t like it when a candidate for a job has zero questions during an interview, a seller might understandably be skeptical if a buyer doesn’t come with at least one or two questions to this meeting.

Don’ts

Get Overly Detailed

This is not life-story time. It’s enough to find out what a day in the life is for the seller as well as what mistakes they feel they’ve made and what opportunities they have not yet taken on but could be attractive to a seller. 

On the other hand, don’t let sellers get away with short, closed answers. They should be willing to give context, not just answer “Yes,” or “No.”

Think You’re Special

American consumer culture teaches us that “the customer is always right.” The healthiness of that attitude is a topic for another day, but we can certainly say it does not apply in business transactions. The seller is interviewing the buyer just as much as the buyer may be interviewing the seller. Stay humble and try not to lead by bragging.

This isn’t a job interview or a home purchase (it’s actually a little bit of both) so don’t fall into old habits of meetings but think about this as a different sort of meeting than you might be used to.

Final Thoughts

Buyers should remember that this is a 60-90 minute meeting, tops. It’s a high-level meeting to establish a relationship and ask some key questions.

That begs the question…can you make an offer at this meeting?

Absolutely. We see people ask for an Offer to Purchase form and sometimes end the meeting by signing one and giving it to the seller.

However, that’s not the expectation for most transactions. As we noted above, this is a first meeting and it’s understandable that both parties may want to take some time to reflect before progressing further. 

Want to make sure your first buyer/seller meeting goes well? Ask one of our team to prepare you! Give us a call today.

We’ve talked in the past about broad reasons why we might (and might not) take your listing, so today we’re going to get a bit more granular and talk about what that process of listing looks like.

I Want to Sell!

We get it! You’re ready to move on with your life and once you’ve told us you want to sell, you might already have a mental countdown clock started. But you shouldn’t start that clock, because we haven’t listed the business yet, and when we do, it’s going to take an average of 6-9 months to sell. So, we appreciate the enthusiasm but we need a few things first!

Key Information

We can’t price and promote your business without hard data. Most times that hard data is going to come from the last three years of tax returns along with the financial statements to substantiate and corroborate those returns. 

We’re going to need a bit of time with you and your accountant to understand some charges, as we haven’t worked side-by-side with you in the business for years and may not understand why certain things are classified the way they are.

Not Auditors

We aren’t the IRS and we aren’t interested in passing judgment or scolding you for where expenses have been classified. What matters to us is getting to a clear number of SDE that will allow us to move towards a proper price for your business. That said, we’ve seen some, shall we say, creative interpretations, including:

• Vet visits for a dog classified as “security” expenses
• Cosmetic surgery for a spouse classified as “building improvements”
• A lake house used once in five years for a company retreat as an active company asset

Banks can be leery of excessive addbacks, but that doesn’t mean they won’t work with companies that have a lot of them. But without being clear as to what expenses are legitimate addbacks, we can’t get a true value for your business.

Seller Disclosure Statement

So we’ve gotten all the key paperwork we need to get pricing, now we need to cover anything the numbers can’t tell us, which can include:

• Current or future lawsuits/legal actions against the business
• lease/real estate situation (if applicable)
• Upcoming changes (key employee or major customer leaving)

This information completes the snapshot we will come up with called the Confidential Business Review (CBR).

Why Confidentiality Matters

Confidentiality is perhaps an important part of a business sale in general, but it’s particularly important during the listing process. Don’t tell employees what is in the works or you may have an exodus that leaves you with a shell of a business.

Going to Market

Armed with all this information, we will put together marketing material to showcase your business in various formats and on various platforms, and to do so confidentially. We asked you to keep things confidential, and we follow our own advice. We even keep that confidentiality sometimes long after a sale closes, referring in general terms to a business in a generic industry in a generic region.

That countdown clock we referred to above? Now that the business is listed, you’re free to start it, but make sure you do with expectations that have been tempered by a discussion with us, not a timeframe you’ve manufactured in your head. You may have sold a business before, but you’ve never sold this business, in this market, before. 

Did this article make you realize you need to get a few ducks in a row before you can even list your business? We’d love to help you with those ducks! Give us a call.