How many times have you worked to put together a well design CIM only to have buyers ask questions that you already answered. If this is a common occurrence you are not alone.
The Critical Importance of Confidentiality in Selling Your Business
Maintaining confidentiality should be placed at the top of your “to-do” list when selling a business. The tremendous importance of maintaining confidentiality is difficult to overstate and stands as one of the key reasons that any seller should opt to work with a business broker or M&A advisor. Every seller should remember that a breach in confidentiality can quickly kill a deal, and for many different reasons.
To be blunt, a breach in confidentiality is dangerous for your business. Such a breach can cause suppliers, vendors, key customers or clients, as well as employees and management, to become concerned or even alarmed. A change in the ownership of a business can translate into major changes in how it operates.
Vendors and suppliers can worry about disruptions, and employees and management may become concerned for their jobs or positions. In turn, disruptions may take place, such as key team members finding new positions, which could make a prospective buyer nervous. These disruptions could make it more challenging to successfully sell your business.
While a breach of confidentiality may lead to a loss of confidence or concern among vendors, suppliers, employees, and management, that is only the beginning of the problems that a breach may cause. A breach in confidentiality could mean that your competition learns that your business is going to be sold. Your competitors may seize on this opportunity and try to steal your clients or customers. The end result is that your business could experience a sudden and sharp decrease in revenue as key customers go elsewhere. The loss of revenue and customers will make your business less attractive to any potential buyer. In this way, a breach of confidentiality could dramatically help your competitors grab market share and do so at your expense.
Even if all of your employees and management stay and all of your vendors, suppliers, and key customers move forward with business as usual, there is still another issue. Prospective buyers who learn that there was a breach of confidentiality may simply walk away from the deal as they are worried about potential negative outcomes due to the breach in the future.
It can be challenging to maintain confidentiality, and yet, it is remarkably important. Brokerage professionals are experts in maintaining confidentiality. Any owner looking to sell their business will be well-served by taking advantage of all that a business broker has to offer.
Copyright: Business Brokerage Press, Inc.
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Understanding the Complexities of Buyer Motivation
Negotiations can often be both perplexing and delicate. A simple misstep can jeopardize what could have been a great deal. One key but often overlooked tool in any negotiation is to pause and consider the wants, needs, and desires of the other party. Contemplating the ideal outcome for them can work wonders.
Understanding what motivates a buyer is crucial for a successful outcome. At the beginning of the sales process, it’s unlikely that you’ll know what your buyer really wants. This lack of knowledge about their desires, values, and standards presents a challenge, especially in the initial stages. Essentially, you’re operating with limited key information at the negotiation’s onset, necessitating caution.
One effective approach is to emphasize the strong financials of the business. Emphasizing a business’s sound financial footing is generally well-received. Whether a buyer is a former corporate executive or from another background, highlighting a strong return on investment (ROI) is prudent. Additionally, most buyers prefer a business that won’t disrupt their current lifestyle.
Understanding what a buyer expects from you post-sale is crucial. Some may want the previous owner available to assist during the transition period, while others, particularly those familiar with your industry, may require less post-sale involvement. Knowing their expectations can help you adapt your approach accordingly. Some buyers may seek your expertise, while others have their own ideas for running the business. Understanding their direction can aid negotiations.
Emotions play a significant role in business transactions. Buyers are often excited about the prospect of purchasing a business, especially in the initial stages. However, it’s essential to maintain a realistic and grounded presentation and approach. Overselling the business can backfire, as it can lead to later disillusionment from the buyer.
Sellers should consistently consider what buyers want. While all buyers seek a successful business, their motivations and perspectives can vary widely. Tailoring your approach to each buyer and understanding their motivations can lead to positive outcomes. With their extensive experience, business brokers and M&A advisors can provide valuable insights into buyer motivation.
Copyright: Business Brokerage Press, Inc.
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Making your cim stand out
Buyers will often just skip right to the financial information and read no more. It’s a frustrating experience when you are asked the questions you carefully took the time to answer.
There are many reasons why a buyer might not thoroughly read a Confidential Information Memorandum (CIM), despite your efforts to make it accessible and clear:
1. Overload of Information: Even a concise CIM can seem dense to buyers who are reviewing multiple opportunities. They might skim through details or skip sections they perceive as less important.
2. Familiarity with Industry: Buyers familiar with the industry may assume they know the basics and skip over sections they believe are standard or irrelevant to their decision-making process.
3. Urgency and Impatience: Some buyers are in a rush to make a deal and may prioritize speed over thoroughness. They might skim through the document, looking only for key figures or deal-breakers.
4. Lack of Experience: Inexperienced buyers might not understand the importance of all the details in the CIM, leading them to overlook critical information.
5. Digital Fatigue: In today’s digital age, reading detailed documents on screens can be tiring. Some might postpone reading, skim, or even avoid the document if it’s not engaging enough.
6. Format and Presentation: Even with visual aids, the way information is presented can affect readability and engagement. If the layout isn’t intuitive or if it appears cluttered, key points might be missed.
7. Selective Attention: Buyers may have specific criteria or deal-breakers in mind, leading them to focus on those aspects alone and ignore other potentially important information.
To mitigate these issues, keep CIMs concise, clear, and visually aided, here are ten strategies to make your Confidential Information Memorandums (CIMs) more engaging and effective:
1. Executive Summary: Start with a brief yet compelling executive summary that captures the key selling points and value propositions of the business. This should be brief (ideally one page) but powerful, enticing the reader to delve deeper into the document.
2. Infographics: Use infographics to represent data visually. Complex financials, growth metrics, and business processes can be simplified into digestible visuals that are quick to understand at a glance.
3. Keep Pablum to a minimum: We have all seen CIMs filled with pages and pages of generic babble. This is a big turn off to the buyer. If you include information, make sure it is specific and relevant to the listing at hand.
4. Video Overviews: Include a link to a short video where you or the business owner gives a brief overview of the business. These days people are more used to visual presentations of information. This personal touch can make the content more engaging and give a face to the business being presented.
5. Clear Headings and Logical Flow: Organize content with clear, descriptive headings and a logical flow that guides the reader through the document. This helps in making the document less daunting and more intuitive.
6. Highlight Key Points: Use call-out boxes or sidebars to highlight critical information, key statistics, or testimonials from clients or customers. This breaks up the text and draws attention to important data.
7. Professional Design: Consider investing in professional design services to ensure the CIM looks appealing and professional. A well-designed layout can significantly increase readability and engagement.
8. FAQ Section: Anticipate questions and include a FAQ section at the end of the CIM. This can address common inquiries and reinforce important information already covered in the document. This should be a fluid section. As questions are asked by buyers add the most common questions to your list.
9. Separate Financials: Instead of including financial details in your CIM put them in a separate spreadsheet. This will ensure that instead of focusing on financials, when you buyer turns to the CIM they will be more inclined to focus on content.
10. Regular Updates: Keep the CIM regularly updated to reflect the most current data and developments in the business. Include the latest date of revision as in “Updated June 2024”. This not only keeps the document relevant but lets the buyer know they are viewing the latest information.
These enhancements can make your CIM not only a source of vital information but also a persuasive tool in engaging potential buyers effectively.
Anthony Rigney
Chair’s Letter
It is hard to believe that we are coming up to the halfway mark for 2024. I hope everyone is having a busy and productive year.
We have been busy with BBF putting the final touches on our 2024 BBF Conference. “Rockin’ N Rollin’ in Business Brokerin” is our theme and I assure you there will be a rockin good time for all. I can remember back when I attended my first Business Brokerage Conference. Initially, I was overwhelmed, however the knowledge I gained was game changing to my career as a Business Broker. I also started developing relationships with other Business Brokers. These are the things that happen when the BBF Community comes together for a live meeting.
I encourage all the BBF Members to attend this year’s conference. There are workshops for all whether you are a brand-new Broker or have been in practice for many years. Registration notice was sent out last week, take advantage of the early bird rates.
Best regards,
Paul McNally
Chairman, Business Brokers of Florida®
Considering Seller Financing
Many sellers are surprised to learn that seller financing is very common. In fact, sellers should realize that there is a good chance that in order to sell their business, they will have to consider offering seller financing.
What is Seller Financing?
Seller financing essentially occurs when the seller provides a loan to cover some part of the purchase price. It is common for the rest of the purchase price to be covered by a combination of a down payment and additional financing sources.
Benefits of This Approach
At the end of the day, seller financing means that the seller serves as sort of a bank for the buyer. While many sellers may not like this prospect, seller financing can offer many benefits. Two key benefits are that potential difficulties of working with a real bank are bypassed, and sellers often enjoy a higher final sale price.
Most business brokers strongly encourage sellers to consider seller financing. One reason brokerage professionals favor the seller financing option is that it helps stimulate buyer interest. A seller who believes in their business enough to offer seller financing can expect buyers to take notice and respond. Sellers with confidence in their business can expect buyers to be eager to learn more.
Due Diligence is Essential
Sellers who choose to offer seller financing will still have to perform all necessary due diligence. Working with a bank does have its benefits; for example, a bank will check a potential buyer’s financial statements as well as their credit reports and more.
Without the involvement of a bank, the seller is responsible for performing due diligence and checking that the buyer has a low risk of default. While seller financing opens up many possibilities for sellers, it is important that sellers also realize that this route comes with additional responsibilities.
Safeguards to Utilize
There are a variety of safeguards that sellers can use to help protect themselves when offering seller financing, and once again, brokerage professionals can be invaluable guides in this regard. Contracts often allow for the seller to take back the business within a 30-to-60-day window if financing fails. Another helpful clause for businesses centered on inventory is that the new owners are required to maintain a predetermined level of inventory during the payment period.
Thanks to seller financing, both buyers and sellers can benefit in a range of ways. Sellers who opt for seller financing usually discover that they receive a good deal of attention from buyers. Buyers enjoy greater financing flexibility and have a very clear indicator that the seller has confidence in the business. While seller financing does come with a good deal of paperwork, it is an option that buyers and sellers alike should consider.
Copyright: Business Brokerage Press, Inc.
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