We all want easy. The truth is, buying or selling a business may be the most complicated transaction you will ever do.
Here’s the hard truth about selling (or buying) a business.
There comes a time in every business owners’ life when they will consider selling a business. If they have prepared well by keeping good books, having a diverse client mix, and have processes well documented, it should go just fine. However, even the best businesses take some time to close once a qualified buyer is identified.
Bianca Evans, Transworld Business Brokers, advises building in some time for the process. “Usually, when owners want to sell, they are ready to move on almost immediately, but keep in mind this is a process. People sometimes forget that there are at least 3 parties in the majority of deals, the buyer, seller, and bank. Banks can be great partners, but they have their questions and concerns too. Expect some unexpected challenges. All of this takes time”
So what can go wrong? Almost too numerous to list, Evans speaks from experience when she cites a few examples:
The bank could say that they want the seller to hold a 5-10% note. What this really means is the bank wants to make sure everyone has something to lose if the business is falsely represented. They want you to have skin in the game to mitigate their risk.
Even if a buyer and seller agree on a sales price, the business still needs to be appraised just like a home real estate transaction. If the appraisal comes in too low, the bank will not be willing to loan as much money as the buyer needs. It could kill the deal unless the buyer has the ability to dig deeper into their pockets.
For many businesses, their location is critical to their success and business model. When negotiating a deal, the buyer will certainly investigate the formal lease and look for the flexibility to assume your terms. Not every lease will accommodate a new owner. If the lease doesn’t work, then the deal will almost certainly be squashed.
Acts of God
If you live in Florida, you know that hurricanes cause havoc in business. For days leading up to a storm, business comes to a screeching halt as people rush to buy water and board up windows. And that’s just in a threat of a storm. God forbid, if there is landfall, it could disrupt customer demand, supply chain logistics, account receivables, not to mention the destruction of the business property itself.
All of these unforeseen circumstances can cause a good deal to go bad because either party can just get tired of the emotional energy it takes to move it forward. It’s easy to throw up your hands and say, I don’t care anymore. “That’s when a good broker earns their commission”, Evans jokes. The fundamental reasons to sell or buy a business usually don’t change, in the course of putting together a deal, deal fatigue can cause either party to get discouraged and walk away. A good broker counsels against this and keeps both parties focused on the task at hand. The fact is, deal fatigue often creeps in.
So what can you do to battle deal fatigue?
Evans says “Face the uncomfortable. If you are keeping sloppy books, failing to count inventory or deferring needed maintenance, these flaws will be exposed and cause any potential deal to take longer to close.
Above all, be an active participant. Budget some time to be available for questions and to supply needed information to the other stakeholders.
Lastly, develop a relationship with your broker. No business is perfect, so honesty and transparency go a long way. Your broker will help you sure up anything that will unnecessarily cause deal fatigue and help you move on to the next phase of your life as quickly and painless as possible.”