Business Briefs |
Five Keys To Closing A Business Sale - On Optimum Terms
For most business owners, selling a company they have built is a rare, perhaps once-in-a-lifetime, project. They are smart and they are skilled at running a business, but they are usually not practiced at selling a business. Consequently, transactions that are not carefully managed often fail.
And when they fail, the seller usually has no viable back up buyer prospects. If a sale does eventually close, the deal terms frequently deteriorate in the process and the final contractual obligations can keep a seller needlessly entangled and exposed long after the deal is supposedly done. Here are five tips to keeping a transaction on track and closing it successfully.
Accentuate the Positives - Address the Negatives
Nothing's perfect, but if your business is a viable, profitable operation with a future, it must have a lot going for it. It's essential to keep potential buyers focused on future, legitimate opportunities for the business. Build and continually reinforce a grounded and well-conceived vision for the future. But that's not enough. You have to acknowledge weaknesses and shortcomings. Every business has them. Your selling memorandum and your conversations with buyers have to handle these. Show how they can be addressed and work to turn the weaknesses into opportunities for a new owner. Tailor your conversations to each prospective buyer based on their unique situation. Help them see themselves succeeding in their role as the new owner.
P.S. Keep your emotions in check when a buyer or their advisors focus on the negatives in the due diligence process. Sometimes it can feel like an attack on you personally, or undue criticism of what you have built. Take a deep breath, take a walk around the block and compose yourself. Craft your responses carefully. It can save your deal.
Elevate The Conversation
Without constant attention, it's easy for buyers and their advisors to get so lost in minutia and detail that they lose focus on the ultimate goal. Details are rarely inspiring. It's up to the seller and the seller's advisors to deal with the buyer's need for details but keep the conversation and the mood of the transaction uplifting and directed toward a successful conclusion.
Create A Competitive Environment
Unless there is competitive pressure from other buyers - or at least the very real threat of competition, no buyer will ever do their best deal. One of the jobs of an intermediary is to create a competitive buying environment, as this is difficult or impossible for a seller to do on their own while running a company. Positive pressure on buyer prospects not only results in optimal terms, it gets deals done, and gets them done faster so the seller can relax and move on to the next part of their life.
Maintain Control
There is a natural jockeying for control between buyer, seller and their advisors in any transaction. If the buyer has all the power, the deal will deteriorate for the seller - count on it. It's critical that the seller maintain control over what information is released, when it's released, and how the due diligence process is conducted. Reasonable milestones must be established and adhered to. Exclusive dealing rights should be granted judiciously. Buyers should be held accountable for their timely and reasonable performance. If the buyers are inexperienced, sometimes they have to be "trained." If the buyers are experienced, often the playing field needs to be leveled so the seller is not taken advantage of by savvy deal makers.
Be Reasonable and Build Trust
Buyers have many reasons to approach a business purchase not only with hope and enthusiasm, but also with a healthy dose of skepticism and caution. In fact, if they are not prudent and cautious within the bounds of rational business practice, you might question their ability to succeed in the business. In addition, the buyer's advisors have seen a fair number of deals gone bad, and often see their role as one of protecting the buyer - at all costs. Therefore, just as in selling any product, the seller of a business needs to anticipate the concerns and fears of potential buyers and design the sale in ways to address them. Sellers need to work proactively to build trust by being prepared, being reasonable, being forthright, acting in a timely manner, keeping promises, communicating clearly and working cooperatively toward a mutually satisfactory conclusion.
While these five suggestions might seem simple and maybe even obvious, in the emotional environment of a transaction as important as selling a business, they're often overlooked or ignored - almost always to a seller's detriment.
Just a few of the lessons we've learned in over 30 years of selling middle market companies. If you'd like more insight on how to prepare, position and sell a company for the optimum terms, see the resources on our Exit Planning and Business Building Pages.
And when they fail, the seller usually has no viable back up buyer prospects. If a sale does eventually close, the deal terms frequently deteriorate in the process and the final contractual obligations can keep a seller needlessly entangled and exposed long after the deal is supposedly done. Here are five tips to keeping a transaction on track and closing it successfully.
Accentuate the Positives - Address the Negatives
Nothing's perfect, but if your business is a viable, profitable operation with a future, it must have a lot going for it. It's essential to keep potential buyers focused on future, legitimate opportunities for the business. Build and continually reinforce a grounded and well-conceived vision for the future. But that's not enough. You have to acknowledge weaknesses and shortcomings. Every business has them. Your selling memorandum and your conversations with buyers have to handle these. Show how they can be addressed and work to turn the weaknesses into opportunities for a new owner. Tailor your conversations to each prospective buyer based on their unique situation. Help them see themselves succeeding in their role as the new owner.
P.S. Keep your emotions in check when a buyer or their advisors focus on the negatives in the due diligence process. Sometimes it can feel like an attack on you personally, or undue criticism of what you have built. Take a deep breath, take a walk around the block and compose yourself. Craft your responses carefully. It can save your deal.
Elevate The Conversation
Without constant attention, it's easy for buyers and their advisors to get so lost in minutia and detail that they lose focus on the ultimate goal. Details are rarely inspiring. It's up to the seller and the seller's advisors to deal with the buyer's need for details but keep the conversation and the mood of the transaction uplifting and directed toward a successful conclusion.
Create A Competitive Environment
Unless there is competitive pressure from other buyers - or at least the very real threat of competition, no buyer will ever do their best deal. One of the jobs of an intermediary is to create a competitive buying environment, as this is difficult or impossible for a seller to do on their own while running a company. Positive pressure on buyer prospects not only results in optimal terms, it gets deals done, and gets them done faster so the seller can relax and move on to the next part of their life.
Maintain Control
There is a natural jockeying for control between buyer, seller and their advisors in any transaction. If the buyer has all the power, the deal will deteriorate for the seller - count on it. It's critical that the seller maintain control over what information is released, when it's released, and how the due diligence process is conducted. Reasonable milestones must be established and adhered to. Exclusive dealing rights should be granted judiciously. Buyers should be held accountable for their timely and reasonable performance. If the buyers are inexperienced, sometimes they have to be "trained." If the buyers are experienced, often the playing field needs to be leveled so the seller is not taken advantage of by savvy deal makers.
Be Reasonable and Build Trust
Buyers have many reasons to approach a business purchase not only with hope and enthusiasm, but also with a healthy dose of skepticism and caution. In fact, if they are not prudent and cautious within the bounds of rational business practice, you might question their ability to succeed in the business. In addition, the buyer's advisors have seen a fair number of deals gone bad, and often see their role as one of protecting the buyer - at all costs. Therefore, just as in selling any product, the seller of a business needs to anticipate the concerns and fears of potential buyers and design the sale in ways to address them. Sellers need to work proactively to build trust by being prepared, being reasonable, being forthright, acting in a timely manner, keeping promises, communicating clearly and working cooperatively toward a mutually satisfactory conclusion.
While these five suggestions might seem simple and maybe even obvious, in the emotional environment of a transaction as important as selling a business, they're often overlooked or ignored - almost always to a seller's detriment.
Just a few of the lessons we've learned in over 30 years of selling middle market companies. If you'd like more insight on how to prepare, position and sell a company for the optimum terms, see the resources on our Exit Planning and Business Building Pages.
