If you want to sell more businesses at a quicker pace, preparing a detailed business information package can help you achieve that 7-figure income. We often receive comments from other brokers on how quickly our businesses sell at Crowne Atlantic Business Brokers. I respond by stating “it’s all in the preparation of our package.” We take the packaging of our businesses very seriously. We believe every business is unique, and our job is to highlight those unique attributes and features, as well as how this business can work for a new owner. We borrow the eyes of a buyer and look at buying a business from their perspective. Of course, keep in mind that the best package in the world can’t fix horrible and/or inconsistent numbers. This article is assuming the business you’re selling is truly viable.
Is Your Deal Really Going to be Successful?
If you’re selling your business and things are looking positive with your buyer, you might be tempted to start resting easy. If you have a signed letter of intent, you might be even more tempted to think that things are pretty settled. However, the fact of the matter is that much can be uncovered during the due diligence process, and that is often when deals start to fall apart. Due diligence is an essential step that protects buyers, and sellers should be well-prepared to have things in good shape far in advance. Let’s take a closer look at some areas where a deal can potentially go awry.
Products and Equipment
When the sale involves a business that handles manufacturing, equipment is carefully evaluated during due diligence. Buyers will be thinking about any potential environmental issues that could affect the business. If you’re selling a business and have loose ends with your equipment or facility, this should be handled in advance if possible.
Buyers will also be looking at the various product lines and inventory. They will be considering how the sales are spread among the product lines. For example, if one product makes up the majority of sales, that can raise red flags in the mind of a buyer. They will also think about supplies and how likely they are to be stable once the business switches hands.
Buyers will want to look at breakdowns of customers so they can consider the company’s market share and also where the sales are coming from. Similarly, to only having one product, if a business only has one or two key buyers, that can be a source of concern for buyers.
Intangible Assets
When you are selling a business, your buyers will also be thinking about the assets like intellectual property. Will all trademarks, patents and copyrights be transferred during the sale? If not, it can be a big source of concern for buyers.
Buyers will also consider the state of the human resources department. Sellers should be aware that buyers will be typically looking for established staff members who are unlikely to leave. This is another area where sellers have the opportunity to prepare in advance to achieve optimal results.
Sales Issues
Your prospective buyer will want to carefully examine accounts receivable. So if you have bad debt, you might want to sort out these kinds of issues before the due diligence phase. They will also want to have a firm understanding of everything that is included in the sale. Oftentimes during due diligence, a buyer finds out that equipment or patents are not included with the sale, and it quickly derails the deal.
If you’re selling a business, you’ll want to put yourself in the buyer’s shoes and consider what you would want to see if you were buying a business. Anything that you can do in advance to improve your workforce, equipment, premises, and financial records is highly recommended. The goal is to have a smooth transition for the buyer, and anything that could stand in the way of that taking place should be analyzed and improved if possible. When you work with a business broker or M&A advisor to sell your business, you will have an expert in your corner to help sort out the details.
Copyright: Business Brokerage Press, Inc.
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When Should Sellers Proceed with Caution?
Selling your business is typically quite an involved process that takes a series of months. Sellers typically experience a variety of ups and downs during that time. This is true even in the case of the most successful deals. That’s why you will want to keep your eyes open during the process so that you will be equipped to vet your potential buyers.
This article will take a look at various aspects of the sales transaction that could be concerning and could mean that a deal is less likely to be successful. It’s a good idea to identify these types of situations so you’ll be better prepared to notice them if they were to occur. After all, the last thing you’ll want to do is waste your time and energy dealing with a prospective buyer that is not a good candidate for buying your business.
Signs of Lack of Interest
There are countless instances when sellers have been approached by prospective buyers, but the parties controlling the purchase are never involved. If a company expresses interest in your business, but the President or CEO seems to be too busy to talk to you, it more than likely means that there is something off about the situation. If communication starts to fizzle out during the process, it very well could also mean that your buyer is not truly interested.
Inexperienced Buyers
What if you’re dealing with an individual buyer? If an individual says that he or she is interested in buying your business, but has no experience in your industry and no history of owning businesses in the past, this can be a red flag. Even if this buyer does have serious intentions, he or she may become nervous and start to feel overwhelmed as things progress with your deal. In the early stages when you are being approached by potential buyers it is a good idea to not get too wrapped up in buyers that do not appear to be completely legitimate.
Withholding Information
There are situations where caution should be warranted in the later stages of a deal as well. For example, in some instances, sellers have not been allowed to see the buyer’s financial statements. Clearly, that could mean that the buyer doesn’t have the resources actually necessary to proceed.
When you work with a business broker or M&A advisor, you will find that you have built in protection from buyers that are not the right fit. Most brokerage professionals have seen it all and tend to be able to sense when something is too good to be true, or just simply not quite right. Also, when challenges do occur, having a third party involved can go a long way in effectively getting things back on track.
Copyright: Business Brokerage Press, Inc.
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How Improved Negotiation Tactics Can Benefit Your Deals
There is no underestimating the importance of negotiation when you are buying or selling a business. Let’s take a look at some of the most often used strategies and our recommendations.
The Direct Approach
One approach in negotiations is what we often refer to as the “take it or leave it” strategy. In this scenario, the buyer makes an offer, and the seller then counters that offer. There is little negotiation work necessary, as both parties are direct and simple about the numbers and terms they propose. The drawback to this approach, however, is that when it doesn’t work, there is little to no recourse. When this “direct approach” offer isn’t accepted by one of the parties, there is little opportunity for flexibility on either side. Therefore, the direct approach can be somewhat of a risk.
Focusing on Influential Details
There are typically certain aspects of a deal where a buyer or seller is unwilling to compromise. Sometimes this aspect isn’t even financial in nature. It could be anything from the desire to move the business to a new site, to employment of a friend or relative. Once the negotiations embrace and include these non-negotiables, it can help expedite a successful deal.
Splitting the Difference
A common approach that is seen when buying or selling businesses is that one side offers to split the difference. Unlike the direct approach, there is a good deal of flexibility here. When one party shows that they are open to split the difference, it is often seen as a way to keep negotiations going. Another point in favor of this approach is that communication continues. Obviously when one or both sides stop talking, the deal has not been successful.
Third Party Involvement
When it comes to finding solutions and resolutions, having a third party involved is tremendously beneficial. When you bring in a business broker or M&A advisor, that individual can then help facilitate the negotiated solutions. This third party is seen as skilled, yet also more of an impartial party. Business brokers and M&A advisors also have many years of experience encouraging buyers and sellers to understand and work with one another.
Your brokerage professional can help both parties agree to a fair price while handling the aspects of all the small details involved in buying and selling businesses. Negotiations almost always benefit from having a professional involved, as they bring a different, and much needed, perspective to the table.
Copyright: Business Brokerage Press, Inc.
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How To Make 7 Figures By Preparing A Great Package
Let us compare the business package to a bouquet of flowers. Many brokers offer bits and pieces of separate data such as a profit and loss in one file, and a tax return in another file, and if you’re lucky, an equipment list. The data looks like separate flowers spread out on a table; Buyers then see a mishmash of data with no organization or thought. It makes it easy to see why stores sell flowers in a bouquet. The flowers look better when beautifully packaged together. The information package helps tell the story of a business, and offers brokers an opportunity to add context to the financial data.
Instead of challenging Buyers to picture the operation for themselves, tell them the story. Give them a gorgeous bouquet of flowers instead of pieces of flowers thrown on a table.
When you create a package, you need to share with the buyer truly helpful and descriptive information on the business. The bare minimum standard list of items to have in your business package include:
- Executive Summary
- Location
- Financials
- Confidentiality
- Summary of Assets Included
- Equipment List
- Staff Chart
- Photos/Video Links
This list is quite basic, and your package should contain these items. When the main items are in your business package, look at it once more and ask yourself, “are you looking at this business package from the buyer’s lens?” Do you truly elaborate on the features in each of these sections of the package?” Are you thinking ahead to what questions a buyer will ask about the financials, the operation of the business, the layout of the facility, and the current team in place? Are you mentioning why features are or are not ideal, and how it affects the income of the business?
Easy Guide of What to Say
| PACKAGE ITEM | COMMON DESCRIPTION | HOW TO ELABORATE |
|---|---|---|
| Location | Located in Central Florida | Located in an industrial area with great access to I-4. Cheaper rent. Business is next to reciprocating businesses that refer work back and forth |
| Staff | Owner has 5 employees | Owner has one manager who manages evening hours and one who manages daytime hours, one bookkeeper, and one salesperson who has been there for 10 years. None of the staff is family related. |
| Financials | Financials Tax return or P&L with no commentary | Show addbacks for 3 years; list any out of the norm expenses or situations...and there is something within 3 years at some point to list which stands out for every business I have ever seen. |
| Equipment List | Partial equipment list | It is vital for you to understand what tangible and intangible assets are included in the transaction to be able to properly convey that information to the buyer. Prepare this in advance the best you can. |
| AR/AP | Often this isn't clear in the package | DON'T OMIT! This is important to mention if there are receivables and if they are or are not included. |
| Photos | One photo...maybe | This is your chance to create a visual of what this company physically looks like, or what the set-up of the business is. If there is a home office, see if you can get a photo of the space. If there is anything remotely fun, highlight it. Any business can be exciting! |
Lastly, most buyers ask the same set of questions. Help manage those expectations, and have these questions answered in the package. For example, when my daughter was 5, I told her “most adults are going to ask you the same questions over and over.” Questions like: How old are you? Do you like school? Where do you go to school? What do you want to be when you grow up?
I told her to expect these questions, and have some answers prepared. Why do adults ask the same questions? Many don’t know how to start a conversation with a child, or how to relate to a child, so they start with the same basic questions. It is the same thing with a potential buyer of a business.
Here is a sample list of basic questions I receive from most potential business Buyers:
- Why is the owner selling?
- How did you arrive at the valuation?
- Is there customer concentration?
- Are there repeat customers?
- What’s the competition?
- And most importantly, what is the growth potential?
It amazes me that most brokers cannot answer these questions about their listing. If you know you don’t have updated financials and the buyers are going to want it, why are you even putting up the listing? Can you really sell a business quickly when you, or the business, isn’t properly prepared? Sellers hire brokers to do one job…sell their business.
Being proactive and getting these questions answered in the package helps the potential buyer immensely, and saves time to weed out buyers that are not interested.
Sellers hire brokers to do one job – to sell their business. It is imperative that a broker not only makes sure that the business is ready to be sold, but that the broker is prepared to interact with potential buyers. Can a broker really sell a business quickly when the broker, or the business is not properly prepared?
When you have a properly prepared package, the Buyer’s first impression of the business is a beautiful bouquet of flowers. Offering Buyers a properly packaged business is one way to attain the 7- figure income as a business broker.
Jackie Ossin Hirsch
Crowne Atlantic Business Brokers
Five Tips for Successfully Navigating Due Diligence
As a business broker, one of your most critical responsibilities is guiding your clients through the transaction process. A crucial part of this process is conducting due diligence, which involves verifying the information provided by the seller to ensure that the buyer clearly understands the business’s operations and financials. Due diligence can be challenging, but with the following tips, you can navigate this stage successfully:
1. Know Who’s Who: As the point person during the transaction, you should orchestrate the communication with all parties involved. Get to know the buyer’s advisors – there’s always someone who has their ear – and build credibility early. Work with the seller to determine when the landlord should be contacted and involve the seller’s accountant as soon as possible – they often don’t move as quickly as you’d like them to.
2. Have Regular Meetings Along the Way: At the beginning of due diligence, hold a formal kick-off meeting to remind everyone of the milestones, re-set expectations, and discuss the best way to share information. Regular (weekly) meetings are crucial for maintaining communication and building trust between the buyer and seller. Hiding any issues with the business will damage everyone’s credibility, so it’s better to have the seller disclose them early.
3. Document Everything: It’s essential to document every communication with the buyer and keep copies of all documents provided by the seller. This documentation can be helpful if any disputes arise during the transaction. Electronic deal rooms are a great option to protect you in the long run – plenty of good options exist.
4. Have a Plan B: There’s always a chance that the transaction will fall through – every broker has lost a deal in due diligence – so it’s essential to have a backup plan in case this happens. The standard BBF APA does not limit you or the seller from discussing the business with other interested buyers. Keep fielding inquiries, setting meetings, and answering questions with backup buyers and their brokers. If your deal dies, you won’t want to start at the beginning again!
5. Keep Your Focus and Handle Your Emotions: Although you may feel as if you are almost done, the due diligence stage is where the sale can be made or lost, so it’s critical to remain focused. This is also when inexperienced buyers and sellers feel the most stress. As a broker, you should remain emotionally unattached and handle the transaction with the calmness that comes from being an expert in the field and having a history of successful transactions!
Ryan Cave, MBA, CBI, M&AMI, CMAP
President
South Florida District