Monday, February 4, 2019
The Stakeholders In Successful Deals
It takes a village to raise a child, and it takes a team to close a deal. Going at it alone can be a challenge, as business deals have multiple, opposing stakeholders on both sides. Here’s a roster of some of the major players in a business deal assuming you are the seller of a successful small business:
Your Deal Making Team:
You: You are the most important element in the deal. You have created a small business that has created cash flow and job opportunities for your employees. Knowing what success looks like for you after the deal is closed is critical as it will shape every decision. Is it all the cash you can keep or is it the well being of the team you’ve created? These factors will shape the deal and how you direct your advisors, and good advisors should focus their skills towards helping you achieve your success.
Your Business Broker: If you’re a selling a successful business you should be focused on keeping the value of your business at a maximum level, and business broker should be focused on telling an accurate but optimistic story about your business to as many prospective, screened buyers as possible, and bring you offers for you to choose from. Business sales take nearly a year on average, and many sellers have spun out in the courtship of unqualified buyers only to find they’ve taken their foot off the gas and lost momentum and value in their enterprise.
Your Business Attorney: Once you’ve got a great offer from a business buyer from your business broker, your broker should work with your business attorney to ensure that the deal is structured and worded with your best interests in mind. What are the terms of the offer? What is it secured or leveraged by? If things don’t go as planned as you start down the road of due diligence, what are the repercussions for you and the business buyer? Who will be the steward of monies in escrow? These are important, legal questions that your business broker needs to work with you and your business attorney to answer.
Your Tax Advisor: It’s not how much you make; it’s how much you keep that matters, so talking with your accountant early and knowing what your capital gains exposure will be is paramount to your success. Your tax exposure will depend on things such as your depreciation schedules, your tax bracket, your organizational structure, what you do after you sell your business; so everyone’s tax situation is different. Here again your tax advisor should know what business attorney is planning for the best deal structure to advise you on things like whether it could be beneficial to accept an installment sale, how assets are classified, and more…
Your Bookkeeper: Ideally working hand in hand with your accountant, your bookkeeper is placing income and expenses into categories that will tell the story of your business. Stories are subject to interpretation, so it’s important that your story is indicative of a healthy and profitable venture that your buyer will be excited to pay top dollar for! Did that vehicle you bought get classified as an asset or did it fall into an expense category that made your margins look weaker than they are? Ideally your bookkeeper has been doing consistent, stellar work for years and can pull any report needed to support the accurate and optimistic story that your business broker is sharing with screened buyers to solicit incredible offers.
Your Business Consultants: For those sellers who don’t have the stellar records, the processes and procedures, the personnel matters handled, the list goes on and on… Business consultants who are skilled in exit planning can help to correct the course. From helping an owner work “on” the business instead of “in” the business, to helping with financial modelling to find the source of the leak, qualified business consultants can add value for sellers for whom success isn’t aligned with the current Most Probable Sales Price of their business.
Your Family: Selling a business can be stressful. Outside of the quantitative factors, there’s a qualitative, emotional component that needs to be addressed; but business sales are confidential for a reason. As employees, vendors, and other players can’t be notified of a pending sale, it’s important to have trusted contacts such as close friends and family members who can help an owner process the monumental shift that occurs when an owner passes the reins to a buyer.
The Landlord: For owners renting space, the landlord can be a deal killer. In general, the smaller and more local the landlord is the better, as a seller can leverage any personal relationships that he/she may have. Regardless of the relationship with the landlord, it will be their starting position to keep your obligations intact and keep the bar high for any incoming tenant that your lease may be assigned too. Bringing the most financially qualified, experienced buyer to fill your space will be the best opportunity to assuage the landlord’s concerns about the rent getting paid
The Franchisor: For franchised businesses this relationship is very similar to the landlord, the franchisor will most likely not take kindly to your decision to sell your business. Most franchisors are focused on finding new franchisees, so vetting and replacing an existing franchisee is often low on their priority list. It takes time and resources which they are normally not compensated for as greatly as growing new territories. For that reason, much like the landlord, it’s important to maintain a positive relationship with the franchisor and understand their perspective. Presenting them a replacement franchisee who can meet or exceed your performance and including the franchisor in the conversations early with your broker and attorney will go far in appeasing this third party stakeholder.
The Opposing Team:
Your Business Buyer: Much like your motivations for selling, what are the business buyer’s motivations for buying? Is this really the highest and best use of his or her talents? Are they on the hunt for easy cash and think that your business will be the solution? You will know early if the person you meet in your first buyer/seller meeting has the potential to own your business. Listen for their previous experiences and how they’ve handled adversity. Review the validation that your broker has provided you to decide if they have the resources to pay you and satisfy the landlord and working capital requirements of your business.
Your Business Buyer’s Attorney: Attorneys can make or break deals, and while you have control of attorney selection on your side, you don’t have this liberty on the opposing side. Be fair when negotiating contracts; you want to show some goodwill when asking for provisions that your buyer has similar provisions to protect themselves as well. Examples of estoppel certificates, drop dead dates, and accounts receivable negotiations can all be flash points where you may need to work with your attorney to satisfy your buyer and buyer’s attorney in the purchase agreement. Be generous with your time through conference calls and face to face meetings to communicate through potentially contentious sticking points with your buyer’s attorney.
Amazingly, there are even more stakeholders involved in the transaction of a privately held business. If it were easy, everyone would do it. But the fact of the matter is that a small minority of people are entrepreneurs, and a minority of that self selected group are successful enough to grow and sell a successful business. Great things are challenging for a reason, but having a great team is critical for crossing the finish line; enabling owners to enjoy success when the deal is done.
For information about Neal Isaacs, visit VR Business Brokers in Raleigh, North Carolina.
Neal Isaacs, MBA, CBI 2/4/2019 4:18:00 PM Comments (0)