In this series, we provided you with the various components to the business sale process. There are a few other considerations for a successful sale.
Additional Considerations.
As any business owner who has sold a business will tell you, there are many things that can go wrong that are not directly related to the business. Here are a few additional things to consider.
Don’t Try to Do It Yourself by Avoiding Professional Advisors
The sale of your business may be the most important event in your business life. Treat it with the care it deserves. For many small businesses, your regular lawyer and accountant may be great for your regular business needs or disputes, but they may not have the skills and experience necessary to assist you with the sale of your business.
Assemble a good team of transaction lawyers, investment bankers or brokers, and accountants who have a track record of buying and selling businesses. The specialists you need will cost more than generalists, but in the long run you will have a guidance you need for a successful sale.
Take the time and effort to bring your professional advisors in early to help you plan. Don’t communicate term sheets or proposals of any kind to potential buyers, or communicate with employees, before you’ve consulted with your team. Be sure to keep your advisory team fully informed of all material information regarding your company and your business. Let them help you get the best result in the sale of your business
The Human Factors
Sometimes no matter what business owners and their professional advisors do, a deal just does not or cannot get done. It happens. There are a few common reasons transactions fail.
“Hard” reasons
- An unrealistic purchase price
- After completing the due diligence review, the buyer decides the target business won’t fit the buyer’s business plan or goals
- The due diligence review uncovers problems that are either expensive, hard to fix, or both
- The buyer fails to get the necessary financing
“Soft” reasons
There are many other reasons that things might not work out. While selling a company is a business transaction, there can be plenty of emotion involved. Ego, anxiety, greed, worry, fear, hope, and anticipation all appear at various times in the process. Dealing with the human factors can be as important as the business and financial factors.
Sometimes the seller or buyer just have second thoughts during the process, for reasons unrelated to the “Hard” reasons. Sometimes fatigue sets in so the parties just give up. After extended talks, parties get tired of arguing, or get angry with each other. Maybe one party’s risk tolerance is too low, the fear factor is too high, and the nerves are too on edge to come to an agreement.
Deal Spoilers
If one party tries to negotiate the last dollar out of the purchase price, it can break the other party’s patience. Employees needed by the buyer to make the deal work can also disrupt the process by demanding certain terms to stay with the business post-closing. Sometimes there is someone whose consent is needed for the deal to close, who holds out until the last minute, hoping to be paid more money to get their consent. We call these deal spoilers.
Pride, too, is a good deal spoiler. Good business owners can be and tend to be justifiably proud of their business and its accomplishments. But sometimes business owners allow a bruised ego to bring the deal to a halt.
Figuring out ways to deal with deal spoilers can be critical to closing any transaction.
One important way to deal with deal spoilers is developing a level of trust. Communication is the key. Getting all the important terms out on the table, and being open and forthcoming with disclosure, is critical. Trust breaks down quickly if one party appears to be hiding problems, bad news, or a hidden agenda.
It’s also good to keep any “hotheads” out of the negotiations. Let your attorneys handle most of the negotiations. Attorneys deal with big egos and hidden agendas all the time and can generally keep a cool head in the process. Sometimes the owners need someone to blame to save face in negotiations. Attorneys are used to getting blamed.
Putting It All Together
Each business is unique, and each seller and buyer have their own special needs and concerns. So, each acquisition will be different.
The acquisition process requires planning. It is highly detailed and document-driven. Lawyers and accountants play big roles. The process requires balancing a range of issues.
Ultimately the balance must accommodate the real needs of both buyer and seller, as well as the requirements of any lenders and other financiers. This careful balancing has to be captured and documented, then brought through to closing, and sometimes beyond.
If you follow the steps laid out in this series, the sale of your business should be successful.
