Embarking on a business deal is a complex journey that demands strategic planning, negotiation skills, and a shared commitment to success. After years of experience in business sales, I’ve been able to highlight the key attributes shared by successful deals that navigate the twists and turns of negotiations and ultimately reach the closing table.
What You Need to Know About Family Business Legacy and Transition
Family businesses are quite common. Estimates suggest there are more than 5 million family businesses in the United States alone. While family businesses are prevalent, this does not diminish their unique nature, as a family business often plays a central role in the family’s identity. Family members are typically deeply attached to the business and its achievements. They may see their own futures intertwined with it.
Owners of family businesses are generally very invested in their ventures and view them as part of their legacy. Consequently, sellers often hope to find buyers who will appreciate and continue their legacy. It is common for sellers to seek buyers who share their vision for the business.
Adding to the complexity, about one-third of family business owners never plan to retire. As a result, many family businesses lack a succession or exit plan, which can lead to instability and potentially jeopardize the business’s future. It is advisable for family business owners to work with business brokers to develop an exit strategy well before retirement.
Retirement will eventually become an unavoidable reality for nearly all business owners. Many are surprised to learn that the average lifespan of a family-owned business is just 24 years. Moreover, only about 40% of family-owned businesses are passed down to the next generation. Even more striking, only 13% of family-owned businesses make it to the third generation, and beyond that, the survival rate drops to a mere 3%.
There are also challenges associated with selling a business to a family member. One major disadvantage is that sellers often receive less value when doing so. Additionally, family-owned businesses may involve multiple family members in the decision-making process, which can complicate the sale.
On the other hand, selling to a third party might result in family members losing their jobs or struggling with a new management structure. Overall, buying or selling a family business is a complex process that differs from other types of business transactions.
In conclusion, sellers will benefit greatly from seeking the advice and assistance of a brokerage professional. Business brokers and M&A advisors understand the intricacies of selling a family-owned business and can identify the right buyers. Finding the right buyer can significantly streamline the sales process and lead to better outcomes.
Copyright: Business Brokerage Press, Inc.
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The Invaluable Benefits of Working with A Business Broker
One of the worst mistakes any business owner can make is neglecting their business during the sales process. It is quite common for sellers to become overwhelmed, lose focus, and see their business suffer as a result. The last thing any business owner wants is for their business to encounter problems right before it is put up for sale. Fortunately, there are straightforward and effective steps that business owners can take to avoid this potential pitfall.
Maintaining Business Operations
Ensuring that your business is ready to be sold means making sure everything is in top condition before the business is placed on the market. In short, you don’t want to make any major changes to the way your business normally functions. Your hours of operation, inventory levels, and other key business factors should remain as stable as possible. To put it another way, everything should be “business as usual” until you have officially sold your business.
Maintaining a “business as usual” environment can, of course, be easier said than done. Juggling the operation of your business while finding and negotiating with a buyer can be remarkably difficult. Working with a business broker or M&A advisor is a savvy way to take the pressure of selling a business off your shoulders. This allows you to focus on what you do best—operating your business. If you are like most business owners, you’ve never sold a business before, and this means you’ll have a steep, and potentially painful, learning curve.
Handling Logistics
A brokerage professional can assist you with every aspect of the sales process. From determining how much your business is worth and what the market will allow to maintaining confidentiality, a business broker or M&A advisor has the experience to properly prepare and position your business for sale.
It is difficult to overstate the tremendous importance of maintaining confidentiality. Business brokers are experts in this area, ensuring that you don’t lose key employees, vendors, or clients during the process. Employees, management, vendors, and clients may become nervous and look for new options if they learn that your business is being sold.
Sharing Valuable Advice
Brokerage professionals can also help you make a range of key decisions in advance. For example, buyers will often pay more if the seller is willing to stay on after the sale to train them. Additionally, a deal may be more likely if a seller is willing to provide financing. Knowing in advance how you will handle these important issues is critical, and a business broker can guide you toward the optimal decisions.
Selling a business is a complicated process. It makes sense for business owners to take steps toward selling their business well in advance. The sooner you talk to a brokerage professional about what you need to do to sell your business, the better off you are likely to be.
Copyright: Business Brokerage Press, Inc.
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On the Road to Success: Attributes Shared by Deals That Reach the Closing Table
Clear Communication
Successful deals are underpinned by clear and open communication, not only between brokers and their customers, but between brokers, and after due diligence is concluded, between buyers and sellers themselves. Both parties must articulate their expectations, concerns, and priorities transparently. Effective communication fosters understanding and trust, laying a strong foundation for the deal’s success.
Mutual Understanding of Value
Before reaching the closing table, both buyers and sellers must have a mutual understanding of the value of the business. This involves a realistic analysis of financials, assets, and market conditions. Aligning on value minimizes surprises and promotes a smoother negotiation process. It also keeps all parties invested in seeing the deal through when an inevitable bump in the road comes along during the process.
Thorough Due Diligence
Successful deals share the attribute of thorough due diligence. Buyers delve into the details of financials, contracts, and operations to gain a comprehensive understanding of the business. Sellers, in turn, provide transparent and detailed information to instill confidence in the buyer, in a timely manner. As a broker, I’ve found that monitoring the due diligence process and helping buyers and sellers keep track of all documents requested and received, aids the parties in a smoother due diligence process as well, which in turn, leads to clearing the due diligence contingency.
Flexibility and Adaptability
Flexibility is a hallmark of successful deals. Both buyers and sellers should be willing to adapt to changing circumstances, adjust expectations, and explore creative solutions when issues do arise. A flexible approach allows the parties to overcome challenges and find common ground. This attitude keeps deals moving forward toward the closing table.
Negotiation Expertise
Successful deals are marked by effective negotiation skills on both sides. Buyers and sellers who approach negotiations with a collaborative mindset, a willingness to compromise on non-essential points, and an understanding of each other’s needs contribute to a positive negotiating environment. Brokers or buyers/sellers who take a hard nose approach to negotiations most often never win in the long run. Their inflexibility cultivates mistrust and distance from the other side of the deal, which ultimately will not work in their favor.
Professional Guidance
Engaging professional advisors, such as business brokers, attorneys, and accountants, is a shared attribute of successful deals. These experts provide guidance, navigate legal complexities, and ensure that the deal gets done right. Their involvement adds a layer of professionalism and expertise.
Focus on Long-Term Vision
Both buyers and sellers with a focus on the long-term vision contribute to successful deals. Rather than fixating on immediate gains, parties prioritize the sustainable success of the business post-acquisition. This shared vision fosters collaboration and commitment throughout the deal process. In most cases, the seller wants their business to continue to thrive after the sale, and the buyer wants to be successful with their new business, so keeping everyone’s eyes on the prize is the key.
Resolution of Contingencies
Successful deals involve the resolution of contingencies in a timely and efficient manner. Buyers and sellers with their brokers need to work together to address any potential obstacles, whether related to financing, contracts, or other critical aspects. Proactively resolving contingencies prevents delays and builds confidence.
Trust and Relationship Building
Trust is a vital component of successful deals. Building a positive relationship between buyers and sellers enhances trust and fosters a collaborative atmosphere. Parties who prioritize relationship building are more likely to overcome challenges and work together towards a successful closing. Brokers are there to guide the deal and to provide a much-needed buffer during negotiations, but encouraging trust-building between the parties is important too.
Commitment to Win-Win Outcome
By far, the most successful deals are characterized by a commitment to a win-win outcome. Both buyers and sellers recognize that a mutually beneficial agreement, where both parties achieve their goals, is the ultimate marker of success. This collaborative mindset paves the way for a positive closing experience. As brokers, we should always strive to foster a win-win scenario, rather than purely focus on a one-sided deal, as those often go sideways.
In the realm of business deals, success is not solely defined by reaching the closing table but by the attributes that underpin the journey. Clear communication, mutual understanding, thorough due diligence, and a commitment to a win-win outcome are shared attributes that distinguish deals that stand the test of negotiations and ultimately reach a successful conclusion. As buyers and sellers navigate the complexities of deal-making, embracing these attributes enhances the likelihood of a positive and enduring business transaction.
Richard Green, CMAP
Common Reasons Business Acquisition Deals Die in Underwriting
Business acquisition deals can come with a lot of emotion. From start to finish, the process can be a journey through highs and lows. More than half of business acquisition deals that go out to market don’t close for one reason or another. While each case is unique, there are recurring themes that contribute to these outcomes. In this article, we’ll delve into the top reasons why business acquisition deals die in underwriting, shedding light on common pitfalls and offering insights to help proactively navigate the underwriting process effectively.
Here are the most common reasons business acquisition deals die in underwriting:
- Cash Flow: At the heart of every successful business lies a healthy cash flow. Unfortunately, inadequate cash flow projections or inconsistencies in financial documentation can plague acquisition deals. Lenders scrutinize any inconsistencies, adjustments, or normalization of cash flow as they assess the borrower’s ability to repay the loan. When documentation fails to align with historical performance or lacks credibility, lenders hesitate to proceed, fearing repayment risks. As such, precise attention to cash flow forecasting and clear financial reporting are imperative to instill confidence in lenders during underwriting.
- Seller’s Notes: Seller financing, in the form of seller’s notes, can be a double-edged sword in acquisition deals. While it demonstrates the seller’s confidence in the business’s future success, conflicting terms or unrealistic expectations can derail underwriting efforts. Lenders assess the terms of seller’s notes, including interest rates, repayment schedules, and collateral arrangements, to evaluate the overall risk exposure. Misalignment between buyer and seller expectations, coupled with unfavorable terms, often leads to an underwriting impasse. Additionally, when dealing with the Small Business Administration (SBA), it’s important to ensure that everything we are doing meets their requirements. Effective negotiation and clear communication between all parties are crucial to navigate this potential stumbling block.
- Inaccurate Information: Transparency is the cornerstone of underwriting success. Yet, inaccurate or incomplete information provided during the due diligence process can cast a shadow of doubt over the entire transaction. Whether it’s undisclosed liabilities, inflated asset valuations, or undisclosed related-party transactions, any discrepancies undermine the lender’s confidence in the deal’s viability. Thorough due diligence, conducted by both buyers and sellers, is essential to uncover any discrepancies early on and address them transparently to mitigate underwriting hurdles.
- Buyer Background: Lenders place considerable emphasis on the buyer’s background and experience in the industry when evaluating acquisition deals. Lack of relevant industry experience or a questionable track record can raise red flags during underwriting. Additionally, concerns related to creditworthiness, character, and capacity to manage the acquired business can complicate the underwriting process. Buyers must demonstrate their competence, commitment, and financial stability to reassure lenders of their ability to successfully execute the acquisition and repay the loan.
- Collateral Objections: Collateral serves as a safety net for lenders, providing assurance of loan repayment in the event of default. However, disagreements over collateral valuation or insufficient collateral coverage can impede the underwriting progress. Lenders meticulously assess the value and liquidity of proposed collateral to mitigate risk exposure. Disputes over collateral adequacy or encumbrances on key assets often necessitate negotiations between buyers and lenders to bridge the valuation gap and alleviate underwriting concerns.
Navigating the underwriting process in business acquisition deals requires diligence, transparency, and collaboration among all participants. By addressing common pitfalls borrowers can enhance the likelihood of underwriting success and propel their acquisition endeavors forward. The Bank of Tampa’s team of SBA experts aim to help entrepreneurs with the knowledge and resources they need to overcome underwriting hurdles and realize their business acquisition dreams.
If you are interested in learning more about SBA lending and what we can do for you, please feel free to reach out to me directly at bwilliams@bankoftampa.com.
These enhancements can make your CIM not only a source of vital information but also a persuasive tool in engaging potential buyers effectively.
Blake Williams
Blake Williams serves as Assistant Vice President, SBA Relationship Manager at The Bank of Tampa. He brings more than 12 years of experience in banking and finance and more than 6 years of experience specifically in SBA lending within the Tampa Bay community.
The Bank of Tampa | Member FDIC
Chair’s Letter
Wow, here we are in August, just a couple weeks away from our conference. This conference holds a special place in my heart, as it brings back memories of my own journey in this dynamic Business Brokerage industry. When I first attended a conference years ago, I was relatively new to the world of Business Brokerage. I remember feeling a mix of excitement and apprehension, eager to learn but unsure of what to expect. Little did I know that event would become a pivotal moment in my career. I invite you to join us in 2 weeks in Orlando. Click HERE for all the details and to complete registration.
Our districts honored many of our top performers in the 2nd quarter of the year with their 2023 performance awards. We had 217 exceptional Brokers receive a plaque for their production of $1 million $$$ + for 2023. Also honored were the top performers in various categories for the district along with the State. Congratulations to all, those award winners can be found on our website under district awards once you sign in.
One of our 2024 initiatives is to start a scholarship program presenting 5 scholarships to children and grandchildren of past and present BBF members. I am pleased to announce we were successful in completing this initiative and the award winners can be found by clicking HERE. I look forward to continuing this initiative in years to come.
Hope to see everyone at the conference on August 23-25.
Paul McNally
Chairman, Business Brokers of Florida®