When it comes to buying or selling a business, there is no replacement for a solid confidentiality agreement. One of the key ways that Business Brokers / M&A Advisors are able to help buyers and sellers alike is through their extensive knowledge of confidentiality agreements and how best to implement them. In this article, we will provide you with an overview of what you should expect out of your confidentiality agreements. A confidentiality agreement is a legal agreement that essentially forbids both buyers and sellers, as well as related parties such as agents, from disclosing information regarding the transition. It is a best practice to have a confidentiality agreement in place before discussing the business in any way and especially before divulging key information on the operation of the business or trade secrets. While a confidentiality agreement can be used to keep the fact that a business is for sale private, that is only a small aspect of what modern confidentiality … [Read more...]
selling a business
Four Common Seller Mistakes When Selling a Business
Sellers of businesses are just like everyone else in that they can make mistakes. In this article, we’ll explore some of the most common mistakes that we see along with some of the repercussions. 1. Not Seeing the Buyer’s Point of View The first major mistake that sellers make is that they simply fail to look at the situation from the buyer’s perspective. One of the smartest moves any seller can make is to step back and ask themselves two key questions. “What information would I expect to see if I was thinking about buying this business? “Would I trust the information being presented to me if I was the buyer?” While there are many other questions sellers can ask to help reframe their thinking, these two simple questions can orient a seller’s thinking towards a buyer’s perspective. Additionally, investing the time to understand the buyer’s position can help avoid a range of problems and help smooth out the negotiation process. It is also important to understand … [Read more...]
Price or Terms: The Structure of the Deal When Selling a Business
An old saying in negotiating the sale of a business goes like this: The buyer says to the seller, “You name the price, and I get to name the terms.” Another saying used to explain the actual value of the term full price: “If we could find you a business that nets you $500,000 a year after debt service, and you could buy it for $100 down, would you really care what the full price was?” It seems that everyone is concerned only about full price. And yet, the price is just part of the equation. If a seller is willing to accept a relatively small down payment and carry the balance, a higher price can be achieved. On the other hand, the more cash the seller wants up front, the lower the price. If the seller demands all cash, barring some form of outside financing, the price lowers – and, in most cases, the chance of selling decreases as well. Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price … [Read more...]
Confidential Business Reviews Should Establish Trust
When you are selling a business, your Business Broker or M&A Advisor will likely create a Comprehensive Business Review, or CBR. This comprehensive document can then be presented to prospective buyers once they have signed all necessary confidentiality documentation. It is essential that this document builds trust between both parties, as this will go a long way towards achieving a successful deal. Be Honest The bottom line is that your CBR will be 95% positive. The majority of the document will be dedicated towards selling and promoting your business. Therefore, it only makes sense to disclose some potential problems. When handled correctly, the disclosure of problems can actually be a strong asset. For example, current weaknesses of your business could become strengths in the mind of the buyer. For example, a business with a very poor online presence represents a substantial opportunity for a buyer to improve marketing and communications. Summed up another way, … [Read more...]
Essential Meeting Tips for Buyers & Sellers of Businesses
The buyer-seller meeting is quite often a “make or break” meeting. Your Business Broker or M&A Advisor will do everything possible to ensure that this meeting goes as well as possible. It is vitally important to realize that rarely is there an offer before buyers and sellers actually meet. The all-important offer usually comes directly after this all-important meeting. As a result, you want to ensure that meetings are as positive and productive as possible. Buyers need to understand how the process of selling a business works and what is expected of them from the process. Buyers should also take the time to clearly express their background and financial capabilities to the seller since this is highly important to the seller. A lot of buyers dive into questions on the business without discussing their qualifications first. As sellers get more comfortable with buyers and a rapport is built, they will be more willing to share information and provide better terms. Buyers also … [Read more...]
Negotiating the Price Gap Between Buyers and Sellers on the Sale of a Business
Sellers generally desire all-cash transactions; however, oftentimes some form of seller financing is necessary in business sale transactions. Furthermore, sellers who demand all-cash deals typically receive a lower purchase price than they would have if the deal were structured differently. Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout. Deferring some of the owner’s remuneration from the transaction will provide leverage in the event that the owner has misrepresented the business. An earnout is a mechanism to provide payment based on future performance. Acquirers like to suggest that, if the business is as it is represented, there should be no problem with this type of payout. The owner’s retort is that he or she knows the business is sound under his or her management but does not know whether the buyer will be as … [Read more...]
How to Make Remote Teams Accountable
One of the many, many changes that COVID-19 has ushered in is the extreme uptick in people working remotely. Social distancing has made working from home a necessity for millions. The technology that is allowing remote working to take place has matured greatly in the last decade. Today, it is possible for team members to work from virtually any location. Of course, as with most technologies, there is a potential downside. Accountability can become a significant challenge with remote workers. Of course, the more remote workers you have at a given time, the greater the potential challenges will be. Many businesses are struggling with the phenomenon of remote working, as it is something new for them. Under normal circumstances, large numbers of employees working remotely simply wouldn’t happen. In a recent article, “The Right Way to Keep Your Remote Team Accountable,” author Elise Keith, Co-Founder and CEO of Lucid Meetings, explores the key steps businesses should take to … [Read more...]
Great Tips for Selling Your Business
It takes preparation and focus to sell most businesses. The reality of the situation is that it can take years to achieve this goal. Partnering with a M&A Advisor is a smart step towards selling any business, as these pros know the very best tips. In that spirit, let’s take a look at some great tips for selling your business. Getting your business ready to sell means carefully evaluating the foundation. Any significant problem can send buyers “running for the hills,” so be sure that you work out any problems well before placing your business on the market. If you have any litigation or environmental issues, you most definitely want to address those issues before it is time to sell. Nothing will scare away prospective buyers quicker than pending litigation or the specter of a potentially costly environmental clean-up. A second key issue you’ll want to address is determining who exactly has the legal authority to sell the business. If a board of directors or majority … [Read more...]
Why You Should Focus on Proper Exit Planning When Selling a Business
If you are like many business owners, you are primarily focusing on building your business. Yet, as we’ve covered before, you should start thinking about what you’ll need to do to sell your business before you even officially do so. Many businesses can take years to sell or even fail to sell all together. For this and many other reasons, it is important to invest some time and energy into thinking about proper exit planning and strategies. Walker Deibel’s recent Forbes article, “How Proper Exit Planning Benefits the Buyer and Seller,” Deibel discusses his interview with Exit Planning: The Definitive Guide, author John H. Brown. Brown and Deibel both agreed that, when properly handled, exit planning can help both the seller and the buyer. Exit planning can make a business more transferable. As Deibel points out, when buyers are evaluating businesses, transferability is a key factor. A buyer must feel that he or she can walk into a business, take it over, keep it running … [Read more...]
Understanding M&A Purchasing Agreements
M&A purchasing agreements can have a lot of moving parts when it comes to selling a business. A recent article from Meghan Daniels entitled, “The Makings of the M&A Purchase Agreement” serves to outline a range of facts including that every M&A deal is different. The article, which serves as a general overview, raises a range of good points. Components of the Deal It should come as no surprise that M&A purchase agreements have various components. Everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants are all covered in these purchase agreements. Other key factors included in M&A purchase agreements are closing conditions and break-up fees. Advice for Sellers In her article, Daniels includes a range of tips for sellers. She correctly points out that negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) … [Read more...]
