When it’s time to sell a business, you will want to keep confidentiality first and foremost in your mind. The reality is that many deals do not succeed when confidentiality is breached and others learn that your business is for sale. Let’s take a look at why this is the case.
What Can Occur When Confidentiality is Compromised?
If vendors or suppliers find out that your company is for sale, it can negatively impact your business in different ways. One common occurrence is that vendors begin to change the terms they have established with you. Even a small change might end up not being minor at all, as it could impact cash flow. The same can be said for word of your business being for sale reaching your creditors, as they could also suddenly change their terms.
Another major issue that could be caused when confidentiality is breached is that your employees and customers might begin to worry. Employees could even start looking for new jobs. Your customers might worry about the new ownership and preemptively stop patronizing your business.
It goes without saying that you won’t want your competitors knowing that you are selling your business. This might make them more aggressive, and they could even start using this knowledge to take your customers.
On some occasions, business owners set out to sell their business on their own. Unfortunately, this decision can put them at higher risk for confidentiality breaches to occur, which start to cause things to go wrong. When you are in the process of selling your business, you will want everything to appear as steady and reliable as possible.
Keeping Up Appearances
When a buyer is carefully vetting your business for a potential acquisition, you won’t want anything showing up on the radar that could give them pause. It’s important to show that the business is continuing to operate in a successful manner and there have been no recent changes.
The good news is that business brokers and M&A advisors have proven strategies that will keep the news that your business is for sale confidential. Your brokerage professional will be sure to vet all prospective buyers, and they will use the most reliable confidentiality agreements that will protect your best interests.
The post Why Is Confidentiality So Vitally Important appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
No one ever said selling a business was predictable. However, the truth of the matter is that every sale is different. Even the reasons behind a business owner deciding to sell his or her business vary tremendously. If you are getting ready to sell, it’s important to be aware of the various aspects that could catch you off-guard. If you are prepared for the unexpected, you’ll be mentally ready for the sales process, which often does not go as planned. Even the smoothest and most streamlined sales encounter a few road bumps along the way.
When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not meet with reality. As a result, a potential offer could be far less than what they expected, and this causes conflict and delays. Your brokerage professional will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions that you might have so that you feel fully informed when it comes to prices.
Throughout the sales process, confidentiality must be carefully guarded. Otherwise, this too can interfere with a sale. Your business broker or M&A advisor will have effective strategies to help maintain the highest levels of confidentiality. Even with the best safeguards in place, there is a small chance that a rumor could begin to circulate and word could get out to your employees, customers or supplies. In the case of this incident, it’s important to have a contingency plan in place to quell the rumors.
Oftentimes, business owners of privately owned companies forget that their minority stockholders have rights too. You will not be able to sell your business without dealing with all parties involved. When you get a “fairness opinion,” it can go a long way to convince your shareholders of the best price and terms. Even if your shareholders are members of your family, they will have to be successfully dealt with before the sale goes through.
Expect to Allocate Time
You may have hired an experienced business broker or M&A advisor, but you should still be prepared to spend some time dealing with the sale of your business. You’ll be expected to do everything from prepare documents to meet with prospective buyers. This fact that selling will take up your time is particularly true if you haven’t begun making preparations years in advance. That’s why we advise clients to start working with us early on.
You’ll want to make sure that despite your need to focus on elements pertaining to the sale of your business, it is necessary to keep your business running smoothly. Otherwise, any signs of weakness could interfere with your potential sale and your efforts could backfire. This issue just stresses the importance of preparing to sell years in advance.
Through the sales process you must still run your company as well as ever. You’ll want to make sure things are progressing nicely, even if you don’t plan to own the company in the near future. Obviously, your buyer will want things to look reliable and any dips can trigger a red flag.
Many business owners are truly committed to their businesses. As a result, it is very difficult for them to step away even when they approach retirement age. It is not uncommon for business owners to keep working into their golden years. But the truth of the matter is that at some point almost everyone will need to embrace retirement whether it is for health issues, moving to a new location, or simply for greater peace of mind.
If you see this path approaching for you in the near future, it could feel overwhelming. After all, most people have not sold a business before. As a result, they feel unclear about the process and don’t know where to start. However, everyone should be thinking about the eventual sale of their business because this future event should determine many of your current activities and decisions.
Let’s take a look at some things you can do well in advance to ensure that an eventual sale of your business goes as smoothly as possible.
When prospective buyers look at your business, they will want to be able to easily envision it operating smoothly without you involved. Because a good portion of business owners are so integral to the functioning of their businesses, it can be difficult for them to figure out how to decouple themselves from operations. In some cases, this process can take years.
Now is a good time to consider this issue and what you can do to make sure your business can function without you one day. Give some thought to who at your organization could be a second in command. When a buyer sees that a competent and knowledgeable employee will be staying on to assist them, it can go a long way in allaying any concerns.
Put Yourself in the Buyer’s Shoes
Imagine you were buying your business. What kinds of issues might be of concern to you? Chances are these will be the same issues that could concern potential buyers. Once you have identified any spots of weakness, you can start to zero in on figuring out how to handle them.
First and foremost, you will want your buyer to feel confident that there will be a smooth transition and that they can almost immediately begin to profit from their purchase of your business. Anything that you can do to help ensure that is true will benefit the sales process.
Business brokers and M&A advisors are experts in the world of buying and selling businesses. They will help you to properly evaluate your business and look for these areas of weakness. Through this means when you do decide it is time to retire, the process will go more quickly and seamlessly.
The post Preparing for Your Eventual Retirement appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
When one sells their house, the best deal is usually the highest price. When one decides to sell their business, there may be other factors to consider. Many buyers are similar to the “overlooked” buyer described below, serious and qualified; and most sales of businesses are win-win transactions. However, there are a few exceptions, and sellers should consider them carefully, balancing their prerequisites to the goals of the buyer.
Selling to a Competitor – Many company owners think this is the best way to go. They read about the mega-mergers such as Bank of America and Fleet bank, or the pending deals such as Federated and the May Company Department Stores, and U.S. Air and American West. Consolidation may play a major role in large public companies; this is not the case in middle market companies.
Many owners of middle market firms look at these mega-deals and think it might work for them. However, upon further consideration, they realize that by disclosing a lot of confidential information to a competitor, their business could suffer irreparable damage if the deal would fall apart – and many do.
Selling to a Strategic Acquirer – This may bring the highest price, but there are several reasons why this may not be in the company’s best interest. Many owners have worked with key employees for years and would not like to see them replaced. The strategic owner might not only replace members of management, but might also move the company to another part of the country.
Selling to a Financial Buyer – This buyer may not be willing to pay the seller’s price and is usually buying a company with intentions of selling it at a profit in three to five years. This leaves the company and its employees in limbo waiting for a new owner to take over.
Other Buyers – The employees may decide to buy the company (ESOP). However, this usually means a long-term payout for the owner. An individual buyer may come along such as a Warren Buffett, but what are the chances? A key member or members of management might decide to purchase the company, but generally they won’t pay the price. If a sale is not consummated, the key management member(s) will most likely leave.
The “Overlooked” Buyer – There are many individuals who want to own their own company. They might be former executives of major companies who want to do something on their own. Some buyers have access to large amounts of investment capital. There are many qualified individual buyers in the market place. Russ Robb, the editor of a leading M& A newsletter, M&A Today, has written a book, Buying Your Own Business, for those individuals interested in buying their own company. This book has sold over 20,000 copies, which indicates the large number of people who are interested in buying a company.
There Is No Magic Answer – Selling a company comes with no guarantees. When Badger Meter Company, a public company headquartered in Milwaukee, acquired Data Industrial Corporation based in Mattapoisett, Massachusetts, this appeared to be a marriage made in heaven. Their respective product lines fit like a glove, their corporate cultures seemed compatible, and sales expansion by cross-selling was evident.
This strategic acquisition would have been fine except for one change. The parent company moved Data Industrial’s operation to Kansas, and every employee’s job was terminated. However, one should not construe that all acquisitions by strategic or competitive acquirers end up in a similar fate. Furthermore, for price considerations, the seller can draft restrictions in the Purchase & Sale agreement to prevent the transfer of the business, at least for a specified time period.
Certainly selling to the overlooked type buyer doesn’t guarantee all of the seller’s concerns, but knowing the interests of some of the various buyer types can help insure that the goals of both buyer and seller are met. Sellers should determine their goals prior to attempting to sell their business. A consultation with a professional intermediary is a good start to this process.
The post A Seller’s Dilemma appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
The Market Pulse Report Survey is a resource that has a variety of information that business brokers and M&A advisors regularly utilize to better understand the business landscape. The most recent survey was conducted April 1st to April 15th 2022 and had 360 broker and advisor respondents. It also marked the 40th edition of the quarterly report. The Executive Summary of the report can be accessed here https://www.ibba.org/resource-center/industry-research/
The Main Street Market
One notable fact included in the latest report is that in the Main Street market, between 70% to 80% of buyers are likely to come from within a 20-mile radius. However, with larger companies, it is common for buyers to originate from a distance of over 100 miles away or greater.
The survey also indicated there are two key “headwinds” that businesses are currently facing. These include labor shortages and supply chain issues. Not surprisingly, labor issues are currently creating problems for organic growth. Likewise, supply chain issues can cause prospective buyers to shy away from a business.
The Profile of Current Buyers
The survey also indicated that Main Street buyers not only include the “typical” first-time business buyer. These individuals are often looking for a job in the form of owning a business. Serial entrepreneurs who have made money off previous deals are also now seeking to jump back in and buy another business. The survey indicates that about one-third of buyers who purchased businesses in the $500K to $1M range are serial entrepreneurs.
Additionally, there is a great deal of money flooding into the industry. The money is mostly coming from private equity, family offices, and corporations. Feeling burned by the lack of bank credit by the 2008-2009 economic downturn, these buyers don’t want to get caught in a similar situation again.
A Seller’s Market
The survey indicates that it is currently a seller’s market and that record setting multiples have been occurring. In Q1, an impressive 97% of businesses were receiving their asking price. However, nothing lasts forever. If you’re considering selling your business, it’s a good idea to start making progress now before this trend stops benefitting sellers.
Even with the strong sales track record last quarter, it’s important to note that a fast sale is still improbable. Even in the best economic conditions, it typically takes many months to sell a business.
There are many factors currently benefiting sellers, such as low interest rates, SBA involvement, and people not wanting to work for corporations. However, it’s important not to wait for the “right moment” as often that moment never comes.
It’s always a good idea to begin taking steps to prepare for the sale of your business as soon as possible. This can make a tremendous difference toward fostering a positive final outcome.
The post A Look at the Market Pulse Report appeared first on Deal Studio – Automate, accelerate and elevate your deal making.